How you progress through a home buying transaction can vary somewhat depending on the real estate laws and customs where you live, but many steps are standard. You'll feel more confident about your home-buying journey when you understand the chain of events and what's required of you, as well as every other person who's involved in the transaction.
Get Your Finances in Order
Your credit reports are an ongoing record of how you've managed your finances. You should know exactly what they say about your financial history before you apply for a mortgage. These reports and your credit score play an important role in the loan approval process, and they also determine your interest rate and other loan terms that lenders will offer you.
You might be surprised by what you find when you look at your credit reports because errors are not uncommon. You might also have forgotten or not realized the impact of the mistakes you made in the past. Ideally, you don't want any late payments to show up there. One late payment is bad, but more than that will kill you.
You're entitled to one free credit report a year, so get it and check it, and check your score, too. Do it early in the process so you have time to fix any problems and bring your score up, if necessary.
Get Familiar with the Mortgage Industry
Finding the right loan and lender is crucial to your homebuying success. It's up to you to determine which lender is best for your particular needs, and it's always a good idea to have an understanding of the loan process before you talk to a lender.
Know how your debt-to-income ratio works, and why it's important. Learn about discount points, and decide if you really need them. Will you have to carry mortgage insurance?
Consider asking your agent for a referral for the best lender for you. Not all lenders are reputable and she'll be aware of their reputations.
Get Preapproved for a Mortgage
Do you know how much house you can afford? Probably not, unless you've talked with a lender and you've been preapproved for a loan.
Preapproval helps you in other ways as well. Consider this scenario: A home seller gets two similar offers. One is accompanied by a letter from the buyer's bank that states that she's been pre-approved for a mortgage in the amount of the offer. The other has no supporting documents. Which offer do you think the seller will consider first?
Determine Your Wants and Needs
Buying a home isn't as difficult as you might think, even if you're short on funds, but the process will go a lot more smoothly if you're familiar with your real estate market. Narrow down your wants and needs before you start looking at houses, and differentiate between the two. You have some wiggle room with wants, but not so much with your needs.
Don't neglect to consider the possibility of resale somewhere down the road. Gauge how likely it is that each property you look at will hold its value, or—better yet—appreciate.
Learn to Work With Real Estate Agents
Real estate agents represent buyers, sellers, or both, and they can work as neutral facilitators for either party in some states. It's essential to understand agent duties and loyalties and your responsibilities to your agent before you make that first phone call.
Start Searching for a Home
You'll be inundated with possibilities, especially in the beginning of your home search. Your agent will send listings to your cellphone. You'll probably pick up "House For Sale" magazines and read classified ads in your local newspapers. You'll probably spend an inordinate amount of time surfing the Internet for homes. You might even plan afternoon drives to preview neighborhoods.
These are all excellent ways to see what's available...and for what price. Keep an eye out for foreclosures. Find out why if a particular home has been on the market for an inordinate amount of time. It might have a big problem or a little problem that you can live with.
Handle Pre-Offer Tasks
Deciding whether you want to buy a house involves taking a good, hard look at its structure and its features, but there are many other topics that are every bit as important to your purchase. You might want to consider having a home inspection to flush out hidden problems, or even talk to the neighbors to get firsthand opinions of the neighborhood.
You might also consider driving the neighborhood at night or on weekends to get a feel for who's living there and their lifestyles.
Make an Offer
There's no one set of instructions that can cover all the differences in real estate laws and customs that exist throughout the United States, so the mechanics of making an offer and its specific contingencies depend greatly on your location. There are some home buying tips that can help you fine-tune your offer, however, no matter where you live.
Find out what comes with the house. Appliances? Easements?
Ask your realtor about seller disclosures. What are the sellers required to report to you in your state? Lead paint or asbestos?
The answers to these types of questions will help you decide how much you want the property and, by extension, how much money you want to offer.
Home Inspections and Other Tests
If you didn't have a home inspection done in the beginning, you'll want to do so now. Home inspections are accomplished before the final purchase contract is signed in some states, but they can take place after an offer is finalized in others.
It's critical to decide which inspections and tests you want to perform. Talk with your real estate agent or another advisor to find out when inspections should be handled and if additional types of testing are important or appropriate for your specific area.
Avoiding and Correcting Last-Minute Problems
Everyone involved in your real estate transaction should check its progress on a daily basis as your closing date draws near. Staying on top of things means you'll know immediately if there's a problem that must be dealt with.
Common problems can crop up with the appraisal—it's not as much as or is much more than what was anticipated, causing a wrinkle in the proceedings. Make sure you understand the contingencies available to you, events that can allow you to legally back out of the deal, if necessary, without losing your earnest money.
You're on Your Way to Closing
Closing, also called settlement, is the event that transfers ownership of the property to you. Some common events during this period include dealing with title searches and insurance and doing a final walkthrough of the property to ensure that it's still in the same condition it was in the first time you saw it.
The Bottom Line
These steps are a general home buying guide. You'll probably encounter issues specific to your location and your transaction that can best be explained and handled by your local real estate agent, your lender, your attorney, your closing agent, or others who are helping you complete the home buying transaction.
Ask as many as necessary to help you understand the entire home buying process. You're making a long-term commitment and spending a lot of money, and you'll feel much better about the transaction if you stay informed and understand what's happening every step along the way.