The Home Buying Process: A Comprehensive Guide

Key Takeaways


The home buying process is a considerably high-stakes endeavor, especially for first-time homebuyers. According to the National Association of Realtors, buyers under the age of 36 have made up the largest proportion of homebuyers in the U.S. over the last four years. Of this proportion, 66 percent of the buyers purchased a home for the very first time. Whether you are a first time home buyer or someone in need of a refresher, this comprehensive guide to the home buying process is just for you.


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buying a house

Home Buying Process Step By Step

The home buying process can take someone anywhere from just a few weeks to several months, depending on factors affecting inventory, or their level of pickiness or budget, while sometimes it just comes down to luck. For starters, future homeowners should kick off the process of buying a home months in advance with the research phase:

1. Start your research now:

If the possibility of buying a home is on your mind, it’s a good idea to start conducting research early. Reading articles on the home buying process can help you set financial goals while perusing real estate listings can help you get an idea of what type of property you can afford.

2. Find out what you can afford:

Once you have a general idea of the type of home you’d like to buy, the next step is figuring out how much house you can afford. Use an interactive mortgage calculator, such as the one offered by Zillow, to get a better idea of what the purchase price, down payment, and mortgage payments might look like.

3. Get pre-approved for a mortgage loan:

Although you can estimate how much house you can afford, a traditional mortgage lender may have a different opinion. By getting pre-approved for a mortgage loan, you will get a definitive answer for how much a financial institution will lend you. For this process, be prepared to submit copies of your financial documents.

4. Get to know real estate agents:

Enlisting the help of a real estate agent can make your search much easier. According to the National Association of Realtors, 88 percent of all buyers in 2017 purchased their home through an agent. A good real estate agent will inform you of the home buying process and provide their expertise on local market trends. Also, they will connect you with listings within your price range that best suit your needs, as well as help negotiate the purchase price.

5. Find your dream home and make an offer:

You can find for-sale properties through listing websites, local publications, and your real estate agent. Start touring homes to develop a sense of what you want and don’t want in your home, as well as what type of inventory is available in your desired neighborhood. Once you find a property that meets your needs, work with your agent to negotiate a fair price with the seller.

6. Get your property inspected:

Once the property enters escrow, the purchase should be contingent upon it passing a home inspection. Once your offer is accepted, arrange to have an inspector visit the property and identify anything that needs to be fixed. Both you and the seller should receive a copy of the inspection report, after which you can renegotiate with the seller in case anything needs to be fixed. In the worst cases, the contingency also protects you if you would like to withdraw your offer.

7. Work with your lender:

Next, sit down with your lender and determine the type of mortgage loan that best suits your financial goals. For example, you may be interested in having the lowest possible monthly payment, fixed payments over time, or perhaps a loan best fit for selling the property in just a few years.

8. Schedule a home appraisal:

After you have been approved for a mortgage loan, your lender will arrange to have a third party company to appraise the value of the property. This process is in the best interest of you and your lender, to ensure that they are providing a loan for a property that has been priced fairly.

9. Work with a title company:

The home buying process will result in a large stack of legal and financial paperwork. The mortgage lender will usually make arrangements for a title company to manage the paperwork process, through which they will make sure that the seller is the rightful owner of the property.

10. Close the deal and get the keys:

Once the sale is finally closed and all the purchase paperwork is signed, the property will finally be yours. Once the seller receives the check, you will receive the keys to your new property.

the-home-buying-process

How Long Does The Home Buying Process Take?

The home buying process can take anywhere from one month to a few years, depending on the unique experience and expectations of the home buyer. On average, a home buyer can spend one to two months searching listings, several weeks to negotiate and close a deal, and then make the first mortgage payment several weeks after that. With these variations in mind, a home buyer can realistically expect for the home buying process to take roughly three months.

Home Buying Process With Bad Credit

Having bad credit is not an uncommon problem for Americans, and it should not discourage you from the home buying process. Saving up for a larger down payment of 20 percent or more will be required with anyone with a credit score below 580, to help demonstrate that you will be able to manage a mortgage. Those with a credit score above 580 can qualify for a Federal Housing Administration (FHA) loan, with a down payment requirement of 3.5 percent. Homebuyers can also consider taking out a private loan but should be prepared to pay high fees and interest rates. Finally, taking out a conventional loan is still possible if you can demonstrate financial stability, and that you will be able to manage mortgage payments.

Home Buying Process Checklist

Once you have researched the home buying process in detail, the next phase is to take actionable steps towards your goal of becoming a homeowner. The home buying process is no doubt long and arduous, and you may experience some setbacks along the way. At times like these, a helpful home buying process checklist will prove to be helpful:

  • Know your numbers: Now that you’re ready to buy a house, now is a good time to re-calculate how much house you can afford, using your updated financial information. Also re-examine your FICO score to make sure you have your target credit score.

  • Save up for a down payment: In today’s market, lenders require anywhere from 3.5 percent to 20 percent in a down payment. If you do not have enough cash saved up, set realistic targets to hit each month until you have saved up enough.

  • Do your homework: Make use of the countless resources that offer free information on the home buying process, such as lender requirements, a list of documents to prepare, and how mortgage payments work.

  • Interview real estate agents: Purchasing a home is a big, important commitment, and you are entitled to find a great real estate agent. Ask friends, family, and coworkers for referrals, and start setting up meetings with agents to identify the one who can best serve your needs.

  • Research mortgage types and lenders: Mortgage loans come in all shapes and sizes, as do the lending institutions that provide them. Start your research early so you can identify a lender you can trust.

  • Estimate closing costs: It is easy for buyers to forget, or be completely unaware of, closing costs that must be paid at the end of the sale. Homebuyers should budget for three to six percent of the purchase price.

How Can I Get Approved For A Home Loan?

You can get approved for a home loan by completing a mortgage application. Be prepared to provide proof of your financial data, such as your monthly income, total debt payments, and your credit score. Also, have an idea of how much house you can afford, as well as how much cash you have available for a down payment. Meeting with a mortgage lender before you are ready to purchase a home can also help you set financial goals, such as knowing how much to save up for a down payment, or improving your credit score.

Summary

It is no surprise that the home buying process can be difficult to navigate, especially for first-time buyers. The financial considerations alone can make the process extremely overwhelming. However, with the help of the steps listed above, you should have a better idea of where to start. The key is to review your finances early and begin working with the right real estate agent. Once you have these steps out of the way, you can start searching for listings and crafting your first offer. Remember: while the home buying process can be intimidating, it is not impossible. With the right prep, you will be well on your way to purchasing a home.

Do you have any other questions about the process of buying a home? Feel free to ask them in the section below.

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