Buying a Home – Overview of the Purchase Process
One of the questions that I receive most often is “What should I expect as I am buying a home?”
Here is an overview of a typical buying process:
Step 1 – Find out how much you can afford (prequalification for a mortgage)
The first step you should take is to decide how much you can pay each month for your house or condominium. The total payment should be an amount that you know you will be able to pay comfortably along with your other bills and monthly savings plan. You also need to know if you will be able to get approval on a mortgage.
- This is the time to identify a trustworthy lender who will:
- Check your credit and offer suggestions about how you can position yourself favorably to get the best possible interest rate
- Discuss your current income and assets
- Notify you of best mortgage programs available for your specific situation
- Help you calculate your total monthly payment based on current interest rates
- Discuss closing costs and down payment and ways to keep costs low
- Help you determine a comfortable price range as you shop for your new home
- Provide a bank letter of prequalification to use as you make an offer on the home you wish to buy
CAUTION: Your lender should respond quickly and professionally. If it is difficult to schedule an appointment or your emails and phone calls are ignored, you may assume that this will be your experience throughout the home-buying process. Keep looking until you find a responsive lender!
Step 2 – Interview and select the best realtor for your purchase. Begin looking at homes!
Most homes are bought with the help of a realtor. Selecting your realtor carefully is important for many reasons. A good realtor will:
- Listen carefully to your story and what you would like to accomplish
- Discuss your needs and desires
- Help you think about what types of homes and areas will serve you best in the future
- Provide up-to-date information about available homes which meet your criteria
- Answer your questions
- Show you homes in your price range and help you evaluate value and features of homes
- Make shopping for your new home an enjoyable experience
- Negotiate for you as you make offers on homes
- Manage the process of the home purchase with the sellers real estate agent
Step 3 – Identify a home and make an offer
- Check utility bills
- Check property tax and ask about any special assessments
- Call, email, or meet with your loan originator to work out total payment amount and most suitable mortgage programs for your potential purchase
- Contact your insurance agent for a quote
- Work with your realtor to check the sales price of other comparable homes in the area which have sold recently to determine a potential offer price
- Present a contract for purchase through your realtor (your realtor will have the necessary forms and can guide you through this step)
- Request an updated prequalification letter from your lender if necessary – Include this prequalification letter with your offer.
TIP: working with a trusted local lender will help you receive approval of your offer. The realtors involved will most likely be familiar with local lenders and will communicate their level of comfort to the sellers regarding whether your mortgage has a good chance of approval based on their past experiences with the lender you choose.
Step 4 – Negotiate contract, receive seller acceptance, and schedule a home inspection
- Your realtor will handle forms, phone calls back and forth, and signatures required as you negotiate your sales price and terms of the contract
- Your attorney will review the contract as your advocate and counsel
- Contact lender for full application
CAUTION: Watch out for lenders who constantly redirect your conversation to payments rather than interest rates. They may be attempting to divert your attention away from the fact that they are charging an above market interest rate. Always compare interest rates and annualized percentage rate (APR – the measure of closing costs and long term interest paid) to determine the real cost of a mortgage!
- Schedule a home inspection with a reputable area home inspector
- Attend home inspection if possible to hear and see inspection findings in real time. This is a great time to measure for furniture, take dozens of photos, and check out details that you may have forgotten or wondered about. You may not have another opportunity to access your new home prior to closing.
- Review home inspection results with your realtor and attorney
- Provide your attorney with a list of desired repairs (if any)
- Wait for results as the sellers respond to your requests.
Step 5 – Bank appraisal of home and mortgage approval
Your lender will order an appraisal to determine the value for mortgage purposes. This inspection and report must be ordered by your lender and will typically be scheduled with the listing realtor. You will receive a copy of the appraisal report when it is complete (usually 1-2 weeks later). Lenders typically charge you upfront or at closing for the appraisal unless they have already covered the cost with an application fee. If time allows, the best practice is to wait until the home inspection and any repair negotiations have been successfully completed before ordering the appraisal. Talk with your loan originator about timing of the appraisal order.
By now your lender has had a few weeks to run credit and background checks and verify your employment and funds for closing. You will receive an initial approval for your mortgage once an underwriter has reviewed your mortgage application. This approval will normally be subject to a couple of clarifications regarding your credit, income and funds on deposit. It may also be subject to receipt of the complete appraisal report. Work with your loan originator or their processing staff to provide what they need for full approval.
TIP: Provide all documentation requested (all pages), and try to be as rapid and thorough as possible with your responses. Most requests from your lender are non-negotiable and must be satisfied in order to receive full loan approval. Do your best to maintain a positive attitude at this point and cheerfully provide whatever is needed – the mortgage staff will appreciate your positive approach and will most likely provide a higher level of service than they would to those who are less cooperative.
Step 6 – Schedule closing, finalize and review closing numbers and details
Your initial contract will have an agreed upon closing date. The time and location will be determined at this point based on the schedules of everyone involved. At this point it is important to be flexible and available. Plan ahead to take time off of work on both the day before your closing and the day of closing.
Your lender will provide a closing disclosure at least three days prior to your closing. This disclosure will list all of the costs you should have to pay at closing. As soon as you receive this notification, it is a good idea to contact your lender to discuss this disclosure and what your final amount will be to bring to closing. Most title companies will require certified funds at closing, and in many states you will be required to wire funds to the title company. You need to make arrangements as soon as possible to ensure a smooth closing.
Step 7 – Double check the condition of the home, close, move in, and CELEBRATE!!!
Your final walk-through is normally scheduled immediately before closing to make sure the home is in the same condition that it was in when you finalized your contract.
At closing, you will review, approve, and sign the necessary paperwork to finalize your purchase and mortgage. Expect this meeting to take 1-2 hours to complete. Once you are done with closing, you will own your new home and can begin the process of moving in.
Congratulations – you have made it through all the preparations, shopping, negotiations, and paperwork and can enjoy your new home!
- Helpful links:
- Purchase application checklist
- Monthly payment calculator
- Countdown: Purchase a home