How to Buy a House:Timeline and Process

How to Buy a House

Step 1: Determine How Much You Can Afford To Spend 

This first step in the home buying process is critical in having success when purchasing a home. You need to determine what you are comfortable spending each month on your housing payment. This won’t include figures like utility bills and maintenance although you should definitely factor those in as well. 

By having a monthly payment in mind your lender will be able to easier approve you for an amount that fits into your budget. What you don’t want to do is look at homes in a certain price range just because your lender says you can afford it. 

Your mortgage payment is also not just made up of what you are paying back to the bank. 

Your mortgage payment is broken down in the acronym PITI: 

Principal: The amount you pay back against your loan each month

Interest: This is how much you pay the lender back each month as a fee for borrowing money. 

Taxes: Annual property taxes divided by 12 and paid monthly 

Insurance: Your yearly insurance premium divided by 12 and paid monthly

Also as we’ll discuss in step two, if you don’t put 20% down you have the additional expense of mortgage insurance. 

Step 2: Determine How Much You Have for Down Payment and Closing Costs 

Down Payment 

Your down payment is going to be a critical part of what type of loan programs and homes are going to be available to you.  You can choose to save for a down payment, get a gift from a family member or even borrow from employer retirement plans like 401k’s. 

Many buyers believe that they need to come up with 20% down in order to buy a home. If you’ve heard this you should know that’s a myth. 20% down is not required on any of the loan programs. 

There are loan programs that offer no down payment (USDA Rural Development and VA), 3.5% Down (FHA) and 3% Down (Conventional).  

Low down payments have many advantages especially for first-time home buyers, however putting a larger down payment can have one advantage.  Borrowers who put down 20% on a conventional loan can avoid private mortgage insurance (PMI). 

Avoiding PMI will save you some money every month, usually around $50-$200 depending on your loan amount but it should not be something that causes you to avoid buying a home altogether. While PMI is an added monthly expense it’s usually still better than paying rent. 

Closing Costs

You’ll also have closing costs when buying a home. Some examples of closing costs are:

  • Appraisal: The fee you pay to have the home appraised. 
  • Title Fees: The amount you pay to the title company 
  • Lender Fees: Sometimes called points, underwriting fees or processing fees. * Bayou Mortgage doesn’t charge lender fees. 
  • Government Fees: Fees paid to the government to record your deed
  • Prepaids: One year of hazard and/or flood insurance and prorated property taxes

Your closing costs will usually run you between 2%-5% of your loan amount. You can negotiate for the seller to pay a large chunk or all of your closing costs. A lender credit is another way to help offset some of these costs by taking a higher interest rate. 

Step 3: Meet With A Lender To Determine Your Options and Get Pre-Approved. 

Unless you are paying cash, you will need to get a mortgage in order to purchase your home. Meeting with a lender early in the process (before you start shopping for homes) will give you a huge advantage once you start shopping for homes. 

A mortgage lender will be able to tell you what loan program you qualify for, how much you’ll need to pay at closing as well as your interest rate and monthly payment. They will also be able to give you a pre-approval letter which you will need in order to make offers on homes. 

Step 4: Find A Great Realtor

Using a realtor when shopping for a home will help to make the home buying process less stressful for you as the buyer. They will show you homes as they hit the market, help negotiate, and walk you through the process. 

A good real estate agent will: 

  • Understand the area you are looking in
  • Won’t pressure you into buying something you aren’t comfortable with
  • Have experience with first-time home buyers 

While you may be tempted to use the seller’s real estate agent, it’s usually best practice to get your own realtor who only has your interests in play. 

Many people believe that a real estate agent will cost them money but typically the buyer’s agent’s commission is paid for by the seller. 

How to Buy a House (1)

Step 5: Find the Perfect House 

Finding the perfect home starts with staying in your budget. Buying a home comes with many different expenses and responsibilities so it’s important to make room in your budget for them. 

Next you’ll want to make a list of the most important things to you in your home. 

Consider things like: 

  • Number of Bedrooms and Bathrooms 
  • Square Footage
  • Neighborhood or Locations
  • Schools
  • Property Taxes and Insurance 
  • Outdoor Amenities (Like Pool, Kitchen, etc) 
  • Property Value 

You’ll want to rank each priority from most to least important because it’s not always possible to get everything you want within your budget.  

