Buying a house can be a complicated, stressful process. Here are 10 steps to help you confidently find your new home.
Buying a home can stress you out, even in the best of times, and it may feel overwhelming in a highly competitive market. While some details may differ right now, the overall process of buying stays the same. Understanding the key steps helps you reach your goal and make your dream a reality.
No matter when you plan to buy, you should know a few things. On average, buyers spend roughly six months buying a house. In 2021, the typical buyer spent between 2 and 3 months searching, plus 30-45 days to close.
The process of buying a house involves more than just touring homes. You also need to review your credit and financing options, find the right real estate agent, make offers and negotiate, get an inspection, prepare to move, and eventually close on your new home.
Where to start when buying a house
Some of the first things to consider when you’re buying a home are how much you want to spend, where you’d like to live and what’s important to you as a buyer. Here a few questions to ask yourself:
- How much house can I afford?
- Am I going to take out a loan?
- How much do I have saved for a down payment?
- Can I afford my desired neighborhood?
- Are home values increasing or decreasing in the neighborhood?
- How long will my commute take?
- Is the school district a fit for my family?
- Is it within walking distance to amenities and activities?
Once you have the answers to these questions nailed down, you can start your home search.
Here are the 10 most important steps to take when buying a house.
Step 1: Check your credit score
Before you permit a lender to check your credit score, review your own credit report thoroughly.
What is a credit report? A credit report pulls data from three major credit reporting agencies: TransUnion, Equifax, and Experian. The report helps calculate both your FICO score and your Vantage score.
You can get free reports from all three reporting agencies at least once each year. If you find any errors in your report, dispute them immediately so you can resolve them before applying for financing.
What is a FICO score? Lenders use a FICO score to evaluate your creditworthiness. Fair Isaac & Co. calculates this score, which ranges from 350-850.
What is a Vantage Score? You’ll see a Vantage Score when you check your score on consumer-facing credit check websites. Your Vantage Score may differ from your FICO score. Lenders do not use your Vantage Score to evaluate your creditworthiness.
The higher your credit score, the lower the interest rate you’ll pay. Generally, a credit score of 720 or higher earns you a good interest rate on a conventional loan, but specific lenders set qualification criteria. For FHA loans, you can usually gain approval with a credit score of 580 or higher.
If you’re trying to improve your credit score before applying, understand the factors that can impact your score:
•Payment history
•Total debt
•Length of credit history
•New credit
•Type of credit
Step 2: Figure out how much house you can afford
When you get pre-approved, your lender will tell you the maximum amount you can borrow (we’ll talk more about the pre-approval process later). But you don’t need to wait for pre-approval to get a general sense of what you can afford. The Zillow Home Affordability Calculator helps guide you to the right price range by considering your annual income, monthly debts, projected down payment amount, and other criteria.
Prioritize your wish list to fit your budget
Once you have a rough budget in mind, make a list of must-have home features. Your price point will likely dictate the size, location, and amenities of your future home. Here are a few examples of wish list items to consider:
•Number of bedrooms and bathrooms
•Square footage
•Outdoor space
•Preferred location
•Type of home
•Layout, features, and finishes
•School district
•Pet-friendliness
•Work commute
Step 3: Find a real estate agent
Most buyers find it helpful to have a professional real estate agent on their side to guide them through the process. In 2021, 82% of buyers used an agent during some part of their home search, according to the Zillow Group Consumer Housing Trends Report 2021. Typically, sellers fund the buyer’s agent commission, which makes using an agent a cost-effective option for buyers.
Here are some areas where a buyer’s agent can help:
•Market insights: Identify home value trends, new developments, buyer demand, and overall state of the market
•Offer price: Determine what a home is worth and recommend a competitive initial offer amount
•Negotiating: Know when to argue for a lower price and how to negotiate contingencies and repairs
•Local familiarity: Offer insider tips about the neighborhood and area schools
•Professional recommendations: Provide referrals for a trusted lender, attorney, contractor, or other vendors
•Experience: Simplify the process by handling hiccups, staying on top of due dates, and overseeing paperwork
Of course, you want to make sure you find the right agent. A 2022 Zillow survey found that 24% of recent home buyers wished they had hired a different agent. Use Zillow’s Agent Finder to search for local agents, read customer reviews, and check out an agent’s recent sale history before interviewing your top two or three candidates.
Step 4: Get pre-approved
Unless you’re buying a home with all cash, getting pre-approved by a lender will give you an official verdict on your home buying budget. Some 86% of sellers prefer a buyer who has been pre-approved, as opposed to pre-qualified, for a mortgage, according to a 2022 Zillow survey.
To get pre-approved, a lender will calculate your debt-to-income ratio and assess your overall financial health by reviewing your:
•Income statements, like W2s, 1099s, rental income, and tax returns
•Assets, like bank statements and retirement accounts
•Debts, including monthly expenses like student loans, credit cards, and other mortgages
•Records of bankruptcies and foreclosures
•Current rent, child support payments, alimony payments, and any down payment gifts
When you’re pre-approved, you’ll receive a pre-approval letter. Not only does it officially let you know how much you can borrow, but it can come in handy when submitting an offer. A pre-approval letter shows a seller you’re serious about buying their home. This is especially important in a hot market, when you’re likely competing against other offers.
