Home Buyers Steps To Closing
If you ask ten different real estate folks what steps are involved with this process, you’ll get ten slightly different answers. These are the steps that I personally recommend taking:
- Self assessment — Start evaluating yourself like a lender would. Find out what your credit score is, and whether or not you need to improve it before applying for a loan. Figure out what your debt-to-income ratio is by using a DTI calculator.
- Budgeting — Determine your home buying budget. This is one of the most important steps when buying your first house, because it will keep you from overspending. Believe it or not, it’s possible to get approved for a mortgage that’s too big for you. So figure out the maximum amount you can put toward a mortgage payment each month, before you start talking to lenders.
- Pre-qualification — Getting pre-qualified by a mortgage lender is a good way to determine how much you’ll be able to borrow, approximately speaking. During this step, the lender will do a cursory review of your income, debt and credit picture, in order to give you a maximum amount they can lend you.
- Find an agent — This step is optional but highly recommended for first-time home buyers. If you don’t have professional help when buying your first place, you can really get yourself into a predicament. At the very least, hire a real estate attorney who can handle the paperwork for you.
- House hunting — If you followed the recommended steps up to this point, you should be ready to start house hunting at this point. You’ll have a budget, an agent, and a rough idea of what you can get from a lender. Time to start looking for houses!
- Make an offer — Once you find a house that meets your needs, you’ll make an offer on it. The amount you offer should be based on recent and comparable sales in the area. “Recent” means home sales from the last few months, and “comparable” means properties that are similar to the one you’re buying.
- Negotiate the offer — Your offer might be expected right away, or the seller could make a counter-offer. They might want to negotiate the price or the length of the escrow period. Be prepared for this by having a plan and a firm budget in mind. And don’t be afraid to walk away … it’s better than overpaying for the house.
- Inspections — Once you have an offer accepted by a seller, the home will officially be under contract. This is also referred to as being “in escrow.” At this point, you’ll want to have a home inspection to make sure the house doesn’t have any flaws that are unacceptable to you.
- Appraisal – Your mortgage lender will send an appraiser to evaluate the home. His role is to make sure the house is worth what you are paying for it. If it the property “meets appraisal,” you’re in good shape. If it the appraisal comes in low, the seller will have to lower the price or you’ll have to pay the difference out of pocket (ideally the first option).
- Closing / settlement — If everything goes well with the inspection and appraisal, you’ll be able to move forward to the closing process. This is the final step involved with buying a house. It’s when you sign all of the paperwork, settle up on all the fees and commissions, and get the keys from the sellers. Yay!
So there you have them, the basic steps involved with buying a house for the first time. Each of these steps could be expanded into an article of its own, and I plan to do that in future blog posts. I hope this gives you a better idea of what to expect during the home buying process