The process of buying a house varies from state to state, depending on the real estate laws and customs. However, specific steps are standard everywhere. Knowing what’s required of you can make the process much easier.
So, what is the home buying process? There are several steps involved in the home buying process. These include:
- Improve Your Credit Score
- Get Pre-approved for a Loan
- Decide Whether to Buy or Rent a House
- Figure Out What You Can Afford
- Decide on a City And Neighborhood
- Choose a Real Estate Agent
- Make an Offer
- Get a Home Inspection
- Check Title Issues
- Review the Homeowners Association
- Have the Home Appraised
- Obtain Homeowners Insurance and Title Insurance
- Close the Sale
While this list is not necessarily cemented in its order, you need to get all of these steps done before buying a home. This article will give detailed information about each of these steps to help you understand them and provide you with advice on how to get them done correctly.
The Home Buying Process – A Step-by-Step Guide
You’ve crunched the numbers, identified the most suitable neighborhood for your family, and you’re confident you can afford a house there. But when you begin the process, you realize it’s more complicated than just handing over some money and getting the keys to your new home.
You have to do some work, and it’s a good amount of work. So, where do you begin? The home buying process can be hectic. However, when you know what’s required of you and all other parties involved, you can plan and work on the process step by step.
This step-by-step home buying guide can help you get your dream home faster. You don’t even have to follow the steps in the order they are listed in, either. You can start with what you believe would be the easiest thing to check off your list.
Nonetheless, it is recommended that you do all of the steps before you begin house hunting. You wouldn’t want to find the perfect home only for someone else to get it because you’re not done with the home buying process.
Step 1: Improve Your Credit Score.
The first thing you need to do when you’re planning to buy a home is to ensure your finances are in order. If you’re planning to get a mortgage, you need to make sure you have an excellent credit score.
Several things determine how high or low your credit score is. These include:
- Outstanding debt
- Payment history
- How long you’ve been borrowing – credit history
- Whether you have new credit
- Types of credit: Most lenders like to see that you have different kinds of paid debt such as student loans and credit cards
Even if you’re confident you’ve been diligent when it comes to making early payments, and you’re sure you have a stellar credit score, it’s always best to check because mistakes are not uncommon.
You can get a free credit score report once a year at Annual Credit Report. To create this report, the site relies on the information they get from the three major credit-reporting agencies – Experian, TransUnion, and Equifax.
Based on your credit score, you’ll be assigned a score between 350 and 850. The higher your score is, the higher the chances of securing a mortgage with a low interest rate.
How to Boost Your Credit Score
If you check your credit score and the numbers don’t look promising, you don’t have to give up on your homeownership dream. There are several things you can do to improve your credit score.
Experian suggests doing the following:
- Pay your bills on time.
- Pay off your debt and keep the balance on your credit cards and another revolving credit low.
- Dispute any errors in your credit report.
- Avoid applying for too much new credit as it may lead to hard inquiries, which can lower your score.
- Keep unused credit cards open. Closing the account can lead to an increased credit utilization ratio or cause you to get a lower credit score if you owe the same amount with only a few open accounts.
- Don’t apply for new credit cards unless you need them.
Step 2: Get Pre-Approved for a Loan.
Once you’ve sorted your credit issues, the next smart move is to get pre-approved for a loan. This is where a lender checks your credit information and decides how much they can lend you based on your credit history.
It’s best to speak to several lenders and get multiple pre-approval letters before you see the seller. This way, the seller will be more confident that you’ll be able to get the amount you need to purchase the home.
When it’s time to buy the home, it’s advisable to compare your offers and go with the best deal. If you don’t know where to start, Zillow offers an incredible tool that allows you to identify licensed lenders in your area who have excellent customer ratings.
Step 3: Decide Whether to Buy or Rent a House.
Depending on your credit score and the kind of offers you’re getting from lenders, it may also be a good idea to weigh the pros and cons of renting versus buying a house. While purchasing a home saves you the hassle of continually going back to your pocket for rent money, the upfront and closing costs of buying a house can create a sizable dent in your bank account.
