Buying a home is a long, complicated process, sometimes taking anywhere from two to four and a half months, or longer, according to Zillow. Knowing what is involved in the home-buying process can help you streamline the process, saving valuable time and money.
The following article gives checklist for buying a home to make the entire process easier to manage and less stressful.
The 14-Step Process to Home Ownership
A lot goes into buying a home, including searching for houses, getting pre-approval from the lender, and closing on the house you want. The following checklist lets you know when you need to complete specific steps in the home-buying process.
Step 1: Get your finances in order. Getting your finances in order represents the first thing you need to do before you even start looking for a home to buy.
This includes getting a copy of your credit report from one of the three credit reporting agencies. The three credit reporting agencies include Equifax, TransUnion, and Experian. You can get a free credit report from each agency once a year, though you have to pay to get your credit score.
You need to fix any errors on your report. And keep in mind that bad credit might take longer to fix. But even with bad credit, you may still be able to buy a house. A bad credit score usually just results in a higher interest rate.
You also need to have some money in savings so you can provide a downpayment, as well as pay for any other costs associated with buying a house, such as paying for a home inspection or any closing costs.
If you do not have any savings built up, you might need to do that before starting the home-buying process.
Step 2: Research mortgage options. You should also start researching what types of loans are available for you.
Whether you qualify for a loan and any downpayment you need depends in large part on your income.
In addition to a conventional loan, which usually requires a downpayment of 20% of the price of the home, home buyers have access to a few other loan options, including:
- A Federal Housing Administration (FHA) loan: An FHA loan requires buyers to put down at least 3.5% of the total price of the house. In addition, an FHA loan requires buyers to pay mortgage insurance to help offset some of the risk to the lender.
- A U.S. Department of Agriculture (USDA) loan: If you plan on buying in a rural area, you might qualify for a USDA loan. If you can qualify, USDA loans require no downpayment, though you still have to pay for private mortgage insurance, at least until you get your mortgage down to less than 80% of its value.
- A Veterans Administration (VA) loan: If you are a military veteran, then you can also use your VA benefits to acquire a no-downpayment loan. VA loans also do not require mortgage insurance, have lower interest rates than other loan types, and no prepayment penalties.
Step 3: Get pre-approved. Before you can start working with a realtor, you need to get a pre-approval letter from a lender. Many realtors can recommend a lender that they work with. Luckily, pre-approval only takes a few days.
When applying for pre-approval, expect the lender to ask for financial information, such as proof of income, where you work, and how much you made for the previous two years.
All of this helps determine if you qualify for a loan with the lender based on your credit, as well as what kind of downpayment you need to pay, if any.
Step 4: Develop a budget. You also need to decide how much you want to spend on a home.
Most experts recommend that you buy a home worth no more than three to four times your annual salary. You also need to keep in mind other costs associated with home ownership, including:
- Closing costs
- Homeowners insurance
- Maintenance costs
- Property taxes
Step 5: Check out neighborhoods. You should also start checking out neighborhoods that you want to live in at this point.
During this part of the process, you are trying to see if houses in the areas you want to live fall within your budget. There is no point in looking at houses that cost more than you can logically spend. You also want to check out neighborhood schools, healthcare, and important locations.
You have some options when checking neighborhoods out, including:
- Driving around the areas where you want to live
- Checking your local paper
- Visiting online sites, such as Zillow, Trulia, and Craigslist.
Step 6: Make a list of potential houses of interest. While checking neighborhoods out, make a list of all of the houses that fit what you want and that interest you.
Many online sites allow you to save locations for later viewing and to help you keep track of which houses interest you.
Alternately, you can get an agent who can make a list of homes that meet your criteria. Agents also might have information about homes that you don’t access to.
Step 7: Find an agent. If you really want to speed up the process, contact an agent in the area you want to live in.
You can check out various realtor Websites in your area, use the contact us form for a house you have an interest in, or rely on word of mouth from family and friends.
