How to Buy a House in 13 Steps
The following 13 steps are required for most home sales:
Table of Contents
How to Buy a House in 13 Steps
FAQs about Buying a House
> Last Thoughts on Buying a HouseLet's take an in-depth look at each step and what you will do as you go.
Step 1: Decide whether you're ready to buy a home
A major investment is making a purchase of a home. Before you start looking for properties or comparing different mortgage options, make sure that you are ready to become a homeowner.
Are you unsure if it is a good idea to buy a house? Let's take a look at the factors homeowners and lenders should be aware of.
Income and Employment Status
Your lender will not only want to know how much you earn. Your lender will also need to see your work history, usually for about two years. This is to ensure that you have a stable source of income.
It is about gathering the necessary documentation to prove steady employment in order to prepare your income. You will only need to submit your pay stubs or W-2s if you are on payroll. If you are self-employed, however, you will need to provide your tax returns and any other documents requested by the lender.
Ratio Debt-To Income
The DTI (debt-to-income ratio) is another financial tool mortgage lenders use for evaluating your loan application. Your lender can use your DTI to determine how much of your monthly income goes towards debt in order to help them evaluate the amount of mortgage debt they are willing to take on.
DTI is calculated when your gross monthly income and monthly debt are divided. If your monthly debts (loan payments, credit card minimum payments, etc.) total $2,000 per month, then DTI is $2,000/$6,000. If your monthly debts (credit card minimum payments, loan payments, etc.) total $2,000 per months and your gross monthly income $6,000, your DTI would be $2,000/$6,000 or 33%. To calculate your DTI, your lender will use your credit report's debts.
Your lender might calculate your housing expense ratio depending on which type of loan you are applying for. Sometimes called front-end DTI. This ratio compares your monthly income and your total house payment (principal interest, taxes, and insurance) to determine your monthly housing expense ratio. If you have a $1200 monthly house payment and a $6,000 monthly income, then your housing expense ratio would be $1,200/$6,000 or 20%.
Before you apply for a loan, it is smart to check your DTI. For most options in mortgages, your back-end DTI must be less than 43%. However, this number can vary depending on the lender and loan type.
Even if you have a mortgage, liquid assets are still required to finance the purchase of a home.
A down payment: Although it is possible to buy a home without money down, most homeowners will need some cash in order to make a down payment. The down payment is the first payment that you make to your loan at closing.
The amount you need to make a down payment will depend on the type of loan you have and how much you borrowed. A home can be bought with as little as 3 percent down, though there are many benefits to putting down more.
Closing costs: Before you can move in to your new home, you will need to pay closing costs. These are fees paid to your lender or other third parties for the creation of your loan.
The exact amount you pay in closing costs depends on where you live, what type of loan you have. As an estimate of closing costs, it's a good idea if you have 3 to 6% of the home's worth. You may be able to roll part of your closing costs into your mortgage, or the seller can pay them using seller concessions.
Your credit score is a major factor in determining which loans and interest rates are available to you. Lenders will be able to see how risky you are by your credit score.
As you apply for a mortgage, it is worth taking steps to improve your credit rating and reduce your debt. Higher numbers translate into better loan options and lower interest rates.
These are the factors that will affect your credit score:
Your payment history
The amount you owe
Your credit history length
Types of credit that you have used
You are looking for new credit
To be eligible for a loan on your home, what credit score do you need? To be eligible for most loans, lenders will require that you have a minimum credit score of 620. You will get the best terms for loans if your credit score is higher than 720.
My-Down Payment can help you get an FHA loan or VA loan. To be eligible for these loans, however, you will need to have a minimum housing expense ratio of 38% and a maximum overall DTI of 45%.
Willingness to Live in One Place
A mortgage is a commitment that can last for 30 years. Although you don't have to stay in your home for the entire term of your mortgage, it is a significant decision. It's harder to move if you own a house. You might have to sell your home before you buy a second or investment property.
Consider whether you are ready to stay in your current location for at least a few years more. Think about your career goals and family obligations. These factors will have a significant impact on the type of home that you purchase and where you put up your primary residence.
The decision about whether or not it is a good time to purchase a house depends on many factors, including financial readiness and lifestyle preferences. Market conditions also play a role in determining whether it is a good time to do so.
