10 Steps to Buying a House
Even in the best of circumstances, purchasing a home can be a stressful experience, and in markets where there is a lot of competition, it may feel positively overwhelming. Understanding the fundamental stages of the buying process can assist you in achieving your objective and turning your dream into a reality, despite the fact that certain aspects of the transaction may appear to be evolving at the moment.
There are a few things you should be aware of regardless of when you want to make a purchase. A home purchase will typically take about half a year from start to finish on average. In 2021, the average buyer reportedly spent between two and three months looking for a home to purchase. Then add another 30–45 days for the closing process.
However, going on tours of potential residences is only one part of the home-buying process. You will also need to get an inspection, make offers and negotiate, prepare to relocate, and eventually close on your new house. Other tasks include finding the best real estate agent, reviewing your credit and financing alternatives, making offers, and negotiating.
When it comes to purchasing a home, where do you even begin?
When you are looking to buy a home, some of the first things you should think about are how much money you want to spend, where you would like to live, and what aspects of a property are most important to you. Consider your own answers to the following questions:
• What size of a house am I able to afford?
• Am I going to borrow money for something?
• How much money do I have put up for a deposit on a house?
• Can I afford my ideal neighbourhood?
• Would you say that the values of homes in the area are on the rise or on the decline?
• How long will it take me to get to work?
• Does the school district have the right environment for my children?
• Are there places of interest and conveniences that can be reached on foot?
Your hunt for a new residence can begin as soon as you have figured out the answers to the questions posed above.
The following is a rundown of the ten most crucial steps involved in the home-buying process.
First thing you should do is check your credit score.
You should give careful consideration to conducting a comprehensive study of your credit record prior to authorizing a lender to check your credit score.
What exactly constitutes a credit report? The three major credit reporting organizations, TransUnion, Equifax, and Experian, contribute information to a consumer’s credit report. It is the report that is utilized in the process of calculating not only your FICO score but also your Vantage score.
At the very least once each year, you are eligible to receive free reports from all three of the reporting organizations. If you discover any mistakes in your report, you should dispute them as soon as possible so that the problems can be fixed before you apply for financing.
Can you explain what a FICO score is? Lenders will typically look at your FICO score when determining whether or not you are creditworthy. Fair Isaac & Co. has determined that this can fall anywhere between 350 and 850.
What exactly is meant by a “Vantage Score”? A Vantage Score is the credit score that will be displayed to you when you check your score on websites that are geared toward the general public. There is a possibility of disparity between your FICO score and your Vantage Score. When determining whether or not to lend you money, lenders will not look at your Vantage Score.
The lower your interest rate will be that you receive will be directly proportional to how high your credit score is. If you have a credit score of 720 or better, you should be able to get a good interest rate when you take out a traditional loan; however, the requirements for qualifying for a loan vary depending on the lender. If your credit score is 580 or better, you should not have any trouble getting approved for an FHA loan.
Before you apply for a loan, it is important to have a good understanding of the factors that can have an effect on your credit score, including the following:
• A complete accounting of the debt owed
• How long you’ve had credit
• How recently you’ve established credit
• The kind of credit you have
Step 2: Determine how much of a mortgage payment you can comfortably make.
When you get pre-approved, your lender will tell you the maximum amount that you are eligible to borrow (we’ll go over the pre-approval procedure in further detail later on). However, you don’t have to wait for the pre-approval in order to obtain a rough idea of what price range you can shop in. The Zillow Home Affordability Calculator will assist you in determining the appropriate price range for a home purchase by, among other things, taking into account your annual income, monthly bills, and the estimated amount of the down payment you will need to make.
Adjust the items on your wish list based on the available funds.
Create a list of must-have house features after you have a general idea of how much money you have available to spend. It’s likely that the size of your future home, its location, and the facilities it offers will be determined by your budget. Consider the following things as possible additions to your wish list:
• The number of bedrooms and baths • The total square footage • The amount of outdoor space • The preferred location • The type of property • The floor plan, amenities, and details • The school district • The ability to accommodate pets • The length of the commute to work
Step 3: Find a real estate agent
The majority of purchasers agree that having an experienced real estate agent on their side to help them navigate the process is quite helpful. According to the Zillow Group Consumer Housing Trends Report 2021, in 2021, 82% of buyers utilized an agent during some part of their house search. This statistic was found in the report. Because the commission paid to the buyer’s agent is typically covered by the seller, purchasers typically have the ability to save money by working with an agent.