Step 6: Make an Offer and Go Under Contract

After you find the perfect home you’ll need to make an offer and sign the contract (if accepted). Depending on how competitive your market is you may have to make multiple offers on multiple homes before you “win” one. 

For this reason it’s important to try not to get too attached to a home until your offer is accepted. 

When making your offer you’ll need to consider how to make the most appealing offer. 

  • Do you need the seller to help cover some of your closing costs? 
  • Are there other people making offers on the home? 
  • Is the home in great shape or will it need work? 
  • How soon are you needing to move in? 
  • How long has the home been on the market? 
  • Has the owner dropped the price recently? 

Buying a home is not like buying a car. If it’s a nice home and there is competition there likely isn’t going to be a ton of wiggle room. If you need the seller to cover your closing costs, that’s also money that comes out of their pocket.  

Be prepared to make an aggressive full price offer (sometimes over full price) for the most competitive homes. For homes that have been on the market or recently had price drops you may have more wiggle room. 

Once you make the offer the seller can respond in a few different ways: 

  • Accept Your Offer: Congrats you get to move to the next step! 
  • Reject Your Offer: You can either submit a new offer or find a different home
  • Provide a Counteroffer: If the seller likes your offer but it wasn’t quite what they wanted they may issue a counter offer. They can change anything in your original offer and the ball is back in your court. 

Using your realtor to negotiate during this process will remove a lot of stress from your home buying experience and set you up to get the best deal. 

Want to start house hunting sooner? Start Your Application 

Step 7: Get A Home Inspection 

Once you go under contract this opens up what’s known as the inspection period. During the inspection period you can hire a home inspector to go out to the property and inspect the home. It’s all a time period in which you can walk away from that home (in most cases) without penalty. 

The home inspection is your opportunity to spot potential issues in the home you are trying to purchase. It gives you a chance to request the seller to fix or repair anything that is uncovered during the inspection. 

What happens at the home inspection? 

  • The home inspector will go to the property and go over it inch by inch. They will inspect the home’s foundation, structural components, HVAC, plumbing, electrical, roof and other items. 
  • The home inspector will arrive at the property 2-4 hours before you and do a thorough inspection.They will create a written inspection report that is then provided to you. 
  • They will complete a walkthrough with you to go over the home as well as any potential issues. 

It is important to remember that it’s the home inspector’s job to find defects, so don’t be overwhelmed by everything on the report.  You want to pay close attention to any serious issues that would deal breakers. 

If the home has serious issues you can then request the seller to repair them or provide money at closing for you to fix them. 

The next three steps tend to happen all at the same time and you will usually have the assistance of your loan officer and the mortgage company to get these done. 

Step 8: Get The Home Appraised 

The eighth step in the home buying process is getting the home appraised. A home appraisal is required by the lender as a condition of getting the loan. The job of the appraiser is to provide an opinion of value for the home you want to buy. The home must be valued for what you are purchasing it for.  Lender’s will not lend out more money on a home than what it’s worth. 

The appraisal is typically paid for upfront and ranges from $400-$800 but can fluctuate depending on the area, size of the home, or appraiser demands. The vast majority of our clients pay around $500-$600 to have their homes appraised. 

Most purchase contracts include an appraisal contingency which allows you to renegotiate or be released from the contract if the home is under appraised. The appraisal contingency helps to protect your interest and any earnest money you put up. 

Step 9: Order Title Work 

Title work is the process in which a title company or attorney’s office will perform a search on the property to ensure the title is free from any defects. They will make sure the seller is legally able to sell the home, there are no liens and judgments against the home, and they will act as the escrow agent for the transaction. 

The title company will also offer title insurance to protect against anything the title company might have missed. While this is very rare it’s extremely beneficial if anything does pop up. 

Step 10: Get Your Loan Through Underwriting 

Nothing brings more fear and confusion to the home buying process than underwriting. The underwriter is simply a person who reviews your mortgage application, home, and documents to ensure they are in compliance with the loan program that you’ve applied for. 

