Home Buyer's Road Map - Your Path to Homeownership
The home buying process varies from one buyer to the next. We are
individuals, after all, with different financial situations and
different real estate needs.
But while the process differs from one person to the next, there is
a certain series of actions that most home buyers take along the path
to homeownership. By understanding the typical sequence of events that
takes place during the home buying process, you will have a smoother
time with your own process.
So let's examine the typical steps involved when buying a home.
1. Decide to Purchase a Home
The process begins with a single spark. This occurs when you wake up
one day and say, "Hey, I make enough money to afford a mortgage
payment. My credit score is pretty solid. I'm ready to buy a home!" Of
course, if you are visiting our website and reading this article, we
can assume you have had this spark and are ready to proceed to the next
home buying step.
2. Review Your Finances
Even though the home buying process differs slightly from one person
to the next, there is one common thread. Regardless of your financial
background, you can be certain that mortgage lenders will put your
finances under the microscope. They will review your debt, your credit
history, your income and more. So it's wise to review these things for
yourself, before you get to the mortgage application stage.
Start by requesting copies of your credit reports and reviewing them
for errors. Review your finances to determine your home buying budget.
Start saving extra cash for the inevitable closings costs you'll pay.
Doing these things early on will prevent headaches later in the home
buying process.
3. Create a Home-Buying Wish List
At this stage, you have made up your mind to become a homeowner, and
you've begun to do some financial homework to determine what you can
afford. The next logical step is to create a list of the things you
want from your home. This will include things such as square footage /
size, the type of home, your desired location, and (of course) the
target price range for the home.
Lastly, organize your list into two sections, labeling each item as
a "must have" or a "would like to have" item. This separation will be
important later on, when you are choosing between different houses.
4. Get Pre-Approved for a Mortgage Loan
Early on in your home buying process, you will hear the words
"prequalification" and "pre-approval" used a lot. The latter term,
pre-approval, refers to a fairly in-depth review of your finances by a
mortgage lender. Through this process, the lender will pre-approve you
for a certain amount of mortgage loan, which of course determines your
buying power.
A pre-approval letter has other advantages as well. It shows sellers
that you are serious about (and financially capable of) buying a home.
This can be a big advantage, especially in a hot market where the
seller receives multiple offers. For example, if it came down to a pair
of offers from two potential buyers, but only one of them was
pre-approved for a mortgage loan, the seller would naturally lean
toward the pre-approved buyer.
5. Find a Real Estate Agent
For the "average" person, buying a home is the biggest
financial move of a lifetime. So it only makes sense to have
professional guidance along the way, and comes in the form of a
qualified real estate agent. Your agent will help you with every aspect
of the home buying process.
For example, when we work with buyers, we help them shop for
the right home, evaluate the asking price, put in the offer, negotiate
with sellers if needed, arrange the required home inspections, prepare
for the closing process and more.
6. Start House Hunting
This is one of the most exciting steps to buying a home. If you have
followed the road map up to this point, you will have reviewed your
finances, determined your budget, and chosen an agent to help you. Now
you're ready to "hit the streets" and start looking at houses!
Here's the key to successful house hunting. Have your wish list in
hand when looking at a home, and take detailed notes on how each home
stacks up against (or falls short of) the items on your list. A digital
camera is a good tool to bring along as well, because it will help you
recall the details of each home later on.
7. Make an Offer on the Home
The size of your offer should be based on (A) the seller's asking
price, (B) comparable sales in the neighborhood, and (C) your real
estate agent's advice. The thing to remember is that it's called an
"asking price" for a reason. It's what the seller hopes to sell the
home for, but the price needs to be validated against the current real
estate market.
You should also work with your agent to have a plan for the possible
outcomes of your offer. The seller might accept your offer, reject it,
or make a counteroffer. Additionally, yours might be the only offer, or
you might be competing with several other buyers. You need to have a
plan for each possible outcome, and this is another area where your
real estate agent will prove invaluable.
8. Get a Home Appraisal
This is when a professional home appraiser looks at the home and
assigns a value to it. In most cases, the mortgage lender will have the
home appraised, and there won't be much for you to do but wait and see.
The lender wants to ensure the home is worth the amount you've agreed
to pay -- the amount they are lending you.
If the appraised value is equal to or greater than the sale price,
the lender will be more inclined to give you the loan. If the home
appraises below the price you've agreed to pay, you will have to figure
out a course of action. Either the seller will have to lower the price
to meet the appraisal amount, or you'll have to pay the difference out
of pocket (above the mortgage amount).
9. Have the Home Inspected
With the amount of money you are paying for the home, it only makes
sense to have it inspected. The average home inspection costs only a
few hundred dollars. When you compare that to the peace of mind you get
from the inspection, it's a small price to pay. In fact, most purchase
agreements are contingent upon the successful completion of a home
inspection. This is wise, because it gives you a way out of the
contract if the home inspector finds some kind of serious discrepancy.
It's also wise to have a termite inspection during this stage as well.
10. Final Walk-Through
A day or two before the final closing / settlement process, you will
need to walk through the home a final time. The primary purpose of this
inspection is to make sure the home is still in the same condition it
was when you first saw it, and to follow up on any inspection items the
seller was supposed to correct.
11. Closing / Settlement
The closing process (also referred to as settlement) could warrant a
full page to itself. But for now, suffice it to say that the closing
process requires a lot of paperwork, the settling of any outstanding
fees or costs, and the transfer of the deed to the new owner. The best
way to prepare for this process is by asking a lot of questions leading
up to settlement, staying in close contact with your agent and the
escrow / settlement company, and making sure you have some cash put
aside for final expenses.
At the end of this process, the seller will also hand over the keys to the property. You are now officially a homeowner!
