The 10 Steps Of The Home Buying Process
Have you thought about how your life could change if you stop wasting money on rent? In this video, I'm going to give you a 10-step guide to buying a house so you can start building wealth and equity for your future. We'll explore everything from credit scores and budget to closing so you know exactly what to expect from the process.
Verify your mortgage eligibility (Apr 19th, 2024)A Life-Changing Decision
How would your life change if you could get out of your current house that’s way too small for you? How would your life change in 5, 10, or 15 years down the road - or even next month - if you were able to start building wealth and equity in a real estate asset? If you’ve saved, you've discussed, and you've figured out that it's the right time for you to buy a home, this guide will show you how to do it.
One of the reasons that we’ve prepared this ultimate how-to guide, checklist, and worksheets to help you purchase the ideal home is so that you don’t let another buyer swoop in and buy that property you love - simply because you didn’t do your due diligence and weren't ready to roll. Being on top of your financial profile will help you get the house of your dreams.
Verify your mortgage eligibility (Apr 19th, 2024)#1: Check Your Credit
The first thing you'll want to do is audit your credit score. This will allow you to know not only what’s reported but if there are any errors and omissions. It will also let you know where you are within credit ranges, which can go from 350 to about 850. In my opinion, the sweet spot is 700 plus if you’re trying to buy a home, get the more preferred product, and better rates.
Since COVID started, we’ve helped hundreds of clients in Illinois, Colorado, and across the country. What we’ve found is that about 25% to 30% of the credit reports that we’re pulling for our purchase and refinance transactions have errors on them.
Because of this, the first and foremost thing you want to do is get your free annual credit report. You can also get a pre-qual letter from us and we can pull that credit report for you.
Verify your mortgage eligibility (Apr 19th, 2024)#2: Know Your Budget
Number two is knowing your budget and sticking to it. We have clients right now that are going through our regimen, or what we call the "do not exceed" limit. This is a number that everybody has when buying a property. For some, that number might be $400,000, while for others it may be $1-2 million.
Whatever your specific "I don’t feel comfortable borrowing that much money" number is, that’s probably a good place to start. Knowing your budget for a purchase price on the high side, you can work back from there. Knowing and sticking to your budget is potentially the most important step in the homebuying process.
Thinking about moving into a new home can get you really, really excited. Because of this, it’s easy to forget what you can actually afford. Make sure you examine your budget and stay within those parameters that you’ve set beforehand.
Verify your mortgage eligibility (Apr 19th, 2024)Write It Down
My number one recommendation to every homebuyer is to get your budget down on paper. Write down your credit score and your monthly debt obligation, totaling them up. Then take a look at your pay stubs; you’ll be able to see your gross income, which is your income before any deductions and not your net take-home pay.
Take that number - for example, a $100,000 salary - and divide it by 12. This will give you your monthly gross income. This is the number that the bank technically will use for your qualification, or how much you can actually afford to spend on a new property or to refinance a property. Even though that’s what we use to qualify you, that may not be the best metric of what you’re comfortable with spending on a month-over-month basis.
It's important to get all of your expenses down on paper and clean up that credit report. You'll want to get rid of some crappy old consumer debt like car payments, credit card debts, and terrible student loans; it's garbage. If you can get rid of these things while you’re saving money for a down payment and budgeting for the new property at the same time, it'll put you in a good position for step three.
Verify your mortgage eligibility (Apr 19th, 2024)#3: Get Preapproved
Step three is to get a preapproval. A seller wants to know that you can actually afford a home that you want to buy. Getting pre-approved is going to show the seller that you mean business and that you can do it before you even start looking.
The second part of this third step is to do a full and complete loan application. Once you actually put that information into a loan application, then the team builds out what we call a needs list. This list includes the documents that are going to be required to validate the information that you put in there.
Quite simply, it’s gathering some pay stubs, W2s, tax returns, asset statements, and bank statements. This verifies where the money is going to come from for the downpayment and closing costs. The better prepared you are upfront, the far better experience you'll have in the field.
Verify your mortgage eligibility (Apr 19th, 2024)The Competition Crusher
Another thing we do for our clients is our free service called the Competition Crusher. This basically converts you into a cash-like buyer. We take away the financing contingency by submitting your loan file to our underwriting team. Our underwriting department - made up of human beings - is going to check my work, check the automated underwriting approval, and then validate all your documents.
Once we have that, the team reaches back out to our clients and cleans up any financing conditions. Once you’re actually in the field, your realtor has the best tool possible to negotiate the absolute best sales contract on your behalf. This is essential because, in my opinion, that's their number one job.
