So you’re ready to buy a house, but you aren’t sure how the whole process works. While each real estate deal is different and can vary in a multitude of ways, for the most part, buying a house is pretty straightforward and follows the same timeline.
It’s important to keep a realistic timeline of just how long it takes to purchase a house. The amount of time it takes can vary due to a number of factors like financing needs, if it’s a buyer’s or seller’s market, the time of year, and type of home you’re searching for.
The Steps of the Homebuying Process
1. Save for a Down Payment
This will be entirely dependent on your personal financial situation. For some special types of loans, you don’t have to put any money down, and this step will take no time at all.
Most of the time, though, you should save 5%–20% of the purchase price as a down payment.
Before you submit an offer, put all of the money that you have saved into a savings or checking account that you aren’t going to be touching until you close on a home. This will come into play later.
2. Find a Real Estate Agent
This is one of the most important steps when looking for a home. You’re going to be in contact with your agent through the entire homebuying process. You are going to spend hours looking at houses together and will look to this person for advice when it's time to submit offers and negotiate.
You must take the time to search for a qualified agent during this period. Choose one who has experience buying houses in the area you’re interested in and who knows the local market, as well as someone who comes recommended by others who have worked with them before. Important: don't start looking at homes just yet, as the next step must come first!
3. Get Pre-Approved for a Loan
The next step is to find a qualified Mortgage Advisor and get pre-approved for financing so you can make offers on homes. It’s important to do this before you start shopping for a home so you know what you can afford.
The process usually starts by meeting with a Mortgage Advisor over the phone so they can get a sense of what your homebuying goals are. After this initial consultation, you will be asked to fill out a mortgage application that will include information about your income and assets. It will also check your credit profile to see what recurring debts you have. Your Mortgage Advisor will use this information to determine your debt-to-income ratio, which will dictate how much financing you can qualify for and what your interest rate will be.
After you submit the application, they will meet with you again to discuss your mortgage strategy and decide what loan option will be the best fit for you and your financial goals. Once that is decided, they will issue you a pre-approval letter that you can use to shop for homes.
4. Shop for a Home
Once you’re pre-approved, your Real Estate Agent will put together a list of homes for you to go see that meet your criteria.
It’s highly recommended that you spend some time in this phase of the process. While it is possible to find your perfect home in the first one that you look at, it’s smart to see as many homes as possible. This will give you a great idea of what your wants and needs are.
5. Negotiate and Sign the Contract
Once you find a home that you love, the next step of the process is to decide what you want to offer the seller as a purchase price. Then you will have to determine whether you want to ask for any closing costs, repair budgets, or any other contingencies that you may require.
Your Agent will get the offer written up for you to sign and submit it to the seller’s Agent. This offer will include the pre-approval from your lender, and usually it will also include an earnest money deposit (EMD). This is a good faith deposit that demonstrates to the seller that you are serious about buying the home.
If your offer is accepted and you move forward with the purchase, the EMD will be subtracted from your closing costs. If your offer is not accepted or the deal falls through, your EMD is returned to you. An EMD is typically 1-3% of the purchase price.
If the seller accepts your offer, great! However, more often than not they will come back with a counteroffer. It is at this point you can decide to accept their counter, continue negotiating, or move on and keep looking at homes.
After the back-and-forth is finished, you get to sign the finalized contract and move into the escrow phase of buying a home.
6. Finalize the Loan
Once you have a signed contract, your lender can begin the process of finalizing and approving your loan. They are going to dive deeper into your financials and make sure nothing big that could affect your credit score or debt-to-income ratio has happened since you were pre-approved.
Along with verifying your personal information, they will also need to gather information about the house. There are many steps involved in this process that will be going on at the same time:
Home Inspection
While this is typically not required by your lender, a home inspection is probably one of the most important things that you can do before you purchase a home. A good inspector is going to pick out every little thing they can find wrong with the house so you can make an informed decision about whether or not the property will be a good investment for you.
It may take a few days to get a good inspector scheduled to come out and take a look at your home, so you want to get this process started as early as possible. Depending on your contract, you will have a brief contingency period in which to get the inspection done and decide if you still want to purchase the home. The inspection contingency is typically 7-10 days. During this period, you can choose to walk away from the purchase with no consequences (i.e. losing your earnest money deposit).
Your Real Estate Agent will have a reliable home inspector that they work with, and they will typically handle the scheduling and be at the home with you during the inspection to answer/ask any questions.
Negotiate Repairs
Unless you knew that you were buying the house as-is, meaning that the seller said upfront that they were not going to make any repairs, this is your chance to negotiate anything you would like to have done to the home before you buy.
