The Process of Buying a House - 12 Steps to Success
by Brandon Cornett
In recent years, the process of buying a house has been affected by the so-called mortgage crisis and the continued evolution of the Internet as a real estate tool. Because of these changes and advancements, many of the home buying tutorials you find online are stale and outdated. So in this tutorial, we will take a more modern look at the process of buying a house.
More specifically, I will outline the basic home buying process in twelve clear steps. Please keep in mind, however, that the process varies slightly from one buyer to the next. This article is not meant to be the only path to ownership, but merely to educate you on what to expect in today's real estate market.
1. Check Your Credit
Credit scores have always been important for house buyers, but these days they are more important than ever. This comes as a result of the subprime mortgage "meltdown" that came to a head in 2007 - 2008. Here's an example of what I mean. Borrowers in 2006 needed a credit score of at least 620 to qualify for the best interest rates on a loan. Two years later, in 2008, those borrowers would need a score of 760 or higher to get the best rates.
So your first step in the house buying process should be a thorough review of your financial situation. Order your credit reports from all three reporting agencies (Experian, Equifax and TransUnion) and check them for errors. Order your credit score -- which is different from your reports -- and see how you stack up against the national average. If necessary, work on improving your score by paying down credit card balances, making all payments on time, etc. This is critical to the process of buying a house in today's economy.
2. Determine Your Budget
Some people make the mistake of letting the mortgage lender tell them what they can and cannot afford, in terms of a monthly mortgage payment. In reality, the only thing a lender can tell you is the amount you qualify for -- not the amount you can realistically afford. So you need to determine your house buying budget for yourself.
There are a lot of free mortgage calculators online that can make this process easier for you. Be sure to account for other expenses each month, such as food, gas, car payment, credit card payments, lifestyle items and savings.
3. Research and Choose a Type of Mortgage
Do you know the difference between a fixed-rate mortgage and an ARM loan? This is just one of the things you need to understand before entering the house buying process and applying for a mortgage. Due to of increased competition in the lending industry, there are more types of home loans today than ten years ago. The key to success when choosing a mortgage is to consider your long-term plans and find a loan that best suits those plans. To do this, you need to study the pros and cons of the primary loan types.
4. Get Pre-Approved for a Loan
Pre-approval is a process in which the mortgage lender reviews your financial and credit history in order to determine your "creditworthiness" ... an industry term that means: "How much of a risk is this person, and how much are we comfortable lending?" When you get pre-approved for a certain loan amount, there's a good chance that you'll receive final approval for that amount as well, when the time comes.
Having a pre-approval letter in hand also shows sellers that you are serious about (and capable of) purchasing their home. This can make a big difference in hotter real estate markets, where the seller may receive multiple offers from competing buyers.
5. Find a Real Estate Agent
People often argue about whether or not you need a real estate agent when buying a house. So here's the bottom line. If it's your first time going through the process, or you're buying in a new and unfamiliar city, it's a good idea to hire a real estate agent to help you. When you compare the cost of a home to the size of the agent's commission, you'll see that it's worthwhile to hire an agent.
6. Narrow Your Search
This step will make the process of buying a home much simpler and more efficient. The neighborhood you choose is nearly as important as the house you choose, because both will affect your quality of life -- not to mention the property's resale value. For this reason, it's wise to live in a city for a while before buying a house there, even if it means renting an apartment for a few months. That way, you can learn about the desirable and not-so-desirable areas.
7. Begin House Hunting
Ah, now we get to the fun part. House hunting! This is where you visit properties that are for sale in order to find one that matches your needs. Here are some helpful tips to make this part of the house buying process more successful. Take a digital camera along to get photos of each home. Bring a notepad as well. While you're at it, you might want to bring a friend along for an unbiased opinion of each property ... you know, the kind of person who's never afraid to call it like it is.
8. Evaluate the Asking Price
It's called the "asking price" for a very good reason. It's what the seller is asking for the house, but it may or may not be what they actually receive. Just because a property is listed at $235,000 doesn't necessarily mean that it's worth $235,000. This is another area where your real estate agent will prove his or her value. Most agents are expert at validating a property's sale price against recent sales in the area (known as comparables or "comps"). This will help you determine if the asking price is realistic or inflated.
9. Make an Offer
Moving along in the process of buying a house let's talk about your offer. Once you have determined that the seller's asking price is fair and reasonable, you are ready to make an offer on the house. It's a good idea to make your offer contingent upon the home inspection (see next item). That way, if the inspector uncovers some kind of issue that you consider a deal breaker, you have a way out of the contract. Ask your agent about this.
10. Get a Home Inspection
Most home inspections cost between $500 and $700 (the last time I checked.) That's a small price to pay for the peace of mind you get in exchange. A home inspector will check out the structure and mechanical systems of the property, including (but not limited to) the roof, foundation, electrical system, and heating and cooling system. In my opinion, the process of buying a house is only complete when a proper inspection has been performed.
11. Attend the Closing / Settlement Process
So, you've made it through all of the inspections and the process is still on track. Great! The next step will be the closing / settlement process (it goes by different names in different areas of the country). Actually, you can prepare for this process at the very start of things by putting extra money aside. The closing is the process through which the title to the property is transferred from the seller to the buyer. You'll also be signing a lot of paperwork and paying any other fees that are due.
12. Tie Up Loose Ends
After your move, you'll have a few more items on your task list. Transfer your utilities, if you haven't done so already. Complete a change of address form with the post office. Get a safe deposit box for your home insurance policy and other important documents. Set up a payment schedule or online auto-pay for your mortgage payments. And go meet your new neighbors!
