The steps outlined in this blog are a general home buying guide. You will encounter issues specific to your location and your transaction, issues that can best be explained and handled by a local real estate agent, your lender, your escrow officer or others who are helping you complete your home buying transaction.
Ask as many questions as necessary to help you understand the entire home buying process. You are making a long-term commitment and spending a major amount of money–you’ll feel much better about the transaction if you stay informed and understand what’s happening every step along the way.
The specific way you progress through a home buying transaction varies depending on the real estate laws and customs where you live. But you will discover many steps to buying a house that are standard, even though they might not be accomplished in the same order in every location.
You’ll feel more confident about your home buying journey when you understand what is required of you and every other person who is involved in the transaction. This guide takes you through it, and shows you that you’ve got only 11 steps to buying a house.
1. Get Your Finances in Order
Your credit reports are an ongoing record of how you manage your finances. You must know exactly what your credit reports say about your financial history before you apply for a mortgage, because the reports play an important role in the mortgage approval process and in determining the interest rate and other loan terms that a lender offers you.
If you haven’t looked at your credit reports, you might be surprised at their contents, because errors are common. Ideally, you don’t want any late payments. One late pay is bad; four will kill you.
Therefore, first obtain a free copy of your credit report to ascertain your credit score and fully review each entry to check for accuracy. If you think there are errors within your report, contact the credit reporting agency and have them corrected. If your credit score is below 680, work on cleaning up your report and improving your score.
2. Get Familiar with the Mortgage Industry
Finding the right loan and lender is crucial to your home buying success. It’s up to you to determine which lender is best for your needs and it’s always a good idea to have at least a bit of background about the loan process before you talk to a lender. Consider asking your real estate agent for a referral and feel free to ask them questions, such as:
a. Should I go through a mortgage broker or a bank loan officer? What’s the difference?
b.What does debt to income ratio mean? Will this affect my interest rate?
c. Should I choose an adjustable rate mortgage or a fixed rate? What are the pros and cons?
d. Or should I choose an FHA loan? What is an FHA loan?
e. If you’re a military veteran, ask about VA loans.
f. Should I buy discount points for my loan to lower the interest rate?
g. What is private mortgage insurance? Should I get it?
h. Will I have a mortgage or a deed of trust? What’s the difference? Why does it matter?
3. Get Pre-Approved for a Mortgage
Do you know how much house you can afford? Probably not, unless you’ve talked with a lender.
Pre-approval helps you in other ways. Consider this scenario. A home seller gets two similar offers. One is accompanied by a letter from the buyer’s bank that states she is pre-approved for a mortgage in the amount of the offer. The other has no supporting documents. Which offer do you think the seller will consider first? You’re right! The buyer that’s pre-approved.
Ask your real estate agent if you need a pre-qualification letter or a pre-approval letter to accompany your offer, and what’s the difference between the two.
Also, use my Mortgage Calculating under Lending Tips to analyze your loan possibilities and to see what you’re looking at as far as your monthly payment goes.
4. Determine Your Wants and Needs
Buying a home isn’t as difficult as you might think, even if you’re short on funds, but the process will go a lot smoother if you get familiar with your real estate market and narrow down your wants and needs before you start looking at houses.
For starters, figure out your Wants (swimming pool, single-story) from your Needs (neighborhood, school district). Next, consider resale potential and whether you need help with your down payment. If you don’t have the down payment but can afford house payments, ask your real estate agent about HUD or seller down payment gift assistance.
5. Learn to Work with Real Estate Agents
Real estate agents represent buyers, sellers or both at the same time. It’s essential to understand agent duties and loyalties before you make that first phone call. Ask your agent to explain what their fiduciary duty is to you. Also consider:
a. How to go about hiring a buyer’s agent
b. Does your agent work for you or are they an independent contractor?
c. What you should expect from a buyer’s agent
d. How a buyer’s agent becomes a dual agent
e. Your duties to your agent
6. Start Searching for a Home
Your real estate agent will typically send house listings to your cellphone. You can also pick up home sale magazines and read classified ads in your local newspaper. You’ll probably spend an inordinate amount of time surfing the Internet for homes. You might even plan afternoon drives to preview neighborhoods. Those are all excellent ways to see what’s available. Here are some tools to help you narrow your home buying search.
a. Consider the houses that others overlook
b. Search public versions of multiple listing service web sites
c. Find real estate agent web sites
d. Browse real estate search engines and networks
e. Find for sale by owner properties
f. Find home sale ads in print
e. Find foreclosed homes
7. Handle Pre-Offer Tasks
Deciding whether or not you want to buy a house involves not only looking at its location, but its structure and features; and there are many other considerations that are every bit as important to your purchase. Here are a few things you should explore before you make an offer.
a. Consider a home inspection
b. Check out the neighborhood at different times of the day
c. Talk to the neighbors
d. Check the comparable sales
8. Make an Offer
Real estate laws, local customs and the mechanics of making an offer and its specific contingencies depend greatly on your location. However, there are some home buying tips that can help you fine-tune your offer, no matter where you live, and this is where a real estate agent is vitally important to you. Consider these items:
a. What comes with the house?
b. What should the seller disclose?
c. Determine if lead paint disclosures are required
d. Decide how much should you offer
e. Asking for possession before closing
f. Special considerations for For Sale By Owner purchases
9. Home Inspections & Other Tests
In the state of CA, inspections take place after your offer is accepted by the seller. No matter when you do them, it’s critical to decide which inspections and tests you want to perform. Talk with your real estate agent or other advisor to find out when inspections should be handled and if additional types of testing are important for your specific area. Consider the following:
a. Ordering a full home inspection
b. Testing for radon gas
c. Looking for molds and mildew
d. Lead paint disclosures & inspections for pre-1978 homes
e. Is there a private well on the property?
f. Understanding and checking the septic system
g. Should you buy a home warranty?
10. Avoiding & Correcting Last Minute Problems
As your closing date nears, everyone involved in your real estate transaction should check its progress on a daily basis, because staying on top of things means you’ll know immediately if there’s a problem that must be dealt with. Here’s a bit of information that focuses on a few common problems that home buyers must deal with before they close on a house.
a. Get the facts about residential appraisal methods
b. How to deal with a low appraisal
11. You’re on the Way to Closing
Most of your home buying problems are behind you now and you’re on your way to closing, also called settlement, the event that transfers ownership of the property to you. Just a few more things to learn, a few more things to do, and you’re there!
a. Get the facts about title insurance
b. Take your final walk-through