The steps to buying a house can seem exhaustive, even if you have already been through the process. For first-time home buyers, these steps can get confusing very easily. It’s hard to remember each step of the process when you’re in the emotional roller coaster of buying a home. I created this article as a reference to help you through the process as you go through each step.
STEP 1: GET PRE-APPROVED FOR A MORTGAGE
This is everyone’s lease favorite step of the home buying process, but it is the foundation that the whole process relies on. How can you know what price range to focus your home search efforts if you do not yet know how much home you can afford. It can be very disheartening to fall in love with homes in the $500,000 price range, only to get approved for a maximum $300,000 loan later (trust me, it’s common). Before you get attached to any certain price range of home, you need to know your financial position, and that starts with the mortgage pre-approval.
Talk to a Good Loan Officer
Talking to a loan officer is very important. Notice I said “talking” to a loan officer. in my experience, you will usually get the best response from a mortgage loan officer if you contact them directly by phone. Some may respond well by email, but most officers want a hear a live voice before they will put much effort into your loan. You’re probably wondering, “where is the best place to find a good loan officer?” My advice is to network with a good Real Estate Agent. Good Realtors work with hundreds of loan officers and keep the contact information of great ones as referrals for future use. Realtors do not get paid for referring a loan officer. Their motivation for referring a good loan officer is directly tied to their experience with that loan officer. A bad loan officer can cost many wasted hours and plenty of frustration for everyone involved in the transaction. In an effort to make sure that every transaction is handled properly, a good Realtor will have some top real estate professionals in their contacts. If you are in Colorado and you need help with this, I can send you a list of a few highly skilled loan officers that I have worked closely with. You can also fill out the form on my Mortgage Loan Pre-Approval page to start the process whenever you are ready.
Calculate How Much Home You Can Afford
Once you have found a lender who you are comfortable working with, you can start planning based off of your loan officer’s information. First, you will determine the sales price range you are most comfortable with, based off of your approval and monthly payment details provided by your lender. Determining the real estate price range is the most important search criteria to know when starting your home search. Once you have determined this amount, you can also calculate your down payment and closing costs. These numbers will vary as you work through the loan details with your lender. FHA loans require a minimum of 3.5% down and can have slightly higher closing costs than conventional loans. Conventional loans usually require a minimum of 5% down, but may have lower closing costs. VA loans and USDA loans require no money down, but usually have the highest closing costs and have much more strict guideline requirements. These are all details that you can work through with a loan officer during the first stages of your home search.
Obtain a Copy of Your Pre-Approval Letter
Once you’re past the pre-approval stage, you can start your home search. In order to be taken seriously by any Realtors, Home Builders, For Sale By Owner sellers, etc., you will need to prove your buying power. This is where you will shine, since you have already gone through the pre-approval process (if you have taken the fore mentioned advice). Many people want to look at homes and be treated as a serious buyer before they have even talked to a mortgage lender. The most common question a Realtor asks a potential buyer when they first meet is, “Have you had the opportunity to speak to a loan officer yet?” If the answer in “No”, then the buyer will be directed to talk to a mortgage lender. Since your answer will be “Yes, I have. I read an AMAZING blog from Andrew Fortune directing me to do so.” (slight sarcasm), you will be treated as royalty (or at least you should be).
STEP 2: FIND A HOUSE
Now the fun begins! It’s time to start shopping.
Research Area and Neighborhood Statistics
It’s never been easier to find local information online. Data is constantly being posted on forums, websites, and social media sites. It’s up to you to take advantage of this information to find the right area for your next home. It’s a good practice to research local school districts, crime rates, taxes, pricing history, and any other relevant information that you can find. Search local online forums for one-on-one direct information from residents in the area. Use real estate blogs and websites, such as this one, to find market statistics and data that is relevant to your search criteria. I personally subscribe to RSS feeds using Feedly to keep me up-to-date on any new info coming out on all my local markets. Once you know the area that you are most interested in, you can setup a Feedly RSS feed to alert you any time there is new information posted on that area. While searching for a home, remember to avoid the Greed Monster.
Find A Good Real Estate Agent
A good Real Estate agent is invaluable. Imagine that you have bought and sold 10 homes in your lifetime. You would probably feel more knowledgeable than if you had only bought one home. Now imagine if you had bought and sold 30 to 50 properties every year for the last 5 years. Your knowledge of areas, closing process, potential problems, and insider advice would be vast and priceless. This is the value of a great Real Estate agent. When I work with buyers and sellers, I am relieved when I have the pleasure to work with people who value my knowledge of the industry, and they ask me many questions. It’s a great feeling to be able to share my years of experience with home buyers and sellers.
Write A Strong Contract
Once you have found the house that you love, it’s time to get it under contract! A good Realtor will also help you structure an offer well by writing a strong contract that protects your interests, as well as entices the other party to accept your offer. There are multiple ways to structure a contract. If you need closing cost assistance to help you close, you will want to make sure that you structure the numbers to still be appealing to the sellers. If there are multiple offers on a property, you will need to be coached on how each individual space on a contract can affect the strength of your offer. The best properties sell fast, so writing a strong contract can make, or break, your ability to find the best house on the market within your search criteria. Once you have a signed contract, you will want to hire and inspector to make sure everything in the property is okay. Negotiate repairs if needed. Once you are past the inspection period, it’s on to the closing!
STEP 3: GET THE KEYS
It usually takes 30 to 45 days to close a transaction, from the time of the executed contracted to the signing of the papers at closing. This time is needed for the mortgage company to prepare the loan and get all the documentation in order. Buyers paying with cash can close much quicker, sometimes as soon as 10 days after the executed contract is submitted. FHA, VA, and conventional loans all have different time processes, of which your real estate professional should keep you informed about throughout the home buying process.
Schedule the Final Walk-Through and Closing
It is wise to do a final walk through just before closing to make sure that there are no major issues with the property before purchasing it. This is not an inspection period. That part of the home buying process has already be completed upfront (hopefully). The walk through is just to make sure that there are no HUGE issues that would cause the transaction to be compromised. I have never had a walk through go bad, but it is always a possibility that the house could be in such bad condition, that the buyer would rather risk being sued for breach of contract, rather than buy the property in it’s current condition.
Close The Transaction & Get The Keys!
On the day of closing, be sure to bring your photo ID (preferably driver’s license) and certified funds for the downpayment and other fees that will be on the HUD statement. The Title Company should provide you with the final cash-to-close amounts the day before closing. You can also wire the funds to the title company before closing, if you choose to. Once both parties have signed all the papers at the title company, they will be sent to the lender and the lender will then fund the loan. This usually takes an hour or two. Once the loan funds, you can have the keys and take possession of the property as the new proud owner(s).
Live Happily Ever After
Now that you have successfully bought your new home, make sure that your taxes and insurance are escrowed properly on your first mortgage payment (if applicable). Also, remember to file for your homestead exemption (if applicable) to lower your tax rate. Now you can move on with your life, make lasting memories and live happily ever after….. until it’s time to sell. I’ll cover that in another blog post.