In recent years, the process of buying a house has been affected by the so-called mortgage crisis and the continued evolution of the Internet as a real estate tool. Because of these changes and advancements, many of the home buying tutorials you find online are stale and outdated. So in this tutorial, we will take a more modern look at the process of buying a house.
More specifically, I will outline the basic home buying process in twelve clear steps. Please keep in mind, however, that the process varies slightly from one buyer to the next. This article is not meant to be the only path to ownership, but merely to educate you on what to expect in today's real estate market.
1. Check Your Credit
Credit scores have always been important for house buyers, but these days they are more important than ever. This comes as a result of the subprime mortgage "meltdown" that came to a head in 2007 - 2008. Here's an example of what I mean. Borrowers in 2006 needed a credit score of at least 620 to qualify for the best interest rates on a loan. Two years later, in 2008, those borrowers would need a score of 760 or higher to get the best rates.
So your first step in the house buying process should be a thorough review of your financial situation. Order your credit reports from all three reporting agencies (Experian, Equifax and TransUnion) and check them for errors. Order your credit score -- which is different from your reports -- and see how you stack up against the national average. If necessary, work on improving your score by paying down credit card balances, making all payments on time, etc. This is critical to the process of buying a house in today's economy.
2. Determine Your Budget
Some people make the mistake of letting the mortgage lender tell them what they can and cannot afford, in terms of a monthly mortgage payment. In reality, the only thing a lender can tell you is the amount you qualify for -- not the amount you can realistically afford. So you need to determine your house buying budget for yourself.
There are a lot of free mortgage calculators online that can make this process easier for you. Be sure to account for other expenses each month, such as food, gas, car payment, credit card payments, lifestyle items and savings.
3. Research and Choose a Type of Mortgage
Do you know the difference between a fixed-rate mortgage and an ARM loan? This is just one of the things you need to understand before entering the house buying process and applying for a mortgage. Due to of increased competition in the lending industry, there are more types of home loans today than ten years ago. The key to success when choosing a mortgage is to consider your long-term plans and find a loan that best suits those plans. To do this, you need to study the pros and cons of the primary loan types.
4. Get Pre-Approved for a Loan
Pre-approval is a process in which the mortgage lender reviews your financial and credit history in order to determine your "creditworthiness" ... an industry term that means: "How much of a risk is this person, and how much are we comfortable lending?" When you get pre-approved for a certain loan amount, there's a good chance that you'll receive final approval for that amount as well, when the time comes.
Having a pre-approval letter in hand also shows sellers that you are serious about (and capable of) purchasing their home. This can make a big difference in hotter real estate markets, where the seller may receive multiple offers from competing buyers.
5. Find a Real Estate Agent
People often argue about whether or not you need a real estate agent when buying a house. So here's the bottom line. If it's your first time going through the process, or you're buying in a new and unfamiliar city, it's a good idea to hire a real estate agent to help you. When you compare the cost of a home to the size of the agent's commission, you'll see that it's worthwhile to hire an agent.
6. Narrow Your Search
This step will make the process of buying a home much simpler and more efficient. The neighborhood you choose is nearly as important as the house you choose, because both will affect your quality of life -- not to mention the property's resale value. For this reason, it's wise to live in a city for a while before buying a house there, even if it means renting an apartment for a few months. That way, you can learn about the desirable and not-so-desirable areas.
7. Begin House Hunting
Ah, now we get to the fun part. House hunting! This is where you visit properties that are for sale in order to find one that matches your needs. Here are some helpful tips to make this part of the house buying process more successful. Take a digital camera along to get photos of each home. Bring a notepad as well. While you're at it, you might want to bring a friend along for an unbiased opinion of each property ... you know, the kind of person who's never afraid to call it like it is.
8. Evaluate the Asking Price
It's called the "asking price" for a very good reason. It's what the seller is asking for the house, but it may or may not be what they actually receive. Just because a property is listed at $235,000 doesn't necessarily mean that it's worth $235,000. This is another area where your real estate agent will prove his or her value. Most agents are expert at validating a property's sale price against recent sales in the area (known as comparables or "comps"). This will help you determine if the asking price is realistic or inflated.
9. Make an Offer
Moving along in the process of buying a house let's talk about your offer. Once you have determined that the seller's asking price is fair and reasonable, you are ready to make an offer on the house. It's a good idea to make your offer contingent upon the home inspection (see next item). That way, if the inspector uncovers some kind of issue that you consider a deal breaker, you have a way out of the contract. Ask your agent about this.
10. Get a Home Inspection
Most home inspections cost between $500 and $700 (the last time I checked.) That's a small price to pay for the peace of mind you get in exchange. A home inspector will check out the structure and mechanical systems of the property, including (but not limited to) the roof, foundation, electrical system, and heating and cooling system. In my opinion, the process of buying a house is only complete when a proper inspection has been performed.
11. Attend the Closing / Settlement Process
So, you've made it through all of the inspections and the process is still on track. Great! The next step will be the closing / settlement process (it goes by different names in different areas of the country). Actually, you can prepare for this process at the very start of things by putting extra money aside. The closing is the process through which the title to the property is transferred from the seller to the buyer. You'll also be signing a lot of paperwork and paying any other fees that are due.
12. Tie Up Loose Ends
After your move, you'll have a few more items on your task list. Transfer your utilities, if you haven't done so already. Complete a change of address form with the post office. Get a safe deposit box for your home insurance policy and other important documents. Set up a payment schedule or online auto-pay for your mortgage payments. And go meet your new neighbors!
Labels: Home buying process
posted by Brandon at
2:03 PM