The right time to purchase a home is determined by your individual circumstances. Before making major financial decisions, such as purchasing a home, consult a financial professional.
Step 2: Determine How Much You can Afford to Buy a House
Once you have decided that you are ready to purchase a home, you can start to plan your budget. Calculating your DTI ratio is a good place to start. Consider your income and current debts. Then, calculate how much you can afford each month to pay for a mortgage.
There are many costs associated with homeownership that you won't have to worry about if you rent. Property taxes will need to be paid and homeowners insurance must be purchased. These expenses should be included in your household budget to determine how much house you can afford.
Are you having trouble coming up with numbers? My-Down Payment Affordability Calculator will give you an idea of the amount of mortgage you can afford.
Step 3: Make a down payment and pay closing costs
There are many options for saving money to buy a home, including investments and savings accounts. You may be eligible to use gift money to pay down your down payment if you have relatives willing to contribute. In this case, make sure to give your lender a gift letter.
How much money do you have to save before purchasing a home? Let's take a look at the main expenses and see how much we can save.
A down payment is a one-time, large payment towards the purchase of a house. A down payment is required by many lenders to protect them from any loss if a borrower defaults.
Many homebuyers believe they require a 20% downpayment to purchase a home. It isn't true. A down payment that large is unrealistic for first-time homebuyers is also not realistic.
There are many options available for buyers who cannot afford to pay 20% down. A conventional loan can be obtained with as little as 3% down. Federal Housing Administration (FHA), loans require a minimum down payment. It is 3.5%. Eligible and qualified borrowers can even put 0% down on Department of Veterans Affairs (VA), and United States Department of Agriculture(USDA) loans
However, there are benefits to paying a higher down payment. It usually means that you will have more mortgage options. You'll usually have a lower monthly payment and a lower rate of interest. Private mortgage insurance (PMI) is not required if you have a conventional loan with at least 20% down.
Also, you will need to save money for closing costs. These are the fees that you pay to obtain the loan. While there are many factors that will impact the amount you pay for closing costs (e.g., how much your home is worth), it's a good idea to budget for between 3 and 6%. If you buy a $200,000 home, closing costs might be $6,000 to $12,000.
Your loan type, lender and location will determine the exact closing costs. Most homeowners will cover title insurance and appraisal fees. You will typically have to pay an upfront insurance premium or funding fee if you get a government-backed mortgage.
Your lender will provide you with a document called a "Closing Disclosure" before you close your loan. It lists all closing costs and the amount you'll have to pay at closing. To ensure you are aware of what to expect, and to spot any mistakes in your Closing Disclosure before closing,
Other costs based on loan type
A specialized inspection may be required depending on the type of loan. A pest inspection is often required before you apply for a VA loan. Many lenders will arrange this inspection for you and then pass the cost on to you at closing.
These costs may seem small when compared to the other costs of buying a house, but they can add up quickly so budget well.
Step 4: Choose the right type of mortgage for you
Before you can apply to a mortgage, it is important that you decide which type of loan you are best suited for you and for what amount.
Conventional loans are mortgages that are made by private lenders and are not backed government. Conventional loans are those that are backed either Fannie Mae, Freddie Mac or both. These loans are also known as conforming loans. Conventional loans make up the majority of U.S. mortgages. Conventional loans are a popular choice for home buyers. You can apply with as little as 3 percent down.
FHA loans, which are backed by the Federal Housing Administration (FHA), pose less risk to lenders as the government insures them for any non-payment. FHA loans don't have as stringent credit requirements. FHA loans can be obtained with as little as 3.5% downpayment.
VA loans are mortgage loans available to veterans, active-duty military personnel, eligible reservists and National Guard members, as well as qualifying spouses. VA loans are popular because there is no down payment.
Although most lenders have a credit requirement for the VA, there is no minimum credit score. My-Down Payment, which offers VA loans, requires a minimum credit score 580. VA loans are guaranteed by the Department of Veterans Affairs.
A USDA loan is another type of government-backed loan that helps rural and suburban residents buy their homes. A USDA loan can be obtained with 0% down but you need to live in a rural area. You also have to meet income eligibility requirements.
