Buying a home can be challenging, especially in a competitive market. While some details may vary, the core steps of the buying process remain consistent, and understanding these steps can help you achieve your goal and turn your dream into reality.
Regardless of when you decide to buy, it’s essential to be prepared. On average, the home-buying process takes about six months. In recent years, buyers typically spend 2 to 3 months searching for a home, followed by an additional 30-45 days to close.
However, buying a home involves more than just touring properties. You’ll need to assess your credit and financing options, find a trustworthy real estate agent, make offers, negotiate terms, arrange for inspections, and prepare for the move before finally closing on your new home.
Where to Begin When Buying a Home
Start by considering how much you want to spend, where you’d like to live, and what factors are most important to you as a buyer. Here are some key questions to ask yourself:
- How much can I afford to spend on a home?
- Will I need a mortgage, and what are my financing options?
- How much have I saved for a down payment?
- Can I afford a home in my desired neighborhood?
- Are property values in the area increasing or decreasing?
- How long will my commute be?
- Is the school district suitable for my family?
- Is the home close to amenities and activities that matter to me?
Once you have clear answers to these questions, you can begin your home search with confidence.
Step 1: Review Your Credit Score
Before allowing a lender to check your credit score, it’s wise to thoroughly review your own credit report first.
What is a Credit Report?
A credit report compiles data from the three major credit reporting agencies: TransUnion, Equifax, and Experian. This report is used to calculate your FICO score and Vantage score.
You’re entitled to free reports from all three agencies at least once per year. If you spot any errors on your report, dispute them immediately to ensure they’re corrected before you apply for financing.
What is a FICO Score?
A FICO score is what lenders use to assess your creditworthiness. This score, calculated by Fair Isaac & Co., ranges from 350 to 850.
What is a Vantage Score?
A Vantage Score is the credit score you typically see when checking your score on consumer credit websites. It can differ from your FICO score, but lenders rely on your FICO score, not your Vantage Score, to evaluate your creditworthiness.
Step 2: Determine How Much Home You Can Afford
When you get pre-approved, your lender will inform you of the maximum amount you can borrow (we’ll cover the pre-approval process in more detail later). However, you don’t have to wait for pre-approval to get a general idea of what you can afford. The Zillow Home Affordability Calculator can help guide you to the appropriate price range by considering factors such as your annual income, monthly debts, and projected down payment amount.
Align Your Wish List with Your Budget
Once you have a budget in mind, create a list of must-have features for your future home. Your budget will likely influence the size, location, and amenities of the property. Here are some wish list items to consider:
- Number of bedrooms and bathrooms
- Square footage
- Outdoor space
- Preferred location
- Type of home
- Layout, features, and finishes
- School district
- Pet-friendliness
- Work commute
Prioritizing these features will help you find a home that fits both your needs and your budget.
Step 3: Find a Real Estate Agent
Having a professional real estate agent on your side can be invaluable during the home-buying process. Here’s how a buyer’s agent can assist you:
- Market Insights: Provides information on home value trends, new developments, buyer demand, and the overall state of the market.
- Offer Price: Helps determine what a home is worth and recommends a competitive initial offer amount.
- Negotiating: Knows when to push for a lower price and how to negotiate contingencies and repairs.
- Local Familiarity: Offers insider tips about the neighborhood and area schools.
- Professional Recommendations: Can refer you to trusted lenders, attorneys, contractors, and other vendors.
- Experience: Simplifies the process by managing potential issues, keeping track of important dates, and handling paperwork.
It’s essential to find the right agent for your needs. A 2022 Zillow survey revealed that 24% of recent home buyers wished they had chosen a different agent. Of course, I encourage you to read these 7 points of an excellent real estate professional.
Step 4: Get Pre-Approved
Unless you’re purchasing a home with cash, getting pre-approved by a lender is a crucial step that gives you a clear understanding of your home-buying budget. Pre-approval is required before going to look at property.
To get pre-approved, a lender will assess your financial health by calculating your debt-to-income ratio and reviewing various financial documents, including:
- Income statements, such as W2s, 1099s, rental income, and tax returns
- Assets, including bank statements and retirement accounts
- Debts, like student loans, credit cards, and other mortgages
- Records of bankruptcies and foreclosures
- Current rent, child support payments, alimony payments, and any down payment gifts
Once pre-approved, you’ll receive a pre-approval letter, which not only confirms how much you can borrow but also strengthens your offer when you find a home. In competitive markets, this letter shows sellers that you’re a serious buyer, which can give you an edge over other offers.
Also, keep in mind that your debt-to-income ratio will be re-evaluated before closing. Taking on new debt during the financing process can reduce the total loan amount available to you, so it’s best to avoid any significant financial changes until your mortgage is finalized and you have closed on your new home.
Step 5: Start the home search
Searching available homes online is a great way to start your house-hunting process. According to the Zillow Group Report, 95% of buyers use online resources in their home search. Start on kevinday.co (you’re here already) and search for homes in your target area, then filter by price and your must-haves.
Try to stay flexible, you’ll probably need to adjust your criteria as your home search continues. For example, you might decide it’s worth sacrificing an extra bedroom to be in your desired neighborhood. Play around with search parameters and see what your money would buy if you changed your wish list a bit.