#4: Reason For Purchase
For step four, we're going to bust that scratch sheet of paper out again, the one you had for your budget. This time, you’re going to write down the true reasons that you want to buy this house. If you know exactly what you’re looking for, you’re not going to end up buying the wrong house - which will prevent unneeded emotional stresses as well.
Verify your mortgage eligibility (Apr 19th, 2024)The Joint Center for Housing Studies at Harvard did a study and found that there are four reasons people buy a home, all of which come true pretty much 100% of the time. These four main reasons to buy a house are:
- A good place to raise children and a location where they can be well educated
- A place where you and your family feel safe
- More space for you and your family
- To have more control over your space
If any one of those sounds like you, leave a message down in the comments and let me know why you are buying a house.
#5: Hire A Realtor
Now that we’ve got some of the financial basics out of the way, it's time to hire a realtor. You'll want to reach out to a couple of them; some people have a ton of industry experience, and some people don’t. In this crazy, seller-friendly market, there are a ton of buyers out there with a very small amount of inventory. Your competition is going to be other buyers, cash buyers, and even institutional buyers.
Verify your mortgage eligibility (Apr 19th, 2024)Our prep work upfront is one of the things that allows your realtor to best negotiate the sales contract for you. The right agent is going to help you find those diamonds in the market; that’s their job. Finding a highly communicative agent is a key piece to the home buying puzzle. There are times when agents can make the process easier for buyers by accessing homes quickly and using knowledge of the marketplace to effectively find your dream spot.
One of the perks of using an agent when you’re buying a house is that they are free to use. The realtor gets paid by the seller of the house most of the time, which is typically negotiated with the listing agent. The seller is negotiating their listing price and their commission structure with their agent representative. The buyer gets paid by the seller because the agents split the commission.
#6: Look For A Property
The sixth step of the home buying process is the fun part: looking for properties. When looking at properties, you’re going to want to do a couple of things from step number two, which is knowing your budget. You’ll want to have one search that goes from $400,000 to %500,000, and maybe another one from $500,000 to $550,000, just in case those homes are within your monthly payment budget or are overpriced and poised to come down.
Verify your mortgage eligibility (Apr 19th, 2024)You might have the inside track on that if you’re looking for multiple styles of property. Maybe you’re looking for a condo, a single-family home, or a townhouse. You’re going to want to separate search engines for those, and your realtor can set that up for you.
Looking for properties is where the home buying process can get interesting and thrilling. You have the opportunity to find all the amenities you require, the vanity in the bathroom, and the large kitchen. With your budget clearly stated, work with a real estate agent and utilize the online search tools that they’re going to give you to find the house of your dreams.
Tips For Your Home Search
Remember, if major life changes happen, you can always sell a house. Life changes, and things change. Just a couple of years ago, the whole world shut down. Having long-term goals and then paring those down into more manageable timeframes oftentimes makes sense.
Verify your mortgage eligibility (Apr 19th, 2024)Here are my four quick tips for you to help you in the field when you’re looking for properties. We use these all the time for our buyers as they prepare for their home search.
- Don't fall in love with a home. Of course, you’re going to want to love your home. However, allowing your feelings to overcome rational decisions and the reality of your situation is an easy-to-make mistake. Make sure to look through several homes before settling on one.
- Don't lose control. This is going to be your home, and you need to make the decision. Family and friends are going to have their opinions, but it’s ultimately your decision.
- Don't be indecisive. In this market, you can’t be indecisive. If the property that you’re looking at meets all of your needs list and has the right amenities, location, and price point you want, you should go for it. The fact of the matter is that things are flying off the shelf in a matter of days if they’re priced right - and even those homes that might be overpriced. They’re still based on today’s turn times, and houses are going off the market in about 20 days or less.
- Avoid bad timing. One of the other mistakes people make when they're looking for houses is bad timing. Sometimes bad things happen, and people end up making poor decisions on buying a car, getting a new credit card, or deciding to go back to school during the home buying process. So if the timing just isn’t right for you for whatever reason, put the home buying process on pause. It's no big deal.
#7: Make An Offer
The seventh step of the home buying process is making the offer. Let's say you've found the house that hits all the things on your needs list. It's the place where you can see yourself growing into the property, imagine your dogs playing in the backyard, and envision the kids growing up in the cul-de-sac and shooting hoops in the street. When you've made your decision, you'll want to make an offer on the property.
