The Real Estate Buying Process

Buying a house will likely be one of the biggest and most important financial decisions you will make.  Like with any decision of this magnitude you want to understand the process and how it works.  This step-by-step guide will walk you through the real estate buying process.

Step 1:  Preparing Financially

Preparing financially to buy a house may be the most important thing you can do in the entire buying process.  This is the step that will help you to figure out what you can afford towards monthly mortgage payments, a down payment, and any steps you may need to take to get there.

The first few things you will want to do, is to develop a budget and check your credit report and score.  There are lots of reasons to develop a budget and many things this budget will help with.  You will first want to create a current budget if you do not already have one and determine if you can and/or need to make adjustments so that you can put away more money each month towards a future down payment, closing costs, and/or other expenses occurred when buying a home.  You will next want to create a budget that will show how much you could comfortably afford to pay towards a mortgage each month.  Remember to include in this budget money you can set aside for home maintenance, repairs, and any unexpected costs that homeownership brings. 

Once you have established your budget you will want to obtain a copy of your credit reports and scores.  You will want to look at your report carefully and make sure everything on it is correct.  If there is anything that is incorrect you will want to take the time to get it corrected since your credit report and score has a direct impact on whether you will be granted a loan for a mortgage and what your interest rate for that mortgage will be.  Lenders are typically now requiring higher credit scores than ever before for obtaining a mortgage and even higher for the best interest rates.  If you have a concern that your credit score is not high enough now is the time to do what you can to increase it. 

Step 2:  Obtaining a Pre-Approval and a Real Estate Agent

Obtaining a pre-approval and a real estate agent are the next steps in the process.  Which one you do first is an individual decision.  If you decide to find a real estate agent first they will probably be able to recommend lenders they trust for you to obtain your pre-approval from.  If you already have a lender in mind there is no reason not to get the pre-approval first.

There are many reasons you will want to obtain a pre-approval for a mortgage.  Real estate agents and sellers will all take you more seriously if you are already pre-approved.  This shows both that you are capable of buying the property.  Being pre-approved will also tell you how much of a loan the lender is willing to give you towards a mortgage so you will know exactly the price range of houses you want to be looking at.  Always remember that the price range of house you look for should be within the budget you created for yourself even if a lender pre-approves you for more. 

Whether or not you use a real estate agent is a personal decision.  The biggest reason to use one is because when looking to make a decision this big it is probably a good idea to have the help of a professional guide you through the process. 

Step 3:  House Hunting

For the remainder of this we will assume you have decided to use a real estate agent.  It is now time to begin the actual process of shopping for a house.  The first step is to discuss with your agent what is important to you and what you are looking for in a home.  This should include wants and needs for the home itself as well as location.  The agent will then take that information and find houses that are on the market that meet your wants and needs and our within your already determined price range. 

It is important to remember that depending what your price range is it may not be possible for a house to meet every single one of your wants but that a good agent will do their best to find one that comes as close as possible.  It may be a good idea to prioritize your wants which will help you determine what you are willing to compromise on or not. 

Step 4:  Make an Offer

When you find a house that you would like to purchase you will need to make an offer to the seller.  To do this you will sit down with your agent and discuss what the best offer to make would be.  Depending on the list price of the property your agent may suggest you make your offer for the full amount or less.  Once the offer is final your agent will send it over to the seller’s agent.  At this point the seller will either come back accepting the offer as is, declining the offer, or with a counter offer.  If they come back with a counter offer you will need to discuss with your agent whether to accept it, decline it, or counter with another offer.

Once an offer is accepted by the seller the lender will send out a home appraiser to appraise the property.  The home appraiser’s job is to let the lender know how much the property is actually worth.  If the appraiser appraises the home value at less than the agreed upon buying price the lender may not be willing to grant the loan for the mortgage. 

Assuming that the offer has been accepted and the property appraised as needed a final contract will be drawn up and signed by both the seller and yourself.  At this point you will want to talk to your lender and lock-in your interest rate.  Lenders will lock-in an interest rate for a certain period of time.  You will need to make sure your settlement date is scheduled within that time period so that your interest rate cannot increase.

It is highly recommended you have a home inspection.  A home inspector will go through the house and make a list of any repairs the property may need.  The home inspector should explain their findings to you thoroughly.  You will then need to sit down with your agent and discuss which repairs you will want to ask the seller to fix before purchasing the property and which you are willing to deal with once the home is purchased yourself.  Your agent should be able to suggest a good home inspector and should be able to make recommendations concerning what you should ask the seller to fix. 

Step 4:  Settlement

Settlement or closing is the final step in the process.  This is when money, paperwork, keys, and property are actually exchanged.  Your agent will set-up a date and time for the settlement.  The day before settlement you should receive a HUD-1 statement that will itemize all the costs you will be expected to pay at the settlement.  You will need to come prepared with a cashier’s check(s) for these costs.  You will spend the rest of the time signing all the paperwork.  The deed will be transferred over to you at this point.  Once these steps are completed you will be handed the keys to your new property.

Conclusion

This has hopefully provided you with an overview of the home buying process and gives you a little more of an understanding of what exactly is involved.  Remember, that your agent is the professional and should be able to answer any additional questions you may have.