My-Down Payment does offer USDA loans.
Step 5: Get preapproved for a mortgage
It's time for you to be preapproved for mortgage financing before you start looking for houses. Your lender will issue you a preapproval letter when you apply. This letter states the amount you are approved for based upon your income, credit, and assets. Your preapproval letter can be shown to your real-estate agent for help in finding homes within your budget.
You must apply to your lender in order to be preapproved. Preapproval usually involves answering questions about your income, assets, and the property you are looking to purchase. You will also need to pass a credit check.
Step 6: Choose the right real estate agent for you
When buying a home or getting a mortgage, there are many parties involved. Your agent will represent you in the home buying process. Your agent will represent your interests by helping you find homes that match your criteria, negotiate offers, and get you showings.
Buyers usually have the opportunity to work for no cost with a professional real estate agent. The seller usually pays the commission of the buyer's agent. The commission paid by the buyer's agent is typically 3% of purchase price
An agent representing you will help you to understand the process of buying a house. Your agent will help you to find properties, prepare an offer letter and negotiate on your behalf. Local market experts, real estate agents can advise you on the best price to offer each property.
You can buy a house with no real estate agent. This is not recommended, especially for first-time home buyers. It can be difficult and emotionally charged to buy a home. An agent can help you navigate the real-estate market, make a legal offer and save you money.
How do you find the best real estate agent for you? Ask your family and friends for recommendations. Referring to agents directly is often the best way for you to obtain impartial information in your area.
My-Down Payment has Partner Agents and they are worth considering. Our Keller Williams El Dorado Hills Realtors are highly experienced and have a track record of success. You can be sure that you will receive expert advice.
Step 7: Start House Hunting
A real estate agent can help you find houses within your budget. It is a smart idea to create a list of your top priorities. This will depend on whether you are looking for a starter or permanent home, and the type of house that you are looking for.
These are some of the things that you should consider when looking for a house to buy.
Your priorities should be ranked from most important to least important. This list can then be shown to your agent. The agent will show you homes that meet your criteria. It may take some time to find the right home. Don't be discouraged if it takes longer than expected.
Only you will be able to decide which property is right. Before you make a decision on which property you would like to purchase, be sure to see many homes. You can do much of your house hunting online, just like with many other aspects of the home-buying process.
It's time for you to make an offer on a property that you like and fits your budget.
Step 8: Make an Offer on a House
You must send a written offer letter to make an offer on a house. The offer letter must include information about you, such as your current address and the price that you are willing to pay for it. The seller will need to respond by a certain date.
Many offers include an earnest cash deposit. A small amount of money is required to earnest money deposits, usually 1 to 2% of the purchase price. You can ask your agent about the market trends in your area. If you purchase a home, your earnest money deposit will go towards your down payment or closing costs. You usually lose your deposit if you cancel after you have agreed to the sale of your home.
The offer letter will be written almost always by your agent, but you have the option to write it yourself. The agent will contact the seller's agent or the seller to submit the offer.
The seller can then respond in any of the following ways:
After you have submitted your offer, negotiations may continue for some time. Your agent can help you negotiate - don’t be afraid of walking away if negotiations fail. After you have reached an agreement with the seller, it is time for the appraisal and inspection.
My-Down Payment provides the Verified Approval to help you make a confident offer. You'll be able to know what home you can afford. With the documentation you provide (W-2s, pay slips, account statements, etc.), we verify your credit, income, and assets. This will help you stand out in competitive bidding wars against other buyers who may not have this approval.
Step 9: Schedule a Home Inspection
Although lenders don't usually require a home inspection in order to approve a loan, it is a good idea to have one before you purchase a property.
An inspector will inspect your home to find potential problems. The inspector will inspect the electrical system, roof, and appliances. The inspector will provide a detailed list of the problems found in your home after the inspection is complete.
Once you have received your inspection results, look at each item line-by-line and identify major problems. Ask the seller to fix any health hazards in the home before you close. You may need to consider other options if you are unable to reach an agreement. Discuss your inspection findings with your agent to determine if they found any red flags.