The following is a list of areas in which a buyer’s agent can be of assistance:
• Market insights: identifies home value trends, new developments, buyer demand, and the overall state of the market
• Offer price: determines what a home is worth and recommends a competitive initial offer amount
• Negotiating: knows when to argue for a lower price and how to negotiate contingencies and repairs
• Local familiarity: has insider tips about the neighborhood and area schools
• Negotiating: knows when to argue for a lower price and how to negotiate contingencies and repairs
• Local familiarity: has insider tips
• Recommendations from industry professionals: offers introductions to reliable lenders, attorneys, contractors, and other service providers
• Experience: makes things easier by allowing you to handle problems, stay on top of due dates, and supervise paperwork
It goes without saying that you need to make certain that you find the appropriate agent. According to a survey conducted by Zillow in 2022, 24 percent of recent house buyers admitted that they wished they had worked with a different real estate agent. Before interviewing your top two or three candidates, use Zillow’s Agent Finder to search for nearby agents, read customer reviews, and research an agent’s recent sale history.
Step 4: Get pre-approved
If you are not purchasing a home with cash only, getting pre-approved by a lender will provide you with an official decision on the amount of money you will need to purchase a home. According to a survey conducted by Zillow in 2022, the vast majority of sellers would rather deal with a buyer who has been pre-approved for a mortgage rather than just pre-qualified for one.
A lender will compute your debt-to-income ratio and evaluate your overall financial health by looking over the following items in order for you to get pre-approved for a loan:
• Financial statements, such as W2s and 1099s, as well as tax returns and income from rentals
• Assets, such as bank statements and retirement accounts
• Debts, such as school loans, credit cards, and other mortgages
• Monthly expenses, such as rent, utilities, and other mortgages
• Current rent, child support payments, alimony payments, and records of any gifts given toward a down payment.
• Records of previous bankruptcies and foreclosures.
When you’re pre-approved, you’ll receive a pre-approval letter. Not only does it provide you with an official indication of how much money you are eligible to borrow, but it can also be useful when making an offer. A letter of pre-approval demonstrates to the seller that you are serious about purchasing their property. This is of utmost significance in situations in which you are likely to be competing with other offers, such as when the market is hot.
Take into account the fact that you are not need to utilise the same lender to finance your loan as you did in order to get pre-approved for it. In point of fact, before you go ahead and create your mortgage account, you should always do your best to get quotes from a number of different lenders and evaluate the interest rates and costs offered by each.
Remember that your ratio of debt to income will be reviewed one more time before the conclusion of the deal. Taking on additional debt during the financing process can reduce the overall loan amount that is available to you.
The fifth step is to begin looking for a house.
You can get a head start on the process of finding a new home by doing a search for available properties on the internet. The Zillow Group Report found that 95% of buyers use online tools in some capacity throughout their hunt for a new home. Begin your house search on Zillow by looking for properties in the area you’re interested in buying in. Filter the results by price and any features that are absolute must-haves. In addition to this, your agent will be able to email you listings and set up showings for you.
Maintain as much flexibility as possible because it is likely that you may need to modify your criteria as you continue your search for a new house. You might, for instance, conclude that the trade-off of not having an additional bedroom is acceptable in exchange for the opportunity to live in the community of your choice. Experiment with the different search parameters and discover what you could get for your money if you adjusted your wish list a little bit.
What to keep an eye out for when touring different homes
As soon as you start going to look at houses in person, one of the most important things you should do is assess the “health” of each house. This will give you an idea of any big obstacles that could potentially stand in your way if you choose to make an offer. In the end, the inspection will provide you with an official report on the quality and condition of the home, but while you’re touring the property, make sure to keep an eye out for the following things:
• Fractures and imperfections in the structure
• Water pressure (try turning on the faucets and the shower heads)
• Electrical difficulties (fiddle with the light switches)
• Functionality and the ability of doors and windows to retain heat
• The condition of the roof and exterior
• The amount of noise coming from nearby residents or vehicles
The sixth step is to make an offer.
After you have located the ideal residence, you should have your real estate agent carry out a comparative market analysis (CMA) before submitting an offer to the seller. The comparative market analysis, or CMA, is a method of determining the market worth of a home by comparing it to other homes that have recently been sold in the same location.
Your real estate agent should help you estimate a suitable offer price by using the CMA as your baseline. They should also help you decide if you should allow some room for bargaining, which is something that relies on the health of the real estate market in your area.
When deciding whether or not to make an offer, in addition to the CMA, the following are some additional factors to take into consideration:
Disclosures: Disclosures are known problems that may involve concerns with the structure, unpermitted activities, natural hazards, or flood threats. Most states require sellers to give disclosure documents, so make sure your agent seeks them.
Date of closing: If you are purchasing a property with the assistance of a mortgage, the closing process can take anywhere from thirty to forty-five days from the time the contract is signed. You have the option of requesting a delayed closing date when you make an offer on a property in order to accommodate the schedule of your upcoming relocation; but, the seller may reject your request.
Contingencies: A contingency is an agreement between the seller and the buyer or the lender and the buyer specifying conditions that need to occur for the sale to continue forward. This agreement can also be between the seller and the buyer and the lender. Certain contingencies, such as the appraisal contingency that your lender will want, are obligatory in order to guarantee that they are not overpaying for your loan. You have the option to include a contingency for an inspection, but doing so is strongly encouraged. According to the findings of the Consumer Housing Trends Report compiled by Zillow, 88 percent of successful purchasers did not forego the home inspection prior to closing.
