How To Buy A House: A Complete Guide to the Home Buying Process

Wondering how to buy a house? This step-by-step guide will walk you through the home-buying process, which usually takes 30 to 45 days once a purchase contract is signed. This guide is written by a professional Realtor, providing a clear path forward with realistic expectations.

There are many meticulous steps to navigate acquiring a home. This guide will give you insights into financial readiness, credit management, and expert negotiation strategies, to ensure a smooth journey towards homeownership.

Save this blog post as a reference, and remember to ask your Realtor anytime you have questions. Your Realtor will help you through each step below.

Here's a quick reference guide to all the details we will cover in this article.

How to Prepare Your Finances Before Buying a House

Preparing your finances is the first step in buying a house. This will allow you to find the price range that fits your budget before looking at homes. It will also help you determine how much money you need to buy a house, usually 2% to 10% of the purchase price.

If you begin your home search in a higher price range than approved, you're setting yourself up for disappointment. Homes above your price range will have better features, such as location, size, and design. Going down in price range is heartbreaking for home buyers who start too high.

Start preparing your finances immediately, and you'll be ready for the next step. Here are five important tips to help you through the home financing process:

1. Get Started By Knowing Your Credit History

Some people may assume that their credit is good enough to buy a house because they have never had a late payment. Others may be afraid to check their credit because they assume it's so bad they could never qualify. Both could be wrong.

No matter what your situation is, you need to check your credit history and know your credit before buying a home. It doesn't matter how good or bad you are with money; all that matters is what's on your credit history. If you find something incorrect in your credit history, resolve it before buying a house.

Check your credit history before doing any other steps to avoid wasting time with the process. You may need to take care of a few things on your credit report that put you back six months or more. This can be frustrating to find out if you have already started looking at homes.

2. Calculate Your Debt-to-Income To Determine Price Range

Your debt-to-income ratio is one of the main criteria a mortgage lender will consider when determining your loan pre-approval. This number is found by comparing your average monthly debt (bills, taxes, etc.) to your average monthly income. Often, mortgage lenders don't want a higher ratio than 43% debt-to-income.

Here's an example of calculating your debt to income. If your mortgage payment is $3,000 monthly and your auto and credit card payments are $1,000 monthly, your total debt is $4,000. For brevity, we will assume that these are your only monthly debts. If your income is $8,000 per month, your debt-to-income would be 50% ($4,000 [debt] % $8,000 [income] = 50%).

Here's an easy online debt calculator to help you with this equation: Debt-to-Income Calculator

Lenders will have different debt-to-income requirements based on their company guidelines. As long as you are at or below the 43% threshold, you should feel confident in moving forward with the process.

3. Gather Your Tax, Financial, & Employment Documents

When you apply for a mortgage, the loan officer will ask you for the previous year's tax returns, employment verification forms, and the last month's bank statements. It's good to have this information accessible before looking at homes.

Some lenders may not ask for these documents until you are under contract. If you are asked for these documents later and cannot promptly provide them, it could affect your ability to purchase the home. This could cause you to lose earnest money and crush your hopes of buying a home.

Make sure you have all of your key documents ready, and preferably get them to your loan officer before you put a contract on a home. Realtors have some of the best references for good mortgage lenders because they promote the ones who don't kill deals. Experienced Realtors have all had a deal or two fall apart because of an inexperienced lender's incompetence.

4. Choose A Savvy Mortgage Lender

Now that you have checked your credit history, calculated your debt-to-income, and gathered all your financial docs, you should talk to a mortgage loan officer. This is an important step that will shape the way your transaction plays out.

There are many loan officers to choose from, just as there are multiple loan types. Be sure to take your time and find the one that works best for you. You'll be communicating with them often.

Closing costs, interest rates, and closing timeline are good things to ask your loan officer about. Most Realtors will have lenders who they can recommend if you need one. Contact a few different mortgage brokers to compare rates and personality types. Choose one who is experienced and whom you feel comfortable hiring.

5. Complete Your Loan Pre-Approval

To be treated as a legitimate home buyer when shopping for homes, you must have a mortgage pre-approval letter ready from your lender. Once you have completed the steps above and found a suitable mortgage lender, it's time to finalize your pre-approval to buy a home. Make sure that your lender has thoroughly investigated your finances.

