The Home Buying Process Demystified
The home buying process is wrought with potential pitfalls and challenges, but when done right can be relatively painless. As champions of homebuying, we’ve created this step-by-step guide to help you through the process.
Below you’ll find an overview of the home buying timeline as well as the major components of the home buying process with links to the various steps, tools, and information to educate and empower your home search, discovery and purchase.
How Long Does it Take to Buy a Home?
Your timeline may vary, but the following is a good guideline
- Preparing to Buy a Home: 3-4 weeks
- Initial Search for Ideas: 1-4 weeks
- Building a Team: 1 week (overlap initial search)
- Pre-Approval of Mortgage: 12-48 hours
- The Home Search: 4-8 weeks (depending on criteria)
- Contract-to-Close: 14-60 days
So, on average a homebuyer will spend 30-60 days shopping and 14-60 days from contract to close. For some folks, the process can be extremely quick taking as little as 30 days total, while for others, the shopping period alone can last several months.
How Much Home Can I Afford?
The first step in the home buying process is understanding if you have the resources to buy a home. This includes knowing how much home you can afford, what type of down payment and monthly mortgage payment to budget for, as well as what type of loan program you’ll use to finance your new property.
Buying a home is a complicated process that requires a good deal of research. In the course of it, there will be a number of professionals and specialists involved. Once you’ve done your homework and assessed your resources, you’ll need to assemble your team.
Assembling Your Team
After you have a good understanding of your own wants, needs, and goals, it’s time to assemble your team and begin the home search! Who should be on your team? Who you’ll need to find on your own may vary, but the key team members could be: Real estate agent (could be a RealtorTM but not all agents are), home appraiser, title company, home inspector, insurance agent and mortgage lender.
When selecting the members of this team, take the same amount of care you would in choosing a home, because these people will be working for you to help you do just that. Trust & communication are key considerations in working with your team.
Sorting Out Your Finances
With the selection of a mortgage lender comes the application for mortgage pre-approval, a task that requires collecting the necessary financial paperwork to help obtain the approval. Once obtained the clock begins ticking because many pre-approval offers have a limited life-span before they expire.
Your Home Search
While you juggle the paperwork and timelines implicit to the process, remember that your team works for you. Now your search for (and discovering) your new home begins. Research, save, view and repeat. Remember Homes.com has all the tools you need to find and keep track of your favorite properties and home shortlist.
You’ve got a mortgage pre-approval in hand and have found a property you can afford to purchase and see yourself living in. Time for a purchase offer to a listing agent or seller!
Once you receive an acceptance offer, the due-diligence period starts a timeline of checks and tasks for final mortgage approvals, appraisals, inspections, and other requirements that would be stated in the terms of the contract.
Assessment, Conditions & Negotiation
Many consider this to be the most difficult part of the home buying process as it includes, but isn’t limited to, inspection, obtaining the final loan, purchasing insurance, and the potentially arduous negotiation. In this part of the process, every member of your team will be utilized, and the more homework you have done in building your team, the smoother this part will go. Those who haven’t conducted their proper due diligence could potentially see the purchase fall apart at this point.
Closing the Deal!
A successful closing requires all of the team players to come together at the same time, with the same agenda, on the same date, with numbers and figures that match. From the start of the home search to the home inspection and closing the deal, the entire home buying process can take most homeowners about three months.
Considerations When Buying a Home
Home ownership is not for everyone. Some prefer the flexibility of being able to move to a new city or country every few years. Others are more focused on big projects in their career or education to devote the proper time to buying a home. Some simply do not have the resources. Whatever your situation, it’s important to know the right reasons to purchase a home.
Owning a home is a big responsibility. There are both financial and time costs associated with the ownership and the upkeep of a house. If putting in the time and money is something that you can make central to your life, then you might be ready. There can also be outside, societal pressure to buy a home, as many see home ownership as a universal stepping stone. Make sure you are buying a home for you, and that homeownership will fit your life and life goals.
Financial readiness isn’t just whether you have enough for a down payment or not. Because you may qualify for a mortgage it doesn’t mean you should borrow money for one. Before you begin looking to pre-qualify, make a budget for yourself. Calculate the true costs of homeownership. Look where you stand with debt to income ratio.
Perhaps you need to pay down some credit card debt before considering applying for a mortgage, maybe you’re expecting a child, or looking to go back to school; all of these can be valid reasons to wait to purchase a home.