The initial deposit: When you make an offer on a home, one way to demonstrate that you are serious about purchasing it is to include a sum of money known as an earnest money deposit in the offer. In the event that the transaction goes through, the earnest money will be incorporated into the total amount of the down payment. You will forfeit the deposit if you decide to back out of the purchase for any reason other than a predetermined contingency.
It is essential to keep in mind that one cannot accept every offer made. Even though it could be discouraging at times, you shouldn’t let the fact that you didn’t acquire the first house you made an offer on get you down. According to the findings of a report compiled by the Zillow Group, in actuality, 59% of buyers who initially presented an offer ended up making numerous offers before finally closing on a home.
Step 7: Make arrangements for the examination.
According to the report compiled by the Zillow Group, 88 percent of homebuyers carried out an examination on the property they were planning to purchase. The best ways to ensure that the home you’re purchasing does not have any severe underlying concerns are to include an inspection contingency in the purchase agreement and to carry out a home inspection yourself.
You should be able to get a recommendation for a reliable and certified home inspection from your real estate agent, or you may search Zillow’s professional directory and choose an inspector based on what other homeowners have to say about them.
In most cases, the inspection is arranged to take place within a week of the signing of the contract. It is strongly suggested that you go to the inspection, since doing so will provide you with a good opportunity to gain a deeper comprehension of the home’s inner-workings. In most cases, your representative will also be present. You and your agent will have the opportunity to go over the findings of the formal inspection report once you have received it. At that point, you can decide how you wish to respond to the seller.
If significant problems that aren’t merely cosmetic are discovered, you have the option of reopening discussions and asking the seller to pay to rectify the problem before the closing or providing you with a credit so that you can address it on your own after the closing.
Step 8: Ensure that you have the necessary funding.
Even if you have already been pre-approved for a mortgage, there are a few more procedures that you need to follow before you can officially submit your application. After you have finished the processes listed below, assuming that everything is in order, you should receive the “clear to close,” which indicates that the lender has given their consent for you to complete the transaction.
Loan application
If you opt to officially apply for your loan with the same lender that conducted your pre-approval, they already have some of the paperwork you’ll need for your application. However, you will need to bring the rest of the required documents with you when you submit your application. It is very likely that you may be required to supply new financial statements. Quickly responding to people’s questions and concerns is the single most critical thing you can do while going through this process. For instance, if the lender asks for your W2, make sure to send it out as soon as possible to minimise any delays in the closing process. If you go through with working with a different lender, you may expect that organisation to provide you with a list of the documents that they require in order to process your application.
Appraisal
Because the appraiser will be hired by your lender, there is not much more that you can do in this regard. Your real estate agent should coordinate the timing of the appraisal with the agency representing the seller as well as the appraiser. You and your agent will both receive a copy of the appraisal report once it has been finished. This will allow you to examine the comparable sales that were utilized in the valuation process as well as view the appraised value that corresponds to the fair market value.
If the appraisal comes in at the same price as your offer: It should be safe for you to proceed.
If the appraisal comes in higher than the price you offered, the following will happen: Even better! This indicates that not only are you free to consummate the deal, but also that you will be purchasing the home for a price that is lower than the current market value, which will give you quick equity.
If the evaluation turns out to be low: Since they believe that you are paying too much for the property, your lender will not agree to the entire amount of the loan that you have requested. You will need to either come up with additional cash to cover the difference between the appraised value and the offer price, or you will need to attempt to renegotiate the offer price with the person selling the property. If you believe that the appraisal was done incorrectly, you have the option of asking your lender for a new appraisal to be performed.
9th Step: Purchase a policy for your homeowner’s insurance.
You are required to show proof of a homeowner’s insurance policy before the closing of the deal. If you currently own a house, ask your current insurance agent to assist you in opening a new policy so that you can satisfy this need. If you don’t own a home, you should look about for an insurance plan that suits your needs the best. It’s possible that your lender will be able to assist you with coordinating a policy that can be paid for using the escrow account that you have each month.
10th Step: shut and proceed.
A final walkthrough is something that many buyers opt to have the day before or the morning of the closing. Its objective is to ensure that the home is in the same condition as it was when you made your offer and that the seller has finished making any repairs that were previously agreed upon (if applicable).
Expect to spend at least a couple hours at the title business on the day of the closing signing various pieces of paperwork. You need also be ready to provide monies to meet your closing costs, which normally range between 3 and 5 percent of the sale price. Be prepared to bring these funds with you.
You will be given your keys after the closing documents have been signed and the sale has been officially documented. You now own the property!
You are now able to begin the process of setting up the utilities for the new home, including the power, cable, and internet services. Your real estate agent should review the contract responsibilities with you before you buy a condo that is part of a community that has a HOA that pays for some of the costs of the utilities.
Finally, get ready to move into your new place and start making it a home.