While this is the fun part, it's also the nerve-wracking part. This is because there’s competition out there; you might have five other buyers wanting to buy the same property. There also might be cash buyers. However, getting a pre-approval, using our Competition Crusher, getting all of your finances done and out of the way, and making sure that the listing agent knows your financing is done will all help your realtor get your offer accepted.
Verify your mortgage eligibility (Apr 19th, 2024)Here are a couple of key negotiation how-tos. First, keep in mind time on the market. If a house has been on the market for a while, you might get a buyer-friendly negotiation. Make sure to have an inspection done, because you might not see any glaring flaws or issues that the inspector will. If the buyer’s agent can figure out why the house is for sale, it can help. Does the seller have a job offer in another state? Is the seller in a desperate financial situation? Take the seller’s reasons for selling into consideration so you can make the right decision.
#8: Get A Home Inspection
Now we're on to step eight. Once you’re under contract, you'll want to get those home inspections. Unfortunately, what we’re seeing right now in the market is people waiving inspections. This is because, again, the seller does have the massive upper hand in the current selling environment.
However, you still want to get an inspection. This is for health and safety purposes and to make sure there are no major flaws in some of the high ticket items. In my opinion, high ticket items on the property include things like the roof, the foundation, and the sewer line that goes from the house out to the mainline of the city. If you or your inspector see problems in those areas, you should walk.
Verify your mortgage eligibility (Apr 19th, 2024)#9: Loan Manufacture
The ninth step in the home buying process is loan manufacturing and closing. Now that you’re under contract, we look at the contract at the bank and reformulate some of the information from your pre-approval application. We'll add in the information for the property and then order all of those third-party items.
One of those big things in loan manufacturing is an appraisal. If it’s required, we’ll order an appraisal through a management company. They’ll assign it to a local appraiser in the area, who will go out to the property and make sure that the value for the asset is supported by the sales contract price. This is one of the big things that we're seeing right now, at least in the Denver Metro area.
Budgeting And Busy Work
Some houses are not appraised. This means that if you bought a house for $700,000, for instance, that appraisal might come in at $650,000 or $625,000. If that’s the case, guess who has to bring in the dough? You. That's why the budgeting we did in step two is so important. You need to have some extra cash besides your down payment and besides the money for closing costs.
Verify your mortgage eligibility (Apr 19th, 2024)This is ideal to have in case something were to happen, not only with the house beforehand, but after the fact. There are also a couple of other things that will happen. You’ll get homeowner's insurance as well as title work done, and the seller will pick the title company. This is just to make sure that the person that's selling the house can legally sell the house to you. It’s just a data transfer.
There’s a little bit of busy work that happens behind the scenes during this time. Of course, this really isn’t all that difficult. We get people clear to close within anywhere from three days to about ten days when a standardized contract is anywhere between 20 and 35 days (at least in our market). A lot of times our clients are just sitting around waiting for that close day; they're not stressed out at all, but are just super elated and excited.
#10: Signing Day
The tenth step in the process is signing day. This is the day you get those keys and is when you’re going to chow down on some food at the title company. Everybody’s happy, and you might even have some champagne. We’ve had margaritas with clients, and it’s a super fun time.
Verify your mortgage eligibility (Apr 19th, 2024)You are doing a heck of a lot of signing on this day. Depending on the state you’re in, you might have an attorney present. The title rep and your realtor will be also be explaining some documents to you. However, if you work with us, you’re going to know exactly what all those documents say well in advance.
Signing day is really just about dotting the i’s and crossing the t’s. You'll be signing a bunch of title documents and a bunch of final loan documents. Once that loan is funded, you get the keys and you are a homeowner - either again, as a first-time home buyer, or as someone adding that property to your real estate portfolio. Congratulations! It’s a wonderful time.
Your Home Buying Education
I hope this gave you a good idea of each step of the home buying process. Now is the time to snoop around the channel and get that brain growing. Watch one of our videos to learn more about the home buying process. We talk about budgeting, finance, buying a home, getting a mortgage, and building a lifestyle so you can live without stress and grow towards financial independence.
Verify your mortgage eligibility (Apr 19th, 2024)Our motto here is "Better than yesterday, so you can get out and enjoy those sunny days. If you haven’t already, don’t forget to subscribe to the channel. This way you'll never miss a video. You can also check out our free loan qualification certificate, which will help you find out how much mortgage you can qualify for. Don't forget to scope out our free mortgage calculators to see what you can afford.
My team and I get calls from folks just like you each and every single day trying to get a mortgage. So if you’re thinking about moving or relocating, make sure to reach out and get a hold of us. We’ve got your back when getting a mortgage and building wealth, and we'll be happy to help you.
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