Security and Stability
If your debt is low, work life is stable, and you plan on staying in the same location for the next five years, you should be looking to purchase a home. At a certain point, the monthly rent check is money that could be better spent on building equity. If the money you spend on rent seems like it’s getting thrown away, deep down, you may be thinking of buying a home. If you already own a home, but that new promotion has started to make you feel like home maintenance is a waste, you also may be ready.
Should I Buy or Rent a Home?
The decision to purchase a home is one of the biggest choices in anyone’s life. For most, a home will be the most expensive thing they ever own. In the past, home ownership was seen as a natural progression in the course of someone’s life. But today, many people happily rent for years on end, and never find an appropriate time to make the jump to homeownership. So how do you know if you are ready to make that leap?
Setting Your Priorities
Although there may be a perfect home waiting for you in your desired area, the unfortunate reality is that many home buyers have to make compromises during their home search process. To be prepared, understand that there may not be the perfect house in the perfect location at the perfect price and in the perfect condition you require. Although this doesn’t mean that you won’t find a house you can afford in your perfect location, be prepared to be flexible on:
- Price of the home + extras
- Location of the home
- Condition of the home
If you know what your priorities are, then finding your ideal place to call home is both possible and realistic!
Location. Location. Location.
If location is your #1 priority, yet buying in that location will price you out of several of your other priorities, then you might have to compromise in several ways:
- Look for a different home type within the community, such as a smaller single-family home, a townhome or condominium. Decide if you can live with one less bedroom or other features on your list.
- Consult with a lender or a financial planner to discuss your options for increasing your budget. While no one should overspend on a home, you should recognize that going above your price range when you’re financing your purchase with a 30-year fixed-rate loan may only add a small amount to your monthly payment (e.g. $10,000 might only cost an additional $30 / month).
- Lower your expectations about the condition of the home. While everyone prefers a move-in ready home, you can often get a better deal on a home that needs some cosmetic repairs. Do your legwork though, as cosmetic repairs might cost more than you think once you dig a little deeper.
Homebuyers all face the same tug-of-war. Home price, size, location, commute, amenities and many other considerations all grapple for attention. Although all features seemingly have equal importance, many could be objectively classified as ‘nice-to-have’ over ‘must-haves.’ Often something or somebody has to make a difficult choice, but ultimately ideal compromises can lead to a perfect (or almost perfect) home choice.
What You Can’t Compromise On
You can’t compromise on having good, qualified professionals on your home-buying team. Attempts to cut corners or compromise on this part of the home buying process will only lead to pain further down the road. Do your due diligence in selecting these people for your team, and make sure they always have your best interests in mind.
Closing Costs and the Full Price of Homebuying
In the home purchase process, the sale price of the house itself is only part of the cost of buying. Besides the down payment, there are always closing costs in any home sale. Closing Cost is a singular term for a wide variety of fees and payments, paid out to a wide variety of people involved in the sale, upon which the sale depends for going through.
This is not a complete list of all closing costs, but a list of the most common ones. The different fees involved to close a home sale can vary widely from state to state.
Fees to the Lender
- Application Fee: The cost for the lender to process your application. Includes a credit check for your credit score or appraisal as well.
- Escrow Deposit: Frequently, two months of property tax and mortgage insurance payments.
- Homeowners’ Insurance: This covers possible damages to your home. Often the first year of insurance is paid at closing.
- Lender’s Policy Title Insurance: This is insurance to assure the lender that you own the home and the lender’s mortgage is valid, and it protects the lender from potential problems with the title.
- Loan Discount Points: One point equals one percent of your loan amount. This is a prepaid interest payment that lowers your monthly payment.
- Origination Fee: This covers the lender’s administrative costs. Often 1% of the total loan.
- Prepaid Interest: Most lenders will ask you to prepay any interest that will accrue between closing and the date of your first mortgage payment.
- Private Mortgage Insurance (PMI): For those making a down payment that’s less than 20% of the home’s purchase price, you will most likely be required to pay PMI.
- Property Tax: Lenders will want any taxes due 60 days within the purchase.
- Underwriting Fee: This covers the cost of researching whether or not to approve you for the loan.
Fees to Others
- Appraisal: For the appraisal company to confirm the fair market value of the home.
- Closing Fee: The title company or escrow oversees the closing as an independent party in your home purchase.
- Home Inspection: The home inspection will verify the condition of a property and recommend any home repairs that may be needed.
- Recording Fees: Charged by your city or county recording office, to keep up to date the public land records.
- Title Company Search Fee: Paid to the title company for doing a search of the property’s records. Ensures that no one else has a claim to the property.
- Transfer Taxes: This is the tax paid when the title passes from seller to buyer.