Remember that after the sale is closed, you will be responsible for major repairs. It's not a major problem if your toilet is clogged or your sink doesn't drain. If your home inspection uncovers an expensive problem, such as cracks in the foundation or poorly placed windows, you might want to reconsider buying.
Homebuyers often include a home inspection clause in their offer. Buyers have the right to cancel a purchase or negotiate repairs without having to forfeit their earnest money deposit.
Step 10: Get A Home Appraisal
An appraisal of your home is a report that shows the current value and condition of the property. Before you can buy a house with a mortgage, an appraisal is required.
Lenders require appraisals as they cannot lend more than the home is worth. You might not be able to get financing if the appraisal comes back lower than what you offer. If you feel the appraised value is too low, be thoughtful in your offer. You can't expect a reviewer to agree with you.
Buyers should include an appraisal clause in their offer. Appraisal contingencies allow buyers to withdraw from a purchase or negotiate a lower price without having to forfeit their earnest money deposit. Appraisal contingencies can vary as with inspection contingencies. Make sure to understand the terms of your agreement.
Step 11: Request repairs or credit
You might ask your seller for help after you have reviewed the inspection results. There are three options:
Ask for a discount on your purchase price based on the results.
Ask the seller to give you credit to pay some of your closing expenses.
Before you sign a contract, make sure the seller has the problem fixed.
Your agent will forward your requests to the seller's representative. Your agent will work directly with the seller if you are buying a house for sale by owner (FSBO). Your request might be accepted by the seller, or rejected by them. You can decide how you want to proceed if your seller refuses to accept your request. You can withdraw from the sale if you include an inspection clause in your offer letter.
Step 12: Perform a Final Walkthrough
Even if you are 100% committed to the property, you should still do a final walkthrough. This allows you to inspect the property and verify that everything is in order.
Take a tour of the house and verify that the seller has not left anything behind. If you have requested repairs, make sure to inspect them. Also, be on the lookout for pests. Double-checking your home's systems is a good idea to ensure that everything is working properly. You can confidently move forward with closing if everything is in order.
Step 13: Get Closed on Your New Home
Your lender must give you the Closing Disclosure. This will tell you what you have to pay at closing. It also summarizes all details of your loan details. Check your Closing Disclosure carefully to ensure that the numbers are consistent with your Loan Estimate. This estimate should be received within 3 business days of your original application.
After you have reviewed your Closing Disclosure it is time to go to your closing meeting. Your ID, your Closing Disclosure copy and proof of funds are required for closing costs.
A settlement statement will be signed by you, listing all costs associated with the sale of your home. This statement lists all costs related to the sale of your home. The mortgage note will also be signed by you, which promises to repay the loan. To secure your mortgage note, you will sign the deed or mortgage.
You are officially a homeowner after closing.
What is the average time it takes to buy a house?
The average time it takes to buy a house, from the beginning of the process until the time you move into it, is 5-6 months. The length of the process can vary depending on factors such as how much work you do ahead of time, whether you are applying for a mortgage or paying cash.
What amount should you save before purchasing a house?
You should have enough cash reserves in case of an emergency before you buy a house. You should have enough cash reserves to cover at least two months' worth of mortgage payments. Your lender may require additional months depending on which type of loan you are applying for and your qualifications.
Final Thoughts on Buying a House
It can take a while to complete the steps of buying a house.
First, you will need to be prepared to become a homeowner. Next, you will need to set a budget. Next, you will work with a lender in order to be preapproved for mortgage financing. Next, you will begin looking for properties. It is a good idea to have a trusted agent by your side. Your agent will assist you in submitting an offer to the seller once you have found a property.
Once you have reached an agreement, you will receive an appraisal and an inspection. You may negotiate credit or repairs with the seller if the inspection reveals a serious problem. Before you purchase the house, you will also need to walk through it. Once everything is acceptable, you are able to move in and become a homeowner.
Are you ready to purchase a house? To get started with a mortgage approval, contact My-Down Payment today. We are also available by phone at (916) 413-3967.
California first-time homebuyers work with a CA down payment assistance (DPA) Representative Jason Whigham. Jason Whigham is a Sacramento Mortgage Broker. Call or Text Jason Whigham Now To Find Out How CA Down Payment Assistance Programs Can Help Offset Your Out Of Pocket Expense.
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