Once you applied for the loan and are under contract the lender will send your loan to the underwriter and they will typically have an approval back in a day or two. The underwriter will issue a “conditional approval” which basically means you’re approved for the loan under certain conditions. 

Common conditions are:

  • Home meets appraisal value
  • Home has good title work
  • Provide additional pay stubs
  • Letters of Explanation
  • Verification of Employment
  • Final Review

Underwriters can condition for clarification on your documents, request additional documents and ask for explanations about your job, down payment, work history, address history or credit history.

Once we’ve received the conditions the underwriter requests, the appraisal and title work, your loan is ready to close. 

Step 11: Do A Final Walkthrough 

The final walkthrough gives you one last opportunity to go through the home before it’s officially yours. As a buyer you should never skip the final walk through. You can check to make sure the condition of the home hasn’t changed, the seller hasn’t removed anything they agreed to leave in the contract, or left their belongings leaving you to clean them up.  

It’s a good idea to double check the HVAC system, any repairs made, and for pests.  Once you complete the walk through with your real estate agent you are ready to close on your home. 

Step 12: Close On Your Home 

Once your loan receives final approval you’ll receive a document called the closing disclosure. This document is very similar to the loan estimate you were provided in the beginning of the process but the numbers are now final. 

It’s important to review and sign your closing disclosure in a timely manner. The lender by law cannot close your loan until 3 business days have passed since you’ve signed the CD. 

Once this time has passed, you are ready to close your loan. You’ll show up to the title company with the amount owed listed on the closing disclosure. You’ll need to either wire the funds or bring them via certified funds such as a cashier’s check. 

We strongly recommend using a cashier’s check because wire fraud is on the rise and there isn’t a lot that can be done about it if the funds are moved overseas. 

Finally, the closing will take between 30 minutes and one hour. You’ll sign the deed, the mortgage statement, settlement statement and all other documents required by your state and lender. 

Once everything is signed you’ll receive the keys to your new home. Congrats you’re a homeowner!  

Home Buying Process FAQs 

How long does the home buying process take? 

The home buying process can be broken up into 3 parts:

  1. Home Shopping- This is when you are actively looking for the perfect home. How long this takes depends on how long it takes you to find a home. Some people find a home in a week while others shop for 12 months. 
  2. The Inspection-Appraisal Period: The inspection period is usually around 10 days although some may be longer if the home has issues that need to be inspected before a repair quote can be made.  The Appraisal portion begins once you’ve decided to move forward with the home and can take between 7-21 days to complete. 
  3. The Closing Period: This period starts when the appraisal and the final approval on your loan are complete. The loan closer is balancing with the title company, preparing your closing package and coordinating your closing. This typically takes 1-3 days. 

Overall the general home buying process takes 30-45 days from the time you go under contract. 

What’s The First Step In Buying A Home? 

Getting Pre-Approved. Unless you are paying cash you should always start by getting approved for your loan. The loan approval will answer so many questions most first-time home buyers have. Plus you are prepared to actually shop and make offers on homes. 

How Much Does A Realtor Cost? 

Most of the time the buyer’s agent doesn’t cost the buyer anything. Their commission is covered by the seller at closing. However if you purchase a home not listed with a realtor they may not be willing to compensate your realtor. 

What’s Your Best Advice For a First-Time Homebuyer? 

Trust your lender! Seriously, your lender has your best interest at heart. They may ask you all sorts of invasive questions, ask you for a bunch of documents, and have to occasionally share bad news with you. They are there to help you. If you feel like your lender isn’t there to help you you might consider working with someone who you can trust. 

Why Do You Ask So Many Personal Questions and For So Many Documents? 

We have to. I know it’s super popular right now to buy a home in an instant like a rocket but those technologies have serious faults. If you go online and get “pre-approved” by a computer but you haven’t provided things like paystubs, w2’s, tax returns, and bank statements you aren’t really pre-approved. 

There are so many rules and regulations in mortgage that it’s impossible to know if someone is approved for a loan without looking at those and other documents.  Trust the lender who asks for them upfront and not in the middle of the process. IF you are working with a lender and haven’t provided these documents you could get denied after you go under contract. I promise that’s no fun.

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