What to look for when touring homes
Once you start visiting homes in person, be sure to consider the home’s “health” so you’ll have an idea of any major challenges that might be coming your way if you decide to make an offer. Ultimately, the inspection will give you an official report on the home’s quality and condition, but while you’re touring, keep an eye out for the following:
- Structural defects and cracking
- Water pressure (turn on faucets and shower heads)
- Electrical issues (try the light switches)
- Functionality and heat retention of doors and windows
- Roof and exterior quality
- Noise from neighbors or traffic
Step 6: Make an Offer
Once you’ve found the perfect home, your next step is to make an offer. Your agent will help you determine a fair offer price and decide whether to leave room for negotiation, depending on the state of your local real estate market.
Beyond a pre-offer CMA, here are additional factors to consider when making your offer:
- Disclosures: Disclosures reveal known issues related to the property, such as structural problems, un-permitted work, natural hazards, or flood risks. Most states require sellers to provide these documents, so ensure your agent requests them.
- Closing Date: When purchasing a home with a mortgage, it typically takes 30-45 days after the contract is signed to close. You can request a specific closing date to match your moving plans, but be prepared for the seller to negotiate on this point.
- Contingencies: Contingencies are conditions that must be met for the sale to proceed. For example, your lender will likely require an appraisal contingency to ensure the home’s value matches the loan amount. An inspection contingency is optional but highly recommended, 88% of successful buyers did choose to include an inspection contingency in their offer.
- Earnest Money: An earnest money deposit shows the seller that you’re serious about purchasing the home. This deposit typically becomes part of your down payment if the sale goes through, but you may forfeit it if you back out of the deal outside of any contingencies.
It’s important to remember that not every offer will be accepted. While it can be disappointing, don’t get discouraged if your first offer isn’t successful. 59% of buyers who submitted an offer ended up making multiple offers before successfully closing on a home.
Step 7: Schedule the Inspection
88% of buyers conduct a home inspection before finalizing their purchase, I encourage 100% of my buyers to do so. Including an inspection contingency in your offer and completing the inspection are the best ways to ensure the home you’re buying doesn’t have any significant underlying issues.
Typically, the inspection is scheduled within a week of the contract being signed. It’s advisable to attend the inspection, as it provides an opportunity to understand the inner workings of the home. After the inspection, you’ll receive an official report detailing the findings, which you can then review with your agent to decide how to proceed.
If the inspection uncovers major, non-cosmetic issues, you can renegotiate with the seller. You might request that the seller fix the problems before closing or ask for a credit so you can handle the repairs after the sale is finalized.
Step 8: Secure Your Financing
Even if you’ve already been pre-approved for a mortgage, there are still a few more steps to take to officially secure your financing. Once these steps are completed and everything checks out, you’ll receive the “clear to close,” meaning the lender has approved your purchase.
Loan Application
You may need to provide updated financial statements. The key here is to respond promptly to any requests from your lender, delays in providing documents like W2s could slow down your closing process. If you decide to work with a different lender, they will inform you of the documents required to complete your application.
Appraisal
Your lender will arrange for an appraiser to evaluate the property, payment will need to be made to get this scheduled and can be anywhere from $500 to $900 depending on the size of the home and other factors. Your real estate agent will coordinate with the seller’s agent and the appraiser to schedule the appraisal. Once the appraisal is complete, you and your agent will receive copies of the appraisal report, which will detail the appraised fair market value and the comparable properties (comps) used in the calculation.
• If the appraisal matches your offer price: You’re clear to close.
• If the appraisal comes in above your offer price: Even better! You’re purchasing the home for less than its market value, giving you instant equity.
• If the appraisal comes in low: Your lender won’t approve the full loan amount because they believe you’re overpaying. You’ll need to either cover the difference between the appraised value and the offer price in cash or try to renegotiate the price with the seller.
Step 9: Purchase a Homeowners Insurance Policy
Before you can close on your new home, you’ll need to provide proof of a homeowners insurance policy. If you already own a home, your current insurance agent can assist you in setting up a new policy for your new property. If you’re a first-time homebuyer, take the time to shop around for a policy that best suits your needs. Your lender may also help coordinate a policy that can be paid through your monthly escrow account, making the process even smoother.
Step 10: Closing and Moving In
It’s common for buyers to conduct a final walkthrough either the day before or on the morning of the closing. This walkthrough ensures that the property is in the same condition as when the offer was made and that any repairs agreed upon by the seller have been completed.
On the day of closing, you’ll likely spend about an hour at the title company signing the necessary paperwork. Be prepared to bring the funds needed to cover your closing costs, which usually range from 3-5% of the home’s sale price.
After all the documents are signed and the sale is officially recorded, you will receive the keys to your new home once the title company informs all involved the transaction is closed and funded.
Next, you’ll want to set up utilities for your new residence, including electricity, cable, and internet. If you are moving into a condo with a homeowners association (HOA) that includes some utilities, make sure to review the contract details with your real estate agent to understand your responsibilities.
With everything in place, you can now proceed with your move and start settling into your new home!