The home buying process is an exciting time. Below is the home buying process broken down into 5 easy steps.
The rule of thumb lenders recommend is a purchase price of no more than 3-5 times your annual household income. A 20% down payment is also recommended but not required.
The first time you talk to a lender, typically you will only provide some insight into your finances such as income and savings.
When you get pre-approved, you will provide your lender with W-2 statements, paystubs, and bank account statements. This is when a credit check will also take place.
This is the fun part, we will tour homes until we find the right home for you. We may find you the right home quick, or it can take a couple months.
When we find it, we will present the seller with an offer based on comparable homes in the neighborhood. The offer may be negotiated until we come to an agreement on a price.
After the offer is accepted, a home inspection needs to be ordered if it was included as a contingency in the contract.
You will typically have 10 days to complete the home inspection. Once it has been done, you will determine if there are any counter offers you need to submit to the seller that needs to be done before closing such as defective problems.
A home warranty is optional, and if purchased it will cover repairs and replacements on systems and appliances in your new home over a period of 12 months. The coverage can include electrical, plumbing, heating, and air conditioning systems and some home appliances.
Typically, the lender will order an appraisal for you and will add the cost of the service to closing. A licensed appraiser will inspect the property to come up with an estimate of the homes value.
An appraisal is done to back up the lenders investment in the property, and to protect you from overpaying for a home.
Once you’re approved for a loan, the lender will provide you with a final commitment letter that specifies the loan term agreement, APR, and monthly costs to repay the loan.
This letter will also included any conditions that are to be met and additional documents that will be needed.
Before issuing a mortgage, lenders will require you to provide proof of home owners insurance.
The cost of this insurance can be included in your monthly mortgage payments if you choose.
You will not know your final amount to close, until a few days before closing. You will find the total amount in the HUD-1 document. Remember that closing costs are typically 3-5% of loan amount.
The final step of the home buying process is the closing. This is when the purchase of your new home is finalized and you receive the deed to the property.
Before heading to closing, make sure you have done a final walk through of the home to ensure the seller has fixed any issues (if applicable) and transferred the utilities into your name.
You will meet with an escrow officer to review and sign all your loan documents. The three main documents are mortgage, promissory note, and a closing disclosure.
You should receive copies of all closing documents, which you need to keep for tax purposes. You will be handed the keys to your new home!
Making a big purchase such as buying a new car, can change your debt-to-income ratio which the lender used to approve your loan.
Before opening new lines of credit, speak to your lender to get their approval.
It’s important that your credit score stays the same before closing, missing payments can lower your score.
Do not quit your job! It’s important to show you are stable and employed to your lender.
Whether you’re planning on buying a home in a couple months or a couple years, I will always go above and beyond as your agent and provide you with the information you need.
Here is a printable version of the 5 steps to buying a home.
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