You will submit to the seller a list of the things that you want to have repaired before purchasing the home. You can ask them to make the needed repairs, or credit you some money and have them repaired yourself.
Generally, you can get this sorted out within a couple of days, but sometimes negotiating takes a little longer. This should not affect how long it takes to buy the house, though, as it will be getting done early on in the process while your lender is at work approving your loan.
Process Title Work
To get a loan on a home, your lender needs to know that the house has a clear, or clean, title.
A clear title means that there are no outstanding liens on the property. Liens can be anything from work that had been done to the property but never paid for to unpaid utility bills. A clear title also shows that the previous sales transactions for the home were done properly, and the current owner is actually allowed to sell the home.
Title work is going to be done by your title company or closing attorney and will require no work on your end, but it is part of the waiting process.
As a buyer, you are allowed to choose the company you use for title insurance and settlement services. Your Real Estate Agent and lender will have recommendations for you based on who they have worked with in the past, but ultimately it is up to you. If you choose to shop for title services, you should start the process right away so it does not delay your loan closing.
Get an Appraisal
The appraisal is a very important step in securing a loan on a home. It is an official estimate of the fair market value of the home you are purchasing. It must be conducted by a licensed and impartial professional appraiser who uses information about the home, the surrounding neighborhood, and recent nearby sales to determine the home’s value.
Your lender will require an appraisal because it affects how much money they’re willing to lend you. If you are unable to pay back your loan, the home serves as collateral. This is why lenders will not lend you more than your home is worth.
An appraisal is requested by your lender and you will receive a copy of the report when it is finished. The cost of an appraisal varies by location, property, and complexity of the appraisal, and is usually paid for by the buyer.
If the appraised value matches or exceeds the agreed purchase price, the transaction can sail smoothly forward from there. If the appraised value comes back below the agreed purchase price, then you will have to negotiate with the seller to revise the contract at the lower price.
If the seller is unwilling to reduce the price, you have two options. You can either back out of the contract (and recoup your earnest money if the appraisal contingency has not expired) or you can bring in extra money to cover the difference between the appraised value and the contract price. This is why it is important that you follow all the steps set forth by your lender so they can order the appraisal as soon as possible – you want to have enough time for negotiations if they are needed.
Purchase Homeowner’s Insurance
If you are taking out a mortgage, your lender will require you to have homeowner’s insurance on the property. They will even wrap your insurance payments into your monthly mortgage payment so you don’t have to worry about an extra bill to pay.
You can shop around for quotes on this or just go with a company you already trust. As long as you have coverage set to begin the day that you are set to close on the house, then you are good to go. You can usually get a quote within 24 to 48 hours after a brief phone call with an insurance agent.
Prepare Closing Funds
Up until this point, you should have done as little as possible to the money in your bank accounts. You don’t want to be moving money around from one bank account to another, as that will make it harder for your lender to track your money and get you secured for a loan.
Closing funds are typically paid by either a cashier’s check that you bring with you to closing, or a wire transfer to the title company a day or two before.
If you are wiring your funds, you are going to need to get wiring instructions and the closing amount that you will need from your closing company or attorney. Make sure that you verify the wiring instructions with them, as this is a place where fraud can be committed and you don’t want to lose all of your money.
7. Final Walk-Through
This step is not necessary if you haven’t had the seller make any repairs to the home, but you can always go by and make sure that they haven’t made any strange changes to the home before you purchase it. This is your last chance to see the home before it is officially yours.
If you have asked the seller to make any repairs, this is the final point to verify that they have done what they said they were going to do.
8. Close on Your New House!
You have made it to signing day. Congratulations!
Your closing agent will walk you through all of the documents that you are going to be signing and make sure that you understand each of the places where you are putting your signature.
Don’t rush this process. You don’t want to sign something that you don’t understand. If you have questions, ask them. This is what the agents are getting paid for, so take advantage.
How to Speed Up the Homebuying Process
Other than actually finding a home, the part of the homebuying process that takes the most time and effort from you is getting your mortgage pre-approval.
To speed up that process make sure you gather ALL of your financial documents early. The exact paperwork depends on the loan product and lender, but you can expect to need:
- Your last two pay stubs
- The most recent two years of tax returns and W-2 forms
- Two months of bank statements (checking and savings)
- Statements for retirement accounts or other assets you might have (401(k), IRA, stocks, bonds)
- Written explanation for any large deposits or purchases on your bank statements
- Statements for any other sources of income, like Social Security, alimony, or child support
At NEO, we know financing a home can be intimidating, confusing, and hard at times. However, there is no need for you to be worried about the complexity of the process. It’s our job to help you understand and navigate each step of the journey and prepare a winning offer strategy so you can realize your dream of homeownership without the stress. Let's connect today to get the process started!
