Buying a home is a major decision and one of the largest investments most of us will ever make. Before you write any checks, make sure you understand the home buying process so that you can make educated choices and avoid “buyer’s remorse.” Follow these steps to ensure that you are prepared and fully informed before you begin.
1. Review your finances.
Studying your credit reports is a must-do before you apply for a mortgage. There are three companies that track credit: Equifax, Experian and TransUnion. You should check all three reports for accuracy and to uncover any issues you may need to address before you apply for a loan. The reports and your resulting credit score play an important role in the mortgage approval process because they are an ongoing assessment of how you manage your finances. What’s in those reports determines the interest rate and other loan terms that a lender will offer you. If you spot issues or inaccuracies, it’s best to clean those up or correct them before applying for a loan.
2. Find a lender you can trust.
Finding the right lender and a reliable loan officer is crucial to your home buying success. It’s up to you to determine which lender is the best match. You want to be able to trust their advice and feel comfortable asking questions. Consider whether your loan will be sold after it closes. Will you be able to make a payment in person at a local branch? Or come back and ask your loan officer questions about your loan down the road? Or will you be limited to calling an out-of-state toll-free number?
3. Interview lenders.
Once you’ve identified one or two lenders that meet your criteria, call and talk to the loan officer or branch manager you’re considering working with. During this initial call, don’t let yourself feel rushed into making a formal application. A good loan officer will take time to ask you about your goals and financial plans before they ever address rates and loan terms. During this meeting, you’ll likely talk about how long you plan to live in the home, your debt-to-income ratio, and whether you prefer a fixed or variable-rate loan. Your answers will help the loan officer determine which type of loan will work best for you. To prepare for this meeting, take a look at our Home Loan Application Checklist. It will help you get your paperwork in order.
4. Get pre-approved for a mortgage
Once you’ve chosen a lender, it’s time to apply for “pre-approval.” Getting pre-approved will help you gauge your spending limit and makes you more attractive as a buyer, since you’re essentially getting “credit-approved” as a borrower. When a home seller gets two similar offers, the one that’s accompanied by a pre-approval letter from the buyer’s bank is seen as a much safer bet. Best yet, you can shop with confidence knowing exactly what you can afford. Be sure to get pre-approved, not just pre-qualified. With a true credit-preapproval, when you do make an offer on a home, all that’s left to do is have the home appraised and verify the title. Our online mortgage calculator can help you get a rough idea of your purchasing power based on different scenarios for down payment, loan amounts and interest rates.
5. Establish your wants and needs
Before you start looking at homes on the market, you should make a list of what you must have, what you’d like to have, and what you don’t want. This will help you can streamline the home buying process and ensure that you find the best possible fit. It’s also a good idea to familiarize yourself with your local real estate market. Are there particular neighborhoods you want to consider? How many bedrooms do you want? Will you be looking at newer houses, or do you want something with classic charm? You will also want to take into consideration factors such as resale potential and local schools. Consider whether your real estate agent’s area of specialty is a good match for your needs.
6. Find a good real estate agent. Then find the house.
There are many different methods of searching for a home. But one sure bet is to find a good real estate agent to help you every step of the way. Ask your friends and neighbors who they might recommend. Many agents now specialize in helping buyers. Your real estate agent can sort through available listings to focus in on what’s available in your price range, provide you with multiple listing sheets containing valuable details, and give you inside access to properties that are about to come on the market. You can also surf the Internet, flip through magazines and classifieds, and spend time simply driving through neighborhoods that interest you. Visit open houses. All are excellent ways to see what’s available. Your agent will help you consider contract contingencies, property rights and deed restrictions, and make sure that homes have the structure and features you need.
7. Make an offer
Each state has different real estate laws and customs, so the mechanics of making an offer and its specific contingencies depend on your location. Your real estate agent will guide you through the mechanics of filling out a purchase and sale form and the strategies behind putting up earnest money. They’re also instrumental in helping you with price negotiations should there be multiple offers or a counter-offer from the seller. Be sure you’re serious about buying before you negotiate a price and put your offer into writing. If the seller accepts your offer, it becomes a legal contract after a few days. In some areas, you and the seller may need to have attorneys as well as real estate agents representing your interests. Be sure to review the terms of the purchase and sale contract carefully before you sign it, and again when the seller accepts it. There are “standard” clauses, but there’s no such thing as a “standard” real estate contract. Make sure you understand each clause.
8. Formally apply for your loan.
Once your offer has been accepted by the seller, you’re usually given a certain number of days to secure financing and perform any home inspections. So now it’s time to call the inspector and your loan officer so you can submit your formal mortgage application. Your loan officer will help walk you through each step of this process, and let you know if they need additional information. Expect to submit an application fee (if you haven’t already) and for the lender to order an appraisal on the home to confirm the home’s value. The lender will also have a title company check to make sure that you will have clear title to the property after you close.
9. Getting your keys.
Assuming everything is in order, you will schedule closing with an escrow company, which is when you sign the papers, exchange money, and receive the keys to your new home. Congratulations! Now you’re a home owner!