Buying a house can be an exciting adventure, but it can also be frustrating and scary. It’s a significant investment, and you want to make the right choice for your budget and life. If you head into the process understanding how it works and what you need to do, you improve the likelihood that it goes smoothly, and you end up with a home you’re happy with. Here are seven essential steps in the home buying process that prepare you for a positive experience.
1. Understand the Importance of Your Financial Health in the Home Buying Process
Purchasing a home is a major expense that requires most people to obtain financing. Knowing the current state of your financial health helps you understand your loan options and how much house you can afford. There are four primary factors to examine:
- Credit score: Your credit score determines what loan options you have. To secure a traditional home loan, you typically need a score of 620 or higher. If your credit isn’t quite there yet, you can work on improving it or apply for an FHA loan.
- Debt-to-income ratio: Your debt-to-income ratio tells a lender how much of your income goes out the door on bills every month. Knowing your DIR is essential in the home buying process because lenders look at it to determine whether you can afford a house payment, taxes and other expenses that come with buying a house.
- Work history: Lenders also want to know that you have a stable income. Generally, you should be able to show that you have had a steady, reliable income for at least the past two years.
- Cash on hand: When you buy a house, you need to be able to afford the down payment between 3% and 15% of your loan. If you can afford 20%, you avoid purchasing mortgage insurance. The premium for the insurance is tacked onto your house payment.
If your finances are in order, you’re ready to move to the next step in the home buying process.
2. Apply for Preapproval for a Mortgage
Getting preapproved for a mortgage takes a lot of the guesswork and stress out of the process. You know how much house you can buy, helping you narrow down your search to homes that fit within your maximum loan amount. After you complete your application, the lender lets you know how much they approve for your mortgage. You receive a preapproval letter that you can then present to a seller when you are ready to make an offer.
Once you know how much you can afford, you can create a list of what you want in a home. It’s a good idea to separate the must-haves from your wish-list items. When you draw up your list, keep your budget in mind, carefully considering what features you can’t live without and which ones you would like if you could find them in a home in your price range.
3. Find a Real Estate Agent You Can Work With
Most house hunters find that working with an agent makes the home buying process more pleasant than trying to go it alone. However, finding the right agent is key. You want one who:
- Has experience representing buyers
- Knows the local market well
- Has your best interests in mind
- Is available when you need them to be
- Has a personality that meshes with yours
You shouldn’t have to pay the commission as a homebuyer, as the seller typically covers the buyer’s real estate agent commission.
Working with an agent has several benefits. Real estate agents are familiar with what’s on the market. It’s their job to stay on top of available houses, saving you a lot of time in the home buying process. They know the neighborhoods and have a good idea of where to look for places that meet your criteria and budget. Agents also show you the houses you’re interested in, and when you want to make an offer, they complete the necessary paperwork and conduct negotiations.
4. Look for Your Next House
After your agent pulls together a list of options, select the ones you think you might like the most and schedule your showings for those first. It’s a good idea to view several houses before you make an offer on one. However, if you’re house-hunting in a hot market and find something you really like, you may not want to wait. Your real estate agent can help you determine how fast you need to move.
5. Make an Offer and Negotiate
When you find the house you want, the next step in the home buying process is to make an offer. Sometimes a seller is motivated to sell, making it more likely they’ll accept your first offer. However, you should be prepared for negotiations. Though your agent does the negotiating, you do have to know what you are willing to give or give up to get the house you want. One thing you should always include is an appraisal contingency, which allows you to back out of the sale or negotiate for a lower price if an appraisal turns up major issues.
6. Schedule an Appraisal
If your offer is accepted, you need to schedule an appraisal. This part of the home buying process is often required in your loan terms. The lender will not approve a loan on a house that is priced more than it’s worth. If repairs are needed, you can ask the seller to make them, negotiate a lower price or start your search again.
7. Close on the House
After everyone agrees to all terms, it’s time to close on the house. You may want to complete a final walkthrough to ensure everything still looks in order. Closing usually takes a few hours, but when it’s finished, you get the keys to your new home.
Find the Right Agent for a Smoother Home Buying Process
FastExpert hosts the largest data-driven real estate agent directory in the country, and it’s free! Our goal is to make the home buying process a positive experience for everyone involved. FastExpert helps you search, compare and hire the right agent for you. If you have any questions about the process or to view the directory, get in touch; we’re happy to help!