10 Steps in the Homebuying Process
By Andrew Woodman, Vice President of Mortgage Lending, Georgia United Credit Union
The homebuying process can be both an exciting and stressful time. We have seen many changes to the lending landscape as well as the current real estate market providing historically low inventory levels so making sure you are ready to start the homebuying process has never been more important.
Buying a home has long been a dream for hard-working individuals, but while the idea of homeownership is usually memorialized in social media posts holding a new set of keys, many truly don’t understand the process until they have gone through it themselves. The homebuying process is both exciting and stressful but there are steps you can take to better enjoy your path to owning a home.
1. Get Your Own "House" in Order
Before you start to dream of paint samples and new furniture, you need to evaluate and understand your credit standing. There are many options for obtaining a free credit report such as AnnualCreditReport.com, so make sure in advance you have no “surprises” that may impact your ability to get a loan prior to entering a contract to buy a house. Your credit history will be a major factor in whether you qualify for a mortgage and what the terms of that mortgage are. Make sure you are aware of the type of score you receive on a report, as many free or pay to obtain sites are not giving you the score used by a lender. Scores used for homebuying, financing a vehicle and credit cards all use different criteria and can vary.
2. Choose Your Lender
Unless you are in a situation where you can make an all-cash offer on a house, having a pre-qualification or pre-approval letter from a lender is a requirement to be considered a prospective buyer. You should shop around for a lender as the programs, loan costs and rates offered can oftentimes vary. The loan officer should guide and counsel you on the various programs available and which is the best fit for your budget. Down payment will also determine what loan type is available and the rate eligible to you. Not all lenders offer 100% financing programs, so knowing your options of what to put down is crucial.
3. Get Pre-approved
A pre-qualification is not a guarantee you can get a loan since it is only based on the information you provide when applying. A pre-approval entails a much more thorough review of your finances, credit history, job history and demonstrates a greater degree of certainty to a seller.
While either option as outlined above will provide the maximum amount you are able to borrow, you should determine what you are comfortable paying each month. Many people are surprised to learn how much they qualify for, but keep in mind a lender only looks at the monthly payment in terms of the cost for the monthly principal portion of the loan, the monthly interest on the loan, property taxes, property insurance and any homeowners association fees typically. This is known as PITIA. Utilities and repairs are not a consideration for the loan, but they absolutely should be for you.
Once you are pre-approved, keep in mind that you should not open any type of new credit until the loan is closed and the house you choose is yours. Lenders monitor credit throughout the course of the loan process, so inquiries for credit cards or furniture may jeopardize your final loan approval.
4. Choose a Real Estate Agent
It can be very helpful having a licensed Realtor® to guide you through the homebuying process. Typically, the seller funds the agent’s costs making it an invaluable service free of charge! Especially in today’s market with historically low home inventory levels, having an experienced agent who is familiar with your wants and needs and helps identify the area you want to live is critical to ensuring you are aware when a property is coming available. At present there are more buyers than there are homes, so an experienced Realtor can help reduce your stress in the search.
5. House Hunting
After going through your wants and needs with your Realtor – which should cover everything from location, type of home, size, bedroom and bathroom count, age of home and condition to name a few – they should provide a list of homes that may meet some if not all of your criteria. Determining what is truly important is key, as the ideal home isn’t always the perfect home, so knowing ahead of time what items are negotiable is good to keep in mind.
During your search pay close attention to the details, if you notice something that seems out of the ordinary or want more information, speak up. Visit a home during different times of day, under different weather conditions, to truly see what it is you are getting. There are no returns when it comes to buying a home.
6. The Offer
Once you have determined which home best fits your needs, your Realtor will help you to make a fair offer. Keep in mind market trends will determine how you should make that offer, which means if you are able to, leave room for negotiation or in times like now where you essentially get one chance to make your highest and best offer.
In the offer you will determine a closing date, contingency dates for certain items to get completed (like a home inspection, financing and appraisal) and how much earnest money is put down, which is basically a good faith deposit. If you have a home to sell before buying a new one, that too would be incorporated into this offer.
7. Get a Home Inspection
While not a requirement for the loan, you should get a home inspection before buying any property. An inspector who is familiar with both past and present building codes will look for problems from the foundation to the roof and everything in between. This covers the electrical systems, heating and air systems, appliances and structure of the house itself.
Your Realtor or lender should be able to recommend options, but it is important to utilize an inspector who is familiar with the area and local building codes in which the property exists.
8. Finalize Your Loan
Once the contract is signed and provided to your lender, the loan process truly begins. You may need to update information already provided such as pay stubs, tax returns and bank statements which will be provided for final review.
- The appraisal is ordered to verify if the price you agreed to pay is in line with the current market value of homes that sold before your impending purchase.
- Title work is ordered from a law office which will identify the chain of title to ensure there is nothing that can jeopardize your clear ownership of the property once the sale takes place.
- You will need to obtain and finalize a homeowners insurance policy on your new home which is also provided to the lender for review.
It typically can take 30 days or more to finalize the loan depending on the complexity of your loan and market conditions.
9. The Loan Closing
Upon final approval, and as you near the agreed upon contract closing date, you will receive a Closing Disclosure which like the original Loan Estimate will outline all the costs associated with your new home purchase as well as the final monthly payment information. This form must be provided three days prior to closing and you must acknowledge receipt of it, so pay close attention!
On the day of closing, you will most likely go to a settlement agent who will oversee the signing of documents and where at the end of the signing they will hand you your set of new keys so you too can post on social media that you are a new homeowner!
10. Move In
While it is the last step in the process, you should begin to research moving companies and establish your utilities for power, heating and air, internet, etc. in advance of the closing date so that when you do walk over the threshold of your new home, you can truly settle in and create lasting memories from day one!
Content provided for informational purposes only and should not be interpreted as legal advice on any subject matter.