The 12 Stages In Buying A House

TL; DR

Buying a home can be a stressful process. Follow these steps and best practices to make your housing process as smooth as possible.

Before looking for a house, make sure you have a clear understanding of your finances. Check your credit score to guarantee you’ll be able to get a mortgage loan.

You’ll next need to set a realistic budget and find a lender. Do some online research to find the best possible lender for your needs.

It’s also important to get preapproved for a loan. This helps sellers realize you’re a serious purchaser.

Don’t set out to find your dream house. Create a list of priorities that you want in a future home. Find out what you absolutely need, and shop for your dream home based on those priorities.  

Once you’ve found a great house, make a smart offer. Get your realtor’s advice on what a realistic offer looks like for the home you’re purchasing.

Before moving in, make sure you get a home inspection and a home appraisal. Seriously, both of these processes will save you money in the long run.

Once you’ve completed these steps, you’re ready for the fun part—close on your home and move in! 

Buying a home is one of the most exciting phases in your life—it’s part of the American dream.

But moving into a new home has its challenges. Not only do you have to find a house you love in your price range, you also have the added responsibility of a massive investment.

But don’t worry. According to the Bank of America 2019 Homebuyer Insights Report, 93% of current homeowners say owning a home is worth the challenges it took to achieve.

Which means, you should pursue your dream of owning a home.

While you may be excited and anxious to get into a new house, you need to make sure you’re prepared to take this big step.

The following steps outline the various stages in buying a home and offer tips and tricks on how to make the home-buying process as smooth as possible.

If you’re currently in the market for a house or considering purchasing one in the near future, understanding these phases in their entirety can save you a lot of time and hassle and make your transition as seamless as possible.

Stage 1

Have A Clear Understanding Of Your Finances

Buying a house is a major investment. If you’ve only ever lived in an apartment before, there are many fees and expenses that come with buying a house, not to mention the multi-year mortgage.

Before you start seriously searching for your dream home, you need to have a good understanding of your financial situation. While a mortgage spreads out the costs of a house over several years, you will still need to pay some money up front to cover the down-payment and the closing costs.

The minimum down payment is ideally 20% of the purchase price.

Depending on what types of loans you qualify for, you may not have to pay this much for a down payment.

For example, if you have served in the United States military, you might qualify for a VA Loan, which comes with additional benefits, like not having to pay for a down payment.

Depending on your annual income, you may also qualify for a USDA loan. With this type of loan, you will also be exempt from making a down payment.

Find out whether you qualify for these types of loans before moving forward.

Aside from these exceptions, it’s a good idea pay about 20% on your down payment in order to save yourself from additional fees and higher interest rates. The larger your down payment, the lower your monthly mortgage bills will be, meaning you save money on interest in the long run.

When purchasing a home, you will also be required to pay for the closing cost. The closing cost is typically 3%-6% of the purchase price. However, the amount you pay in closing costs depends on the terms of your loan and the cost of taxes in your home’s location.

By the time you’re ready for closing, your lender will offer you a loan estimate document. This three-page form will describe the terms of your loan, so you know exactly what you’re paying for and how much you need to save.

But before you apply for a loan or receive your closing documents, you need to start saving. As mentioned previously, there are quite a few fees that incur when purchasing a house.

You need to make sure you are financially stable and ready to make this major investment. Start saving now so that when you’re ready to purchase your home, you are fully prepared and understand the costs involved.

Stage 2

Check Your Credit Score

Once you’ve begun the saving process and understand the state of your finances, you need to check your credit score. The importance of this stage cannot be overstated.

Any mortgage lender is going to take a detailed look at your credit score and financial history before agreeing to offer you a loan. The lender is looking to see if you have a stable track record when it comes to your financial record and making regular payments.

Lenders will only commit to loaning you an amount they’re comfortable with you taking responsibility for. If they don’t believe you are a responsible candidate, you will likely not get as good of a deal.

Did you forget to pay off a couple of credit cards? Unfortunately, this will negatively affect your credit score. If you have a history of late payments in your credit report, your lender is going to be less likely to offer you a loan with a good interest rate.

If you have a seriously questionable credit history, you could even jeopardize your chances of getting any loan at all. If you have a less-than-perfect credit history, you’ll want to beef up your credit score in order to acquire a decent home loan.

If you have a high credit score, you are more likely to secure a great interest rate on your loan.

Checking your credit score is easier than ever before. There are plenty of free online resources you can access. Checking your score will not affect your credit score, so make sure you check before you apply for a home loan.

Something to keep in mind, given the recent circumstances of our world, lenders are requiring higher credit scores than in previous years. Chase Bank now requires a 700-credit score and a 20 percent down payment in order to qualify for a home loan.

So, if your credit score is under 700, start building your credit now. Don’t waste your money by taking on a loan with extremely high interest rates—you will likely regret it in the future.

Stage 3

Set A Budget

Now that you’ve checked your credit score and have a good idea what your finances look like, you should start to figure out how much you’re willing to spend on a home.

