Process of Buying a Home

Process of Buying a Home

June 29, 2021
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Buying a home can be a life changing event. Owning property is a big deal. Land is one thing they don’t make more of. The process can seem daunting, and many think they don’t have the ability to buy a home without even exploring their options.

I broke down the buying process based on my experiences, while also inquiring of Tyler Carlson, Core Property Group, and Mike Abany, Lend US Mortgage Officer:

 

  1. Pre-approval: The first step in the process is getting pre-approved. Obtaining a pre-approval letter shows the seller you are a legit/serious buyer. Although not required, some listings, usually the more expensive ones, will not let you in the door without having a pre-approval letter. Typically, the types of information you need to provide in order to get pre-approved include proof of employment/income, the different assets and liabilities you have, and then the lender will run your credit score. Therefore, it’s vital to constantly keep tabs of your assets and liabilities. Once you are pre-approved, you now know your budget.

 

  1. Decide what you want: Once you get pre-approved, you have set a budget on what you can realistically afford. Typically, the next step is to work with a real estate agent. Working with an agent can be extremely beneficial as they have access to multiple listing services (MLS). Agents can input your buying wants (i.e. how many bedrooms, bathrooms, location, etc.) into the MLS system, and you will receive auto updates on what is hitting the market. This can help eliminate headaches of searching endlessly on Zillow, Realtor.com and other sites looking for potential homes. You will also want to think about how you will use this property. Is this going to serve as your primary residence? Do you have plans to eventually rent out the place? Once you get these questions answered, this will narrow down your options and get you focused on what exactly you are looking for.

 

  1. Finding a home: Once you are pre-approved and you know what you want, the next thing is finding a home! This can be a long process, especially in this environment, but you need to remain patient, optimistic, and ready to pounce once an opportunity presents itself. Be careful never to fall in love with a place, especially your first home. It could check off all the boxes, but make sure that the numbers work. If there is one thing that doesn’t lie in this world, it’s numbers. Also, do research to look at what is around the house. Any improvements being made in the area? Look at recently sold homes in the area, have they appreciated in value over the past couple years? Any new buildings or complexes being built? What were the historic property taxes paid? These all factor into your decision making.

 

  1. Making an offer: Once you have found a potential home, it’s time to draft up an offer letter. This lays out the groundwork of purchase price, deposit amounts, and timing. Now a days, to look more attractive, buyers are waiving inspections and certain contingencies (i.e. appraisal contingency). For first time home buyers, I wouldn’t recommend taking the risk. In this market, everything seems to be going way above asking. But in some instances, an offer below asking can work. What’s the worst thing they say, no? Ok, on to the next.

 

  1. Offer accepted, now what? Once your offer has been accepted, the next step is getting a home inspection (unless you waived this) and finalizing the purchase and sale (P&S). A home inspector will let you know the current status of the house and any issues that need to be addressed. I paid just about $600 for a home inspector, and he was well worth it. After the home inspection, you will finalize the P&S. The P&S lists the final purchase price and lays out the groundwork to ultimately close on the house. Typically, a $1,000 deposit is due and then 5% of the home price is also due when signing the P&S. Keep this in mind to make sure you have the funds available to execute this step. Once the P&S is finalized, it’s time to lock in a loan and close.

 

  1. Loan options: There are many loan options so make sure you explore all of them. The most popular are a conventional and FHA loans. Typically, if your credit score is 620 or higher, you will qualify for a conventional loan. For conventional loans, you can put as little as 3% down for first time home buyers, but this will result in you paying private mortgage insurance (PMI) until you build about 20-22% equity. For an FHA loan, these are backed by the government and typically are a lower standard. If your credit score is 580 or higher, than you would qualify for an FHA loan. For FHA loans, you can put down as little as 3.5% of the purchase price. One thing to note, if you go with an FHA loan, you will ultimately be paying mortgage insurance premium (MIP, another name for PMI), for the life of the loan.

 

You may be wondering why people would be ok with paying PMI/MIP. It is common for people to put less than 20% down to hold on to their cash to use for house improvements, buy a house faster or maybe they simply can’t afford putting that much money down up front. Also, a higher credit score will help keep your PMI/MIP lower. Additionally, if you are expecting home prices to rise (which has been the case recently), this helps reduce your loan to value ratio, which ultimately builds you equity in your home and can eliminate PMI quickly for a conventional loan.

 

  1. Closing – After the offer has been accepted, P&S executed, and the loan is locked down, you are ready to close. Typically, this involves lawyers to lock everything down, a lot of paperwork, and closing costs. Then you will get your keys and the fun, or headaches, begin!

 

Conclusion: Everyone has their own situation to deal with and you simply may not be ready to buy a home. But I hope this helps people who are even thinking about the process and lays out a blueprint on how to buy property. The best way to learn this stuff is to jump right in.

Resources:

https://www.lend.us/loan-advisors/Michael-Abany/

https://www.bostoncpg.com/agents/tyler-carlson/

 

  • Kyle – Client Services Associate

Disclosure: This material is for general information only and is not intended to provide specific advice or recommendations for any individual.