Not to mention, there are recurring and one-time costs you’ll be fully responsible for once you buy a house. For instance, if your roof develops a leak, you have to pay for it to be fixed yourself. There is no landlord responsible for fixing it. For this reason, it’s crucial to determine if you’re ready for the financial responsibilities of owning a home.
According to Money Under 30’s article “How Do You Know When You’re Ready to Buy a Home?” by Brandon Turner, if you can’t answer yes to any of the following questions, you should put a pin on buying a house and make further preparations while you rent.
- Are your finances in order?
- Can you fix a leak in your home?
- Can you afford the monthly mortgage payments?
- Are you ready to settle down?
To know if you’re ready for homeownership, you need to look at the bigger picture and not just the initial stages of negotiation and getting finances. Be sure that you’ll be able to handle all the affairs of the home, keep up with your loan payments, and still take care of your family. The last thing you want is to have to sell your house because it’s making it impossible to survive.
Step 4: Figure Out What You Can Afford.
If you’ve made up your mind and you’re confident you’d like to proceed with the home buying process, the next step is deciding how much you’re willing to pay. Just because mortgage lenders are eager to give you large loans, doesn’t mean you should go for the highest amount.
Remember that after buying your home, you will enter into a loan-repayment process. You need to be sure the amount you accept is a figure you’ll be comfortable paying off every month while still being able to afford your daily needs.
NerdWallet has a great mortgage affordability calculator you can use to find out how much money you should get. But don’t let this be the only deciding factor. It’s also a good idea to visit your prospective neighborhood and take a look at some houses. Doing so will give you an idea of what the various amounts of money can get you.
Step 5: Decide on a City and Neighborhood.
After going through your finances and determining how much you can afford to spend, the next thing you need to do is to decide on a city and the neighborhood you’d like to settle down in. Because house prices vary from city to city and may also vary depending on the neighborhood you choose, this step will enable you to know if the amount of money you’re willing to spend is enough.
It’s always best to have a couple of options when choosing cities and neighborhoods if you don’t have your heart set on one specific place. This allows you to compare offers and find your best option.
And while searching for cities and neighborhoods, don’t forget to consider the surroundings. Look for things like hospitals, schools, recreational centers, shopping centers, and anything else that would make living there more convenient.
Step 6: Choose a Real Estate Agent.
Once you have a city and neighborhood in mind, the next step is finding a real estate agent. Your real estate agent will be your lifeline throughout the entire process, so you need to choose wisely.
Fortunately, these days you can easily find good prospects online by reading reviews and checking experience and credentials. Research and identify several options and call them for follow-up questions and narrow down your choices and allow you to decide which one is best suited for you.
You are going to be living in the home for a very long time so you will want someone who knows the area very well. Choose a realtor who knows the local roads, grocery markets, best places to dine out, and what locals say about the area. Not only the local knowledge on the vibe of the area but also the local market stats. This will be very helpful when it comes to negotiation. Having an agent who knows his local market stats can help you pay for the right price or even a lower price.
Get Listings Fast
How real estate agents get listings fast is how you want to get listings in a fast-moving market or else you might lose out on that new home. Agents are connected to the local multiple listing service so they get listings before anyone does. This means when another agent enters a new listing in the multiple agents are the first to know. The major companies Redfin Zillow Realtor.com Syndicate listings from the multiple so your agent can get you listings very fast by going directly to the source.
An Agent Who Cares
Find an agent who cares about your current situation and what you want in a home. Experience isn’t everything. You can have an agent who has the experience and all they want to do is get you inside a home and don’t care about your situation. On the other hand, you can have an agent that has little experience but really listens and asks the right questions, really cares about what you want, and we’ll go above and beyond to find you a home.
Step 7: Make an Offer.
There’s no set of instructions that covers all the various real estate laws and customs in the US. Therefore, when it comes to making an offer, it mainly depends on the location of the home. And in most cases, the offer process can be a back-and-forth kind of situation.
