What is the Home Buying Process?

In the current market slow down, more and more home buyers are taking advantage of bargain pricing and easy mortgage loan terms to go from being renters to being home owners. With so many people first time homebuyers entering the market, it is inevitable that question’s will arise.

There are many things to consider when buying your first home. Some of the most important steps to buy a house are detailed below:

RESEARCH

The best way to get started is to begin researching the markets in the areas that you are interested in purchasing a home.  Read the newspapers, read the local real estate magazines, look online.  This will help you understand how much home your housing dollar will buy.  Research the area schools and amenities to be certain that the things that are important to you and future home buyers are present.

Since you are on my site, you have already found a knowledgeable realtor that you can trust to guide you through the process.  That’s the most important step.

GET PRE-QUALIFIED/ PRE-APPROVED

Knowing what you can afford before you begin looking at houses is a crucial step in the process.  You don’t want to fall in love with a home you can’t afford, no house in your true price range will be able to compare. Talk with several mortgage lenders and get pre-qualified for a suitable price range. The mortgage lender will be able to help you determine how much you can borrow based on your annual income and debt service. A general rule of thumb for mortgage lenders is that all home related expenses, including the mortgage payment, insurance premiums and real estate taxes, do not exceed 28% of your monthly income.

The next step is to obtain a pre-approval letter from your lender for mortgage financing. This is similar to getting pre-qualified for a price range, but it is a more formal process. You will need to supply proof of your income for the pre-approval process to move forward. Most lenders will want to see income tax returns from the past two years as proof of the income you are claiming.  They will also pull your credit report, so you should try to limit your credit card debt and credit applications in the months leading up to your application for financing.  Another good idea is to not make any large purchases like buying a new car or boat prior to buying the new home.

HOUSE HUNTING

After you have been pre-approved for your mortgage loan, it is time to actually start house hunting with your realtor. Your mortgage lender will have provided you with a letter stating that you have been pre-approved for a mortgage and the amount you are approved to borrow. It is important to get pre-approved for a mortgage loan before beginning your home search. You will not waste time looking at homes that you can not afford and sellers will take your offer much more seriously if it is accompanied by a pre-approval letter from your mortgage lender.

MAKING AN OFFER

You have found the house of your dreams, now what?  With the guidance of your realtor you will make an offer that is comprised of a monetary offer to purchase the house, earnest money (a financial token of intent to purchase), a desired closing date, items that you want to be included in the purchase, and provisions for property inspections and attorney review. Your real estate agent can guide you through the negotiation process and offer procedures. A copy of your pre-approval letter will be presented as part of the written offer. This will ensure the seller that your offer is legitimate.

THE NEGOTIATION PROCESS

If the seller accepts your first offer, congratulations. Your negotiations are over and you're ready to start securing your inspectors and attorney. More often the seller will respond with a counter-offer. A counter-offer is an offer of what the other party (the seller) would like to see in the transaction. Usually some of your conditions are granted, but a compromise is requested of some of the other elements of your offer. This negotiation process can go on for a short or long amount of time, depending on the motivation of the seller, the local real estate market, and a host of other factors. Your real estate agent will be a good guide through the negotiation process.

OFFER ACCEPTED

After the negotiation process has been completed, you will need to present your mortgage broker and attorney with a copy of the Purchase and Sale Agreement for the home.  As stated above, this is when you hire your qualified, certified home inspector to inspect the general physical and mechanical state of the property.  In some cases you will need to also have a termite inspection preformed as well. A home inspection will protect you from flaws in the construction and condition of the home that are not obvious to the naked eye. Home inspections can uncover things like foundation cracks, termite infestation and other home quality issues.

CLOSING

After the home inspection has been completed and the report has come back clean (or all the items uncovered have been repaired), the attorney has resolved any issues, and the property has appraised for the agreed upon purchase price, then a closing is scheduled.  It is at the closing that the remainder of your down payment is due (your earnest money is applied to your down payment), and you will actually sign the formal loan documents. After the closing of the loan, the fun part of home buying begins. Your real estate agent will hand over the keys to your new home and you can actually move in and enjoy your beautiful new home. Congratulations, you are now a homeowner!