Before you even speak with a mortgage lender, you need to have a budget in mind. The last thing you want to do is overextend your budget and settle on a price that you cannot realistically afford.

When setting a budget, make sure you calculate all additional costs you will incur, not just the sticker price of the house. There are quite a few short-term and long-term expenses you should budget for.

Here are some terms to keep in mind when creating your budget:

Principal—this is the money that you borrowed in order to purchase your home.

Interest—this is the fee that your lender charges you for borrowing their capital.

Taxes—Remember, purchasing a house means you’re now paying property taxes. Add in your property taxes when creating a working budget.

Insurance—you will also want to purchase home insurance in order to protect your house from potential damage.

Association fees—this is the money you owe the homeowner’s association. You will only pay this fee if your house is part of the homeowner’s association.

Closing costs—again, you will be responsible for the closing costs. Go ahead and add this number to your budget.

Additional expenses—homes require regular maintenance. Create some room in your budget for additional repairs down the road.

When creating a realistic budget for your new home, a good rule of thumb is the 28/36 rule.

This rule means when budgeting for a mortgage, make sure your maximum household expenses will not exceed 28 percent of your gross monthly income. Additionally, make sure your total household debt doesn’t exceed 36 percent of your gross monthly income.

Following this general rule will help guarantee you are not overextending your resources when purchasing a home.

Stage 4

Find A Lender

The next step in your home buying process is finding a lender.

According to the National Association of Realtors, 44% of homebuyers begin by looking at properties, while 17% start by directly talking to a real estate agent.

In reality, it is in your best interest to find a lender before you speak with a real estate agent. Why? Because you need to first understand how much you’re going to spend on a house before looking for your dream home.

You should also shop around for a lender before choosing one. Different lenders offer different interest rates and terms on loans.

According to research from Freddie Mac, the average borrower could save $1,500 by getting one extra rate quote when applying for their mortgage.

Less than half of borrowers shop around for rates when applying for a mortgage loan, and they are losing money by not doing so.

Homebuying can be overwhelming. Maybe you don’t feel equipped to research the rates and fees different lenders are offering.

In order to combat unnecessary stress, start your research early. Don’t wait until the last minute in your home-buying process to start researching different lender’s rates. Mortgage rates vary rapidly so staying on top of the trends is a must.

Once you’ve spent time shopping for lenders and understanding the different rates and fees offered, you will feel more equipped in finding a loan that fits your financial situation.

Stage 5

Get Preapproved For A Loan

Once you’ve found your lender, it’s time to get preapproved for a loan. You will have a much simpler time in the home buying process if you obtain this preapproval.

Contrary to popular opinion, getting prequalified for a loan does not ensure that you’ll actually be able to get a loan.

Prequalification is a good indication of creditworthiness, but it is not a definitive term.

In order to get preapproved for a loan, you must complete an official mortgage application and provide your lender with all the documentation necessary to perform a background check on your finances and credit score.

Your lender can then preapprove you for a specified mortgage amount. This will give you a clear picture on the interest rate you’ll be charged for your loan.

There are many benefits to getting preapproved for a loan.

For one, you are guaranteed that you’ll be able to obtain a loan, as long as your financial state doesn’t change dramatically.

Preapproval also shows to sellers that you are serious about buying their house and able to financially afford it. You will then be able to move quickly once you’ve found your perfect house and be able to close in a timely manner.

Prequalifying for a loan still shows a level of commitment and financial reliability, but it does not offer the same level of protection and guarantee that getting preapproved on your loan does.

Make sure you are preapproved for a loan before continuing with the home buying process.

Stage 6

Choose A Real Estate Agent

One of the best ways to make the housing process simple is to find a good real estate agent. It is definitely possible to purchase a home without using a real estate agent. But this can actually make the process much more stressful for you.

So how do you find this perfect real estate agent?

To start, you can compare real estate agents online. Simply do a quick name search for agents you’ve found and read the online reviews left by previous buyers. The next thing you can do is interview the real estate agents you’ve discovered with great reviews.

Make sure you ask your potential agent the right questions. Some questions to consider asking are:

How long have you worked in real estate?

Do you typically work with buyers or sellers?

How many clients do you currently have?

What’s your particular specialty?

Make sure you and your agent are on the same page. Create realistic guidelines for how you will communicate with your agent. This is the number one complaint when it comes to real estate agents—their lack of communication. So, discuss with your agent how you want to be communicated with and how often.

Additionally, it might be worth your while to employ a local real estate agent who knows the area that you want to live in well. A local agent will know all the best neighborhoods and the average market prices in the area.

A good real estate agent will represent you throughout the home buying process to guarantee you find the right home. They will ask the right questions, and ultimately, help you make the right offer.

Real estate agents can seriously diminish your stress level when searching for the perfect home. If you’re a first-time homebuyer, it is especially a smart idea to find a real estate agent that can walk beside you as you make this important step.