Some lenders will do a basic mortgage pre-qualification based on minimal questioning. This can mean problems later when you are actually under contract to purchase. A full mortgage pre-approval will help guarantee that your financing doesn't fall apart later while you are halfway into the home-buying process.

When you submit your offer to the seller's agent, they will likely talk to your loan officer to verify the pre-approval letter is correct. If the seller's real estate agent senses incompetence in your mortgage lender, they may convey that to the sellers. This may make them nervous to accept your offer with that lender. This is why having a good mortgage broker is important.

How To Find The Right Home

Once you have prepared your finances to buy a house, the next step is to find one. This is the fun part of the home-buying process, but it can also be exhausting. The steps below will help you determine a clear path to finding the best house that fits your needs.

Depending on the state of your local real estate market, this process could take weeks to many months. Get ready for some emotional roller coasters as you venture through this part of the home-buying process.

6. Find A Good Real Estate Agent

A good Realtor is your most vital asset when buying a house. They will provide online tools to update you when new homes come on the market. They will also help educate you on the process and advise you on how to respond to certain situations that may arise.

Don't just hire the first Realtor that you know. Be sure to take your time and shop for a Realtor with solid credentials and a proven track record of helping people. They will be your primary advocate through the entire transaction process.

When interviewing real estate agents, be sure to ask about their experience level, production level, and history with the areas you are considering. Most cities have more Realtors than closings, so you have plenty to choose from. Take your time and choose wisely. This will heavily affect the outcome of your home purchase.

7. Research Local Areas Where You Want to Live

Before finding a home, you need to know which part of town you want to live in. Be sure to research local crime stats, school ratings, and area amenities to help determine the areas you would enjoy living in. These things also affect future resale, so consider that when researching.

Within certain areas, there will also be specific neighborhoods that you may like or dislike. Gathering all of this information takes time, so be patient and do your due diligence.

Choosing the wrong neighborhood can be exhausting and expensive to fix later on. It would be better to live in a smaller home in a good neighborhood, than in a big home in a rough neighborhood. Consider this truth while remaining open to all of your options.

8. Search For Housing Online and Make a List

When you know the areas you like best, you can go online and look at all the homes available in those neighborhoods. You can also set yourself up to be notified anytime a new home within your search criteria comes on the market.

On our website, click "Save Search" on any search results page, and you will be set up. This is one of the best ways to keep up with the housing market. Remember that homes usually look different in person than they do online.

Some homes look lovely online but not so good in person. Be ready to have an open mind and expect anything. You'll surprised how different properties are when you're actually inside of them.

9. Visit Homes In Person With Your Realtor

Once you have gathered some houses you would like to see, contact your Realtor and schedule a viewing time. Your agent will handle all of the showing coordination and details. As you visit the homes, take notes, photos, or videos to help remind you of the details. When looking at multiple properties within the same day, it's easy to forget a home's unique aspects.

As you look at houses with your Realtor, verbalize what you do and don't like so your agent can learn your styles and preferences. Looking at homes in person is much different than looking online. If you look at too many in a day, they will all start to blend together.

Try to keep a list of your top three favorite homes until you have worked through your entire list. This will help you stay focused on the properties that are best for you.

10. Make An Offer on a Home

Once you have found the perfect home, it's time to make an offer! Your Realtor will be able to help you determine a reasonable offer price by providing you with recent past sales data and current market data.

Every area, price range, and home style has different aspects that determine value. Considering all of these will help you present a fair but strong offer. Some properties may be in multiple offer situations, which requires even more thought when structuring the offer details.

Try to keep your emotions in check during this time. Be okay with losing the house if the seller is not willing to negotiate or is being unfair. Sellers will try to push on your emotions to wear you down. It would help if you had clear boundaries to your offer. This will protect you from agreeing to terms that you may regret later.

How To Get The Keys And Close The Transaction

Now that you have prepared your finances and found a home, it's time to close the transaction and get the keys. These items need to be handled promptly. Your Realtor will help guide you through each step. You can use this section as a reference as you are moving through the final steps of buying your new home.

