Home Buying Process Explained

10 Steps to Buying a Home

Home buying can be one of the most stressful experiences in your life. Part of it comes from not knowing what to expect when shopping for a home so I’ll cover the home buying process in 10 steps.

Buying a house for many people is the biggest and often the most important purchase they make in life. Your interest rate can mean the difference between saving thousands of dollars over the life of the loan. That’s why it’s important to understand the home buying process.

You’re Going to Learn 

  • The 10 steps to home buying
  • How to calculate how much you’ll end up spending on your home
  • How to save money when buying a house

The Home Buying Process Explained

Home buying can be one of the most stressful experiences in your life. Part of it comes from not knowing what to expect when shopping for a home so I’ll cover the home buying process in 10 steps.

Step 1 Understand Your Housing Market

The first step is to get a good understanding of the housing market in your area. See how long the houses you are interested in stay on the market and if there are any changes in asking prices.

You can do this by going to Zillow and monitoring how quickly the homes you’re interested in sell. This will give you a good idea of how quickly things move in your housing market. You may also notice trends and maybe gain some insight to understand what is a good deal and what isn’t.

Step 2 Research How Much Home You Can Afford

One of the biggest mistakes first time home buyers make is looking at houses first while having no idea how much they’re actually approved for. The shopping part may be the most fun part of buying a house but it’s ultimately wasted time if you cannot afford what you’re looking at.

Paying for a house is a lot different than paying for an apartment. Your mortgage isn’t the only payment price to consider.

Property insurance, council tax, property service charges, ongoing maintenance, and utilities that increase every year are some of the costs that first-time homebuyers tend to overlook when shopping for a place.

On average home buyers are likely to spend $1.68 per square foot of house in utility costs. That generally equals $2,715 spent annually in just utility costs.

When determining how much home you can afford lenders generally recommend that people look for homes that cost no more than three to five times their annual household income if the home buyers plan to make a 20% down payment and have a moderate amount of other debt.

Home affordability calculator

Keep in mind: you don’t have to spend your entire prequalification amount just because you’re approved for a large loan, spend what you feel comfortable spending.

Everybody’s financial situation is different so it’s up to you to determine how much money you can spend toward a mortgage.

Step 3 Getting Your Credit in Order, Saving Enough For A Down Payment, & Prequalification

This step may take months or maybe even years in planning and building credit in order to secure a mortgage for the amount and interest rate you’re looking for.

Getting prequalified let’s you know exactly how much money you’re approved for when it comes to buying a house.

Your credit score is one of the top factors that impact your interest rate. The higher your score, the lower the interest rate your lender generally offers.

Before you look at houses it’s smart to check your credit score at the 3 major agencies.

Check your credit for free here

Many lenders use your FICO score which measures your creditworthiness on a scale between 350-850. As is with everything else related to credit the higher your score the less of a risk you are to the lender.

  • Over 800 is considered exceptional
  • 740 to 799 is very good
  • 670 to 739 is ok
  • 669 to 580 is fair
  • anything below 579 is bad

The difference of a few points can be the difference of hundreds of dollars on your mortgage.

Check out the loan comparison calculator I have linked in the show notes to see how much a loan can cost you depending on the interest rate.

Loan Comparison Calculator

While it is possible to qualify for a mortgage with a lower credit score keep in mind you’ll likely receive higher interest rates and, in turn, higher monthly payments.

Credit requirements vary from lender to lender. Shop around with multiple lenders to find one that will work with you.

To get pre-approved for credit, you just need to provide some financial information to your mortgage banker, such as your income and the amount of savings and investments you have along with W2 Tax form

This lets lenders know how much they can lend to you.

Step 4 Get a Real Estate Agent

Real estate agents can provide you with helpful information on homes and neighborhoods that isn’t easily accessible to the public.

Real estate agents have a good idea of how the home buying process is supposed to go and familiarity with the area you want to live in can be extremely valuable.

In case you didn’t know: it doesn’t cost you anything to use an agent – they’re compensated from the commission paid by the seller of the house.

Once you’ve got an agent it’s time to go shopping, this is step 5.

Step 5 Compare Homes

It’s time to start touring homes in your price range. Depending on how many homes you view it can be hard to remember everything about them. I’ve found it helpful to take pictures to remember each home.

Things inside the house to observe

  • It’s important to test the plumbing by running the shower to see how strong the water pressure is and how long it takes to get hot water.
  • Check the windows and doors to see if they work properly.
  • Turn the switches on and off to see if there’s a fault in the electrical system.

Things outside the home to observe

  • Are there burglar bars on any of the neighbor’s windows?
  • Check the neighborhood to see if the other houses are well maintained, is the street clear or are there cars everywhere?
  • Is it conveniently located near places of interest to you: such as a certain school district, and work.
  • Take as much time as you need to find the right home

Step 6 Getting the Home Inspected

A home inspector will come into the house for structural damage or things that may need fixing.

If the inspection reveals significant material damage. you a chance to renegotiate your offer or withdraw it without penalty

You can then decide if you want to ask the seller to fix anything on the property before closing the sale. You are responsible for the price of home inspection.

Work with your real estate agent to negotiate a fair offer based on the value of comparable homes in the same neighborhood. Before the sale closes, you will have a walk-through of the house, which gives you the chance to confirm that any agreed-upon repairs have been made.

Once the seller and buyer reach an agreement on the price the house will go into escrow, where it is taken off the market and is the period of time it takes to complete the remaining steps in the home buying process.

Step 7 Work With the Mortgage Banker to Select Your Loan

The type of loan you select depends on your priorities. Maybe you want to keep your payments as low as possible, or maybe you’re concerned in paying as little interest as possible. The resources mentioned in the show notes will help you find the mortgage that best fits your needs.

Step 8 Make Sure You Are Paying a Fair Price for Your Home

An appraiser is a member of a third party company and is not directly associated with the lender. The appraisal will let all the parties involved know that you are paying a fair price for the home.

Step 9 Meet With the Title Company to Handle All of the Paperwork

Make sure that the seller is the rightful owner of the house you are buying.

Step 10 Closing the Sale

You’ll be signing all the paperwork required to complete the purchase. The process normally takes a couple of days for your loan to be funded. Once the check is delivered to the seller, you are ready to move into your new home.

Hopefully, these 10 steps remove some stress in your home buying experience.

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Here is a list of resources mentioned in this episode:

Home affordabality calculator

Mortage Calculator

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2 thoughts on “Home Buying Process Explained

  1. My brother is not a real estate savvy and it’s his first time selling a property. His intention of doing so is because of his promotion. He’s to be transferred to a new branch as a manager. I will be forwarding this to him to serve as his guide.

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