Almost no one thinks buying a home is easy. But many first-time buyers are still shocked at just how many steps there are along the path to homeownership. Today we’re here to make sure you’re completely in the loop about what you can expect when you decide to make the biggest purchase of your life.
Keep reading to learn the three major steps you’ll take along the way — and don’t worry, we’ll break each step down.
Get Financially Prepared
Getting your financial ducks in a row is the very first stop on your journey to purchasing a home. You’ll be able to zero in on the price range that matches your budget before you start looking at homes. Here are the 5 steps involved in the home financing process.
1. Find Your Mortgage Lender
You might be shocked at how many lenders and loan officers there are out there, so take your time and find one that feels like a perfect fit.
Not sure what to ask a loan officer about? Start with things like closing costs, interest rates, and how quickly they typically close on homes. Get in touch with a few different ones and get a sense for their services, as well as their personalities. Settle on someone you’re comfortable with because you’ll be communicating with them throughout this process.
2. Check Your Credit History
Whether you’ve never had a late payment in your life, or you’ve had so many hiccups you’re afraid to even peek at your credit, you’ll want to check your credit history before buying a home. Iron out any credit report errors or issues before starting the home purchase process.
Having your mortgage lender pull your credit will give you the most reliable score. If you decide to do this on your own, be aware that the information that lenders use to assess your creditworthiness may be different from what you will see in the credit reports you pull. Often times the scores you see on mycredit.com or similar sites are much higher.
3. Get Clear On Your Debt-To-Income Ratio
It’s one of the main criteria a mortgage lender considers when getting your loan credit approved. How do you calculate your debt-to-income ratio? Compare your average monthly debt (bills, taxes, etc.) to your average monthly income. Most of the time, mortgage lenders don’t want your debt-to-income to be higher than 45%.
4. Assemble Important Documents
Your lender will request a number of documents to get you credit approved. By getting these together ahead of time, you’ll be to provide them quickly and then move to the fun part of the process – looking at homes.
Typically your loan officer will request 2 years of your tax returns and W-2’s, along with your last 2 month’s bank statements and your last 2 pay stubs. Check out the videos in our educational library to learn more about these documents.
5. Get Credit Approved
When you’re out looking at homes, it’s best to be credit approved. This essentially means that your credit and income has been looked at by an underwriter and that you qualify up to a specific loan amount.*
Sometimes, lenders will complete a basic pre-qualification report based off of just a few questions, so make sure your lender has completely looked into your entire financial picture. You don’t want problems to come to light later, when you’re already under contract to purchase. A credit approval is the only way to be sure your financing doesn’t fall apart farther down the road to home ownership.
Find Your New Home
Now that you’ve prepared your finances to make a home purchase, the next step is deciding which one to buy. This is the part where just about every emotion comes into play: excitement, disappointment, anticipation, and exhaustion. If you stick to the steps below, you’re most likely to make the perfect home purchase for you.
6. Enlist a Good Realtor
This person is your team MVP when you’re committing to something as significant as a home purchase. Your Realtor’s role includes; keeping you in-the-know about the latest homes available, educating you on the home purchase process , and giving you advice about how you should respond to the variety of situations that arise. You need to feel completely comfortable with your Realtor — don’t compromise on this!
Here are top 7 qualities you should look for in your real estate agent to ensure that your home buying or selling experience is a good one!
7. Research Your Homes Online
Researching your future home purchase online just keeps getting easier. You can get notified anytime a new home comes on the market that falls within your specific criteria, and so much more. It’s incredibly convenient — just remember it’s no substitute for viewing the homes in person.
You’ll also want to do plenty of research on things like school ratings, crime statistics, school ratings, and area amenities to further narrow down the areas that seem like a great fit. It can feel time consuming, but it’s very much worth the effort.
8. Visit Homes With Your Realtor
As you visit the homes with your Realtor, take plenty of photos and videos to keep the details of the many properties you’ll see fresh in your mind.
You’ll also want to make sure you’re open and honest about your preferences; speak up and tell your agent what you do and don’t like about the homes you’re exploring.
9. Make An Offer!
Recent past sales data and current market data will help your Realtor determine a solid number for your offer price. This is when a good real estate agent is truly invaluable, because every area, price range, and home style have different details that determine its value.
Closing on Your Home Purchase (and Get the Keys)!
You’ve come so far, but there are still several to-do items to be taken care of in a timely manner. Your real estate agent will be there lead the way, but what can you expect at this point?
10. Negotiate the Transaction Terms
After you’ve put in an offer on a home, there’s a good possibility the seller will come back with a counteroffer. Your agent may have to negotiate things like contract terms, like closing date, seller concessions, appraisal deadlines, inspection deadlines, repairs, etc. He or she can walk you through all the options and make everything very clear.
There are so many different elements of a sales contract, so take your time and be sure to think through every possible option. Once you’re under contract, you can’t go back and change things — so be very intentional at this stage.
11. Submit Your Earnest Money
“Earnest money” is a new term to many homebuyers; it’s often a small percent of the purchase price to show the seller that you’re serious about buying their home purchase before they pull it off the market.
Earnest money is typically held jointly by the seller and buyer in a trust or escrow account, then when the transaction is finalized, the funds are put toward your downpayment. (In the event the contract falls through because you can’t perform, the seller keeps the earnest money.)
12. The Appraisal
Once you sign the Intent to Proceed with your lender, they will order an appraisal of the property you’ll be buying. This can take several weeks or more to complete, so it’s important that they order this as soon as allowable.
In order to protect themselves, mortgage companies require appraisals to determine the true value of the home. If the sales price is higher than the appraised value, the contract may need to be renegotiated or terminated altogether.
13. Your Home Inspection
Getting a home inspection done is one of the most important parts of the home purchase process. Your real estate agent will set this up and make sure you have plenty of time to get your inspection done within the number of days allowed for in the sales contract. You’re in the home stretch now!
14. Set Up Your Closing
When it’s time to closing on your new home, your Realtor will set up a time with your title company and the other seller. When you attend your closing, bring your driver’s license (or passport) and any payment the sales contract requires.
Once both parties have signed all of the documents and the mortgage company has funded the loan, the home purchase is complete and the new keys will be in your hands.
Your New Home
After all the stops along the way and emotions involved, we’re happy to say this story has a very happy ending: you own a brand new house. Now it’s time for the most important step of all: creating amazing memories and enjoying your new home!
*Credit approval is not the same as a final loan approval and is not a commitment to lend. There are many other factors that underwriters use to determine a final approval.