Step 8: Start looking. Once you have a list of homes, it’s time to start looking.
Contact the homeowner for a showing or have your agent show you the houses you have an interest in.
While at the showing, make sure to fully inspect the property and ask any questions you have. Some good questions to ask of your agent include:
- How many offers have the homeowners had?
- Has the price of the home fluctuated any?
- Why are the sellers moving?
- How long has the property been on the market?
- Do they know of any issues with the home? If not, can they find out?
- When were updates last performed on the house?
- What are the typical utility costs?
- Does the seller have a timeline? If so, what is it?
- What are the neighbors like?
Step 9: Make an offer. If you like the property, make an offer.
Keep in mind that a seller often lists a price online or with the realtor, so you can start there. Or you can make an offer for a different price.
When making an offer, compare the property asking price to other homes like the one you have an interest in. This helps let you know how much leeway you have when offering a price.
Step 10: Negotiate. If you do not like the counteroffer the seller makes, you can always try to negotiate a better one.
Negotiate with the seller until you can both agree on a price or you decide the seller wants too much. If an agreement can’t be made, move on to another property. But, remember, when negotiating, make sure to:
- Keep emotions out of the discussion.
- Be realistic.
- Know the market.
Step 11: Get a home inspection. Once you and the seller agree to a price, hire a third party to inspect the home to find any unknown problems.
When looking for an inspector, keep the following in mind:
- Find a qualified inspector: Look for an accredited, self-employed expert with at least 1,000 inspections under their belt. Your agent might have a recommendation for someone they usually work with.
- Get a detailed report: Ask what you can expect the finished report to look like. A multi-page report (10 pages at least) with photographs of problem areas is best.
- Consider additional inspectors: You should consider hiring additional inspectors beyond the initial one. If unsure, ask your agent to get their recommendation.
- Be there for the inspection: Attend the inspection so that you can ask any questions about the house, including the location of any shut-off valves and the location of the breaker box.
- Ask for a written estimate: Once the inspection is done, ask the inspector for a written estimate of how much any repairs might cost. The real estate agent can give a list of these costs to the seller.
- Ask for a price credit: If possible, have the cost of any required repairs deducted from the price of the home. This allows you to control who you hire to fix the repairs after you purchase the house.
Step 12: Get home insurance. Your next step is to seek out home insurance.
When acquiring home insurance, you have the choice of a variety of policy types, including:
- HO-2: Guards against 16 perils named in the policy.
- HO-3: Guards against all perils except those specifically left out of the policy.
- HO-5: Premium policy for new homes that guards against all perils except those specifically left out of the policy.
- HO-8: A premium policy for older homes with similar insurance to an HO-2 policy.
Step 13: Perform a final walkthrough. Perform a final walkthrough to make sure that the seller has fixed any problems found in the home inspection.
You might need to renegotiate or have the seller reduce the price if they can’t fix all of the problems found during the home inspection.
When performing the final walkthrough, check the following items:
- Check each outlet. You can do this with a voltmeter or by plugging a small item into each one.
- Check the plumbing to make sure that all of the faucets work and toilets flush.
- Make sure all of the appliances that come with the house are in working order.
- Test the smoke detectors.
- Turn on the heat and air conditioning to make sure they work.
Step 14: Sign paperwork and close. Once you are satisfied that everything is as it should be, you are ready to sign the final paperwork.
Documents that you need to sign at closing include:
- Mortgage note
- Mortgage agreement
- Loan application
- Loan estimate and closing disclosure
In addition to the documents you need to sign, make sure to inspect the following documents, signed by the seller, for accuracy:
- The deed
- The bill of sale
- The affidavit of title
- Transfer tax declaration
As you can see, buying a house is a long process full of steps that you need to take to ensure your ultimate success when buying a home. Keeping a checklist handy can help you to make sure that you accomplish everything you need to do quickly and easily along the path to home ownership.