Note that you do not have to use the same lender to finance your loan that you used for your pre-approval. In fact, it’s always best to get estimates from multiple lenders and compare interest rates and fees before actually opening your mortgage.
Research from Zillow shows some buyers can save tens of thousands of dollars over the course of their loan if they shop for the best rate. Just one percentage point in higher interest could add more than $200 to a monthly payment on a typical U.S. home, and nearly $75,000 over a 30-year mortgage. Buyers can compare multiple lenders on Zillow’s online mortgage marketplace.
Keep in mind that your debt-to-income ratio will be examined again before closing. Taking on new debt can limit the total loan amount available to you during financing.
Step 5: Start the home search
Searching available homes online is a great way to start your house-hunting process. According to the Zillow Group Report, 95% of buyers use online resources in their home search. Start on Zillow and search for homes in your target area, then filter by price and your must-haves. Additionally, your agent can send you listings and schedule showings.
Try to stay flexible — you’ll probably need to adjust your criteria as your home search continues. For example, you might decide it’s worth sacrificing an extra bedroom to be in your desired neighborhood. Play around with search parameters and see what your money would buy if you changed your wish list a bit.
What to look for when touring homes
Once you start visiting homes in person, be sure to consider the home’s “health” so you’ll have an idea of any major challenges that might come your way if you decide to make an offer. Ultimately, the inspection will give you an official report on the home’s quality and condition, but while you’re touring, keep an eye out for the following:
•Structural defects and cracking
•Water pressure (turn on faucets and shower heads)
•Electrical issues (try the light switches)
•Functionality and heat retention of doors and windows
•Roof and exterior quality
•Noise from neighbors or traffic
Step 6: Make an offer
Once you’ve found the right home, you should make your offer based on a comparative market analysis (CMA) done by your agent. The CMA calculates a home’s market value based on comparable recent sales in the same area.
Using the CMA as your baseline, your agent should help you determine a fair offer price and help you decide if you should leave some room for negotiation — this depends on the state of your real estate market.
Above and beyond the CMA, here are some other things to consider when making an offer:
•Disclosures: Disclosures are known problems related to structural issues, unpermitted work, natural hazards, and flood risks. Most states require sellers to provide disclosure documents, so make sure your agent requests them.
•Closing date: When you’re buying a home with a mortgage, it will take 30-45 days after the contract is executed to close on the home. When you submit an offer, you can request a later closing date to fit your moving timeline, but the seller may push back on this request.
•Contingencies: Are conditions set by the seller, buyer, or lender that must be met for the sale to proceed. Some, like an appraisal contingency, are required by lenders to avoid overpaying. An inspection contingency is optional but highly recommended; 88% of buyers secured their home without waiving it, according to Zillow’s Consumer Housing Trends Report.
•Earnest money: An earnest money deposit is a sum of money you’re willing to put down when you make your offer to show that you’re serious about buying the home. If you close on the home, the earnest money simply becomes part of your down payment. If you back out of the purchase (outside of a contingency), you’ll lose the deposit.
It’s important to note that not every offer works out. It can be disappointing, but try not to feel discouraged if you don’t get the first home you put an offer on. In fact, 59% of buyers who submitted an offer ultimately made multiple offers before successfully closing on a home, according to the Zillow Group Report.
Step 7: Schedule the inspection
According to the Zillow Group Report, 88% of buyers had a home inspection. An inspection contingency and a thorough inspection help identify any major issues before purchase. Your real estate agent can recommend a licensed inspector, or you can find one through Zillow’s directory.
The inspection is typically scheduled within a week of signing the contract, and attending it helps you understand the home’s condition. After reviewing the inspection report with your agent, you can negotiate with the seller to fix major issues or request a credit to address them after closing.
Step 8: Secure your financing
Even if you’ve been pre-approved, you still need to take a few additional steps to officially submit the mortgage application. Once you’ve completed the following steps, assuming everything checks out, you should receive the “clear to close,” which means that the lender has approved your purchase.
•Loan application: If you decide to officially apply for your loan with the same lender that did your pre-approval, they already have some of the documents you’ll need for your application. Likely, you’ll need to provide updated financial statements. The most important thing you can do during this process is to respond to requests quickly. For example, if the lender asks for your W2, send it promptly to avoid a delay in your closing. If you decide to move forward with a different lender, they will tell you the list of documents they need in order to complete your application.
•Appraisal: Your lender will hire the appraiser, so there’s not much for you to do here. Your real estate agent should work with the seller’s agent and the appraiser to schedule the appraisal. After the appraisal is complete, you and your agent will receive copies of the appraisal report, so you can see the appraised fair market value and check out the comps that were used in the calculations.
If the appraisal matches your offer price: You should be clear to close.
If the appraisal comes in above your offer price: Even better! This means not only are you clear to close, but you’re purchasing the home
Thanks to ZILLOW.com for this great article