Pay attention to everything that is happening during this time. Have clear conversations with your real estate agent and mortgage lender to ensure all the terms are clear and agreeable.

11. Negotiate The Real Estate Transaction Terms

Once you have submitted an offer on a home, you may receive a counteroffer from the seller. You can negotiate the contract terms, such as the closing date, seller concessions, appraisal deadlines, inspection deadlines, repairs, etc.

Your Realtor will guide you through your options and clarify everything. There are many different variables to negotiate on a sales contract, so take your time and think through every option. Once you're under contract, it's tough, if not impossible, to change things later.

Buyers have multiple contingencies that they can use to get out of a sales contract, but sellers have very few, if any. As a seller, you must verify that you are clear on all the contract terms before signing it. Your understanding of these terms will be the framework for the transaction moving forward.

12. How Does Earnest Money Work?

Once you have an executed sales contract signed by both parties, you will need to submit your earnest money. Earnest money is kind of like a down payment for the transaction. Sellers want more than just a signed contract before they take their house off the market.

Earnest money proves to the sellers that you are a serious home buyer ready to purchase a home. The earnest money is credited back to you at closing or will default to the seller if you cannot perform the details of the sales contract.

It's crucial to have your financial documents delivered and verified to your mortgage lender before submitting earnest money. If your lender missed some documents, they may be unable to underwrite your mortgage, and you could lose your earnest money. Make sure your loan is completely underwritten before you move forward with this step.

13. Perform Important Home Inspections

Most contracts are written with an inspection period to allow the buyer time to hire a home inspector and thoroughly inspect the property. There are many types of inspections, such as radon, mold, pest, structural, and full home inspections.

Having an inspection is one of the most essential parts of home-buying. The cost of an inspection is much cheaper than fixing issues later. Ensure you allow plenty of time to complete your inspections within the days allotted in your sales contract. Once you are past inspections, you're almost done!

When you receive your inspection report, discuss any issues you are nervous about with your real estate agent. You can ask the seller to fix issues if the real estate market is not too competitive.

14. Order the Property Appraisal and Property Insurance

The appraisal is one of the last steps in the home-buying process. Mortgage companies require appraisals to verify that their loan amount is equal to, or better than, the home's appraised value. It's protection for the lender.

If the house does not appraise at value, the contract will either be terminated or renegotiated. Ensure the appraisal is ordered as soon as your inspections are done. Delayed appraisals are one of the main causes of late closings.

You will also need to contact an insurance agent and get your homeowners insurance policy completed before closing. Your mortgage company will require this to be done before they can complete your loan.

Homeowner's insurance fees will vary dramatically. Some insurance carriers may not ever provide coverage in your area. Consult with your Realtor to determine which major insurance companies are in your area.

15. Close The Transaction And Get the Keys

Once you are past the inspections and appraisal process, you can set up a closing time with your title company and the other party. Be sure to bring your driver's license (or passport) to closing and any monetary items required by the sales contract or mortgage lender.

Once both parties have signed all the documents and the mortgage company has funded the loan, you will get the keys. Closing usually takes 30 minutes to an hour, but complicated deals can take much longer.

Make sure to be on time for your closing and ready to sign many documents. Most of the docs will be from your mortgage company. Cash transactions are much faster and have less paperwork than mortgaged deals.

Home-buying can seem complicated, but working with a good Realtor makes the process easy. Here is a helpful infographic to help you remember each step of the home-buying process. Happy house hunting!

As you journey through the home-buying process, use this guide to keep you on track. Remember to start with your finances before visiting homes in person with an agent. If you do everything in the proper order, you should have very little drama in your transaction.

Once your finances are ready to purchase a home, the fun of home shopping begins. Remember to keep your emotions in check and use logic to determine the best home. Lean heavily on your Realtor to help you stay objective until you finally close the transaction.

Once you have purchased your new home, you'll feel relieved you made it through the process. When you get the keys on closing day, take plenty of pictures to document that day. It will be a special day to remember later in life.

Thanks for taking the time to read our step-by-step home-buying guide. Please let us know if you need help buying a home in the Colorado Springs area. We specialize in helping home buyers find the best house for their budget and needs. We would love to hear from you.