However, there are certain things you can do to ensure you get the best offer. These include:
Negotiate on Price
When you’ve fallen in love with the house, it can be easy to give the seller what they’re asking for without giving it a second thought. But don’t be hasty. In most cases, the price isn’t fixed, and there’s room for negotiation.
So, make sure you consider what the house comes with (appliances, furnishing, etc.), if there are any contingencies to your offer, and whether or not you’ll need to do a home inspection. Also, discuss with your realtor and find ways to get a lower asking price that’s more within your budget.
Negotiate on Terms
Don’t shy away from negotiating the terms of the sale, either. Chances are you’ll get a better deal and save additional costs if you do. “5 Things to Negotiate When You Buy Your First House” by Julia Dellitt from Forbes explains several things a buyer should negotiate when trying to buy a house. These include:
- Cosmetic updates, furnishings, and household items
- Flexibility on closing or possession dates
- The premium of the home warranty at least for the first year and repairs required upon inspection
- All or a percentage of the closing costs to be paid
Again, talk to your realtor and find out which things you can negotiate to make the process easier and more affordable for you.
Step 8: Get a Home Inspection.
If you didn’t do a home inspection at the beginning, now is the time to do it. Home inspections are mostly done before the final contract is signed, but they can be done after in some cases, which isn’t always a good idea.
It’s essential to know some of the things you’d like inspected beforehand to avoid missing out on any inspections. Consult your realtor to find out if there are any inspections specific to that area that you shouldn’t leave out and get it done.
This may also be the best time to get acquainted with your new home. Measure spaces. Envision what would go best in which room. This may be the only chance you get to be in the house until you have complete ownership, which may take a few weeks.
Step 9: Check Title Issues.
When you’re buying a house, don’t be too trusting. Don’t assume the title deed is okay just because the seller gives you their word. You need to do a title search and ensure everything is in order before proceeding with the final steps.
Some of the common issues you’ll find with titles include:
- Easements: This is where another party has the right to use your home for specific purposes.
- Encumbrances: This includes easements but also dead restrictions, encroachments, and licenses.
- Disputes: Such as boundary and survey disputes.
- Forgery: If the documents are forged, it could put your claim on the property at risk.
- Impersonation: If at some point the property was sold by someone impersonating the owner, it clouds the title and may put your claim on the property at risk.
- Wills: If an unknown will is discovered after the conveyance of the property, it could put your claim of ownership at risk.
- Heirs: A missing heir can create title problems.
- Deeds: If the deed was signed when someone was of unfit mind or under the legal age, it could cause ownership disputes.
- Errors: Misspelled names, missing information, and other errors can cause problems.
- Liens: This is where someone can lay a claim on your home. For example, if there’s a loan tied to your home.
Step 10: Review the Homeowners Association.
Before you close the deal, it’s also essential to review the Homeowners Association (HOA) if you’ve bought a house that’s involved in such a structure. Find out the charges, what benefits you get, the impact of the HOA on your fees and mortgage approvals, and whether or not you will be able to abide by their rules.
Step 11: Have the Home Appraised.
It’s also a good idea to get the home appraised before you part with your hard-earned cash. Sellers will ensure they get the best deal from the sale. Therefore, they may not mind selling at a higher value than the house is worth.
A house appraisal gives you the actual value of the house to prevent you from being taken advantage of.
Step 12: Obtain Homeowners Insurance and Title Insurance.
Having homeowners insurance and title insurance is a requirement when you want a mortgage, so make sure you do it before approaching your lender. If you already own a home, all you have to do is to contact your insurance provider and request a new policy. If you don’t, you may have to shop around for the best offer.
Step 13: Close the Sale.
Closing also referred to as settlement, is when the property ownership is transferred to you. The process will involve a few steps:
Signing Closing Docs
There are three documents you’ll be required to sign during closing – the deed of trust or mortgage, a promissory note, and closing disclosure.
Obtaining Recording Numbers
“Recording” refers to filing your deed or mortgage with your county. The document will be date and time stamped and may be uploaded to a public site. A recording fee will be charged when you sign all the final documents.
Once you’ve completed all these steps, you’re done! You can now get the keys and get everyone settled into your new home.