For most first time home buyers, the house buying process is a little bit of a mystery. It isn’t a complicated process, but it does have a lot of different steps, most of which are meant to help protect the buyer. Although each transaction is a little different and some have more steps involved with them, most involve the same typical steps. I will walk you through the steps that are involved with almost all house buying transactions.
Find out how much you can afford and get pre-qualified for your loan. Although this isn’t always the first step buyers take, it should be the first one. Before dedicating too much time looking at houses it is important to know how much you can afford. There are a lot of calculators on the internet that will give you an idea of how much your payments will be on different homes prices at different mortgage rate. Though these are useful and will give you a rough idea, they are not totally accurate. Depending on your credit score, how much your annual income is and how much you have to put down will change your mortgage rate and qualify you for different loan programs. It is always a good idea to start the process by talking with a mortgage broker who can give you a good idea of what you can afford. Meeting with a mortgage broker is free and doesn’t lock you into anything. The other good reason to meet with a mortgage broker before you get too serious is that you will need to be pre-qualified for a loan before you can make an offer on a house. If you find the house of your dreams and don’t have a pre-qualification letter already, then that is extra time you will need to go and get one which could end up costing you the house you like if there are other offers on it.
Find a house that will work for you. A lot of people start their home search process by searching online through Zillow or Truila. This is a good way to see what and how many homes are available in your price range, but may not be the best way if you are looking at an area you are not familiar with. Sometimes houses will look great online, but the location of the home may not be ideal for you or there maybe something about the home or neighborhood that you are not aware of. The easiest and best way to find houses that will work for you is by talking with a realtor. Talking with a realtor doesn’t lock you into anything and since the house seller pays all the realtor commissions it will cost you nothing for having a realtor work for you. Realtors are experts in their area and after talking with you about what you are looking for in a house and your price range, they can suggest areas and neighborhoods that will work best for you. They can also set you up with house listings that come straight to your e-mail without having to constantly search the internet for new homes. Realtors will also take you to view the homes and go over the highlights and issues with each of the homes. Once you find the house that you like it is time to make your offer to buy the home.
Make an offer. Much like cars, house prices are negotiable. Of course, if it is a hot market the prices tend to go higher if it is a popular area and bidding wars are common. That said your realtor will discuss the asking price of the home with you and whether or not you may be able to get the house for a better price. Along with the offer your realtor will need to send over a copy of your pre-approval letter your lender has given you, and an earnest money check. The earnest money check is fully refundable to you if the sale doesn’t work out for a legitimate reason such as your loan doesn’t work out or the house inspection comes up with stuff you don’t like. You should anticipate writing an earnest money check for 1% of the offer price. Once you are set on your offer price you sign your offer and your realtor will send it over to the seller. If you offer less then the asking price then you might get into a negotiation with the seller. The seller has the option to counter your offer, accept it, or just reject the offer if it is too much lower then they are willing to accept. As long as you and the seller can come to an agreement on the price you are on your way to being a home owner.
Get your loan process started. After your offer has been accepted you will need to meet with your mortgage broker to get the loan process started. You will generally need to bring in a lot of paperwork such as pay stubs, tax returns for last 2 years and bank statements. The loan process is the most time consuming part of your house purchase so it is important to get it started as soon as your offer is accepted.
Get a house inspection. The next item you need to get going right away after your offer is accepted is arranging for a home inspection. Typically you have a 10 day period from the time your offer is accepted to have the home inspected and approve or disapprove of the home inspection report. You will need to pay for a home inspection at the time of the inspection. Depending on the company you use, size of the house and the city you are in, prices for a home inspection are usually around the $300 to $500 range. If you are able to be present for the inspection, the inspector will point out issues to you so you can see what they are. Otherwise all issues with the house will be in the inspection report along with photos of the issues. Regardless of how good of condition the house is in, there will always be some defects and issues that will come up during the inspection. The important thing to look for in the report are safety type issues or items that could cost a lot of money to repair. After you have the report and reviewed it you have several options. You can either accept the report and house in its current condition, you can decide the issues are too much for you and walk away from the deal, or you can ask for the seller to repair some of the issues or reduce the price so you can handle the repairs. Typically sellers are willing to fix and take care of some of the issues with the house.
The house appraisal. Anytime you are buying a house with a loan, the lender will have an appraisal done on the house to make sure it is worth what you are buying it for. The lender will order the appraisal and you won’t have a choice of the appraiser that they use. You will also be responsible for paying for the appraisal. Once the appraisal is done you will get a copy of it to view. As long as the home appraises for at least what you are buying the home for the sale will continue to go forward. If the home appraisal comes back at a lower value then you have agreed to buy the home for, then the deal will need to be revised. The ideal option in this scenario is to renegotiate the price of the home with the seller to the appraised price. If the seller refuses to lower the price then your option is to either come up the extra cash to pay the difference between the appraised price and the offer price, or to walk away from the deal.
Signing documents. A few days before your set closing date that is in your offer, you will be asked to sign documents. The signing will take place at the escrow company that was specified in your sales agreement. There will be a lot of documents to sign and the whole process usually takes about an hour.
Getting your keys. The house buying transaction will be considered complete or closed when your loan has funded and the sale recorded. This usually will be a few days after signing documents. At this time the house is yours and your realtor will obtain the keys from the seller and give them to you. Unless there was a prior agreement with the sellers the house is now yours to move into.