Stage 7

Figure Out Your Priorities

After settling on a real estate agent, it’s time to talk through your priorities.

What does your dream home look like? What location do you want to live in? Do you want a single-family home or a multi-family home? How much land do you want?

These are all questions you need to ask yourself when looking for a home.

Here’s a secret—the perfect home does not exist. Most likely, you will not find a house that includes all your preferences and wants. Don’t be discouraged by this. You can still find a house that you love and will suit your lifestyle.

But you will have to figure out your priorities. What characteristics or qualities in a home are an absolute necessity? What things are just personal preferences that you could live without?

Sit down and have a serious conversation with your realtor about what you’re looking for in a house. A good rule of thumb is to do your own research before your conversation with your agent. Look at homes that are available in your price range and in the location you want.

Seeing the homes that are available will also help manage your expectations and know what type of house you can realistically expect to purchase.

Additionally, if you are buying a home with a spouse or partner, make sure both of you are on the same page about what you want in a future home. Create a list of all the qualities you want from a house, and then divide that list into priorities and preferences.

Stage 8

Make A Smart Offer

Once you’ve identified the priorities, it’s time to go shopping! Utilize your real estate agent’s skills and knowledge as you search for your home.

Chances are, you will find a house that fits your budget and includes some if not most of the qualities you’re looking for in a home.

Once you find a house you’re satisfied with, it’s time to make an offer. This can be the most challenging part of the home buying process for some people. You may not be comfortable with the haggling over terms and price that comes with this process.

Negotiation is a key part of making a smart offer.

In an earlier stage of the buying process, you established a budget that fits your financial situation. It’s important not to exceed this budget as you negotiate the price of a house. Remember, the longer the house has been sitting on the market, the more room you’ll have to negotiate with the seller.

Again, this stage is where you can use your real estate agent’s skills. They know what price other similar homes in the area are selling for. If you have a good real estate agent, they will help you make a reasonable offer and can even be a spokesperson for you as you negotiate terms.

This is also the stage in the home buying process when you’ll need to make your earnest money deposit. An earnest money deposit, also known as an escrow deposit, is essentially money you pay to demonstrate to the seller that you are serious about buying their house.

This money will be held in an escrow account and applied to your down payment and closing costs. However, if you decide not to buy the home, the seller gets to keep your escrow deposit. Because of this, make sure you’re serious about the house before making this type of deposit.

Stage 9

Get A Home Inspection

Now it’s time for the home inspection.

By the time you get around to the home inspection you might be looking for a place to save on money—after all, buying a house is expensive!

While you might be tempted to skimp on the home inspection—don’t do it.

This is a very critical step in the house-buying process.

The home inspection will be conducted by a third-party who will take note of any damage or necessary repairs needed in the house.

The last thing you want is to move into a house that has a damaged pipe or a leaky roof!

So, make sure you pay for the home inspection.

If there are serious repairs that need to be made before you move in, you can re-negotiate with the seller. Ask the seller to fix some of the major repairs before you close on the house.

A home inspection will help you identify all the areas in your home that need to be fixed before you move in.

Stage 10

Get A Home Appraisal

Before you close on the house, you should check and make sure your future home is appraised.

A home appraisal is an independent, unbiased assessment of how much a property is worth. Home appraisals make sure the purchasing price of the home matches the home’s true value.

Your lender is only going to provide funds to cover the appraised value of the house. If your appraisal comes in below the purchasing price, you will have to renegotiate the price or come up with the difference on your own.

Essentially, the home appraisal protects the lender. When you purchase a home, the house itself is used as collateral.

If you cannot keep up with your monthly payments and default on your loan, your lender is going to use the loan amount to recover their capital.

Stage 11

Close On Your New Home

You’re in the home stretch—you’ve followed all the stages to a tee, and you’re ready to move into your new home. There is one more step in the buying process you need to follow: the closing.

Before your closing date, walk through the property with your real estate agent to make sure the seller made any repairs they agreed to.

Make sure you review your closing disclosure. This document outlines the closing fees and any additional details involved in the closing process.

The actual closing day typically occurs between four to six weeks after you sign the sales and purchase contract. The closing process itself can take several hours. You will need to sign several documents: the closing disclosure, the promissory note, deed of trust, and certificate of occupancy.

During the closing, the property title will pass from the seller to you, making you the official new owner of your home.

This is also the time when you will pay the closing costs, which hopefully you have been saving for.

After the closing, be sure to store all your documents in a safe location.

Stage 12

Move In!

Finally! After all the hassle, fees, and steps you’ve gone through, you can now move into your home!

A few additional things you’ll want to check off the list shortly after moving in:

Change the locks. This is just a good safety measure to consider.

Change your address. You’ll need to officially change your address with the U.S. postal service so that you can you can receive mail.

Tell your friends and family. Make sure your personal items are getting sent to the right address!

Now that you’ve got everything covered and are comfortably moved in, get to know the neighbors and enjoy your brand-new home!