How To Buy A House: A Step-By-Step Guide

Posted by Andrew Fortune 18,373 Views

How To Buy A House a step-by-step guide

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. We'll provide a clear path forward with realistic expectations. 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.

Step 1: Prepare Your Finances to Buy A House

How to Prepare Your Finances Before Buying a House

Preparing your finances is the first step in buying a home. 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. 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:

Know Your Credit History

Know Your Credit History Before Buying A HomeSome people may just 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 on your credit history, resolve it before buying a house.

Calculate Your Debt-to-Income

Calculate Your Debt Before Buying A HouseYour 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 $2,000 monthly and your auto and credit card payments are $1,000 monthly, your total debt is $3,000. For brevity, we will assume that these are your only monthly debts. If your income is $7,000 per month, your debt-to-income would be 43% ($3,000 [debt] % $7,000 [income] = 43%).

Gather Your Tax, Financial, & Employment Documents

Gather Your Tax & Employment Documents Before Applying for a MortgageWhen you apply for a mortgage, the loan officer will ask you for the previous year's tax returns, employment verification forms, and the previous 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 you cannot provide them promptly, it could affect your ability to purchase the 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.

Search For A Mortgage Lender

Find a Mortgage Lender Before Buying a HouseNow that you have checked your credit, calculated your debt-to-income, and gathered all your financial docs, you're ready to talk to a mortgage loan officer. There are many loan officers to choose from. Be sure to take your time and find the one that works best for you.

Closing costs, interest rates, and speed of closing are all good items to ask your loan officer about. Most Realtors will have lenders who they can recommend as well. Be sure to contact a few different ones to compare rates and personality types. Choose one that you feel comfortable working with. You will be communicating with them often throughout the process of your home purchase.

Complete Your Loan Pre-Approval

Get Pre Approved For A Mortgage To be treated as a legitimate buyer when you are out looking at homes, you will need to have a pre-approval letter ready from your lender. Once you have gone through the steps above and found a good mortgage lender, it's time to finalize your pre-approval. Make sure that your lender has thoroughly investigated your finances.

Some lenders will do a basic mortgage pre-qualification that is 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.

Step 2: Find a Home

How To Find The Right Home

Once you have prepared your finances to buy a home, 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.

Find A Good REALTOR®

Find a Good REALTOR®A good Realtor is your strongest asset when buying a home. They will provide you with online tools that will keep you updated 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 will arise throughout the process.

Don't just hire the first Realtor that you know. Be sure to take your time and find a Realtor with strong credentials and a proven track record of helping people.

Research Local Areas

Declutter, Deep Clean, and LandscapeBefore you can find 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 doing your research.

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

Search For Homes Online

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

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

Visit Homes In Person

Visit Homes In PersonOnce you have gathered some homes that you would like to see, contact your Realtor and set up a time to view them. 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. It's easy to forget home aspects when looking at multiple properties within the same day.

As you're looking at homes with your Realtor, be sure to verbalize the things that you do and don't like so your agent can learn what your styles and preferences are.

Make An Offer

Professionally Stage Your HomeOnce you have found the perfect home, it's time to make an offer on it! Your Realtor will be able to help you determine a good 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. Taking all of these into account 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.

Step 3: Get The Keys

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.

Negotiate The Transaction Terms

Negotiate the TransactionOnce you have submitted an offer on a home, you may receive a counteroffer from the seller. You will need to negotiate the terms of the contract, 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.

How Does Earnest Money Work?

Deposit Earnest MoneyOnce 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 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.

Perform Home Inspections

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

Having an inspection is one of the most important parts of home-buying. Ensure you allow plenty of time to get all of your inspections done within the days allotted in your sales contract. Once you are past inspections, you're almost done!

Perform Property Appraisal

Perform AppraisalThe appraisal is one of the last steps in the home-buying process. Mortgage companies require appraisals to verify that the loan amount they provide 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, then 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.

Close The Transaction

Close The TransactionOnce 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 and/or lender.

Once both parties have signed all of the documents and the mortgage company has funded the loan, you will get the keys. You are now the proud owner of your new home. Congratulations! :)

The home-buying process can seem complicated, but working with a good Realtor makes the process very easy. Your Realtor will keep you on track and ensure that every step of the process is handled correctly and promptly. Happy house hunting! ?

How To Buy A House Step By Step Guide Infographic

Andrew Fortune

Hi! I'm Andrew Fortune, the founder of Great Colorado Homes and the creator of this website. I'm also a Realtor in Colorado Springs. Thank you for taking the time to read this blog post. I appreciate your time spent on this site and am always open to suggestions and ideas from our readers. You can all my contact info here. I'd love to hear from you.

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