Purchasing real estate is not as simple as finding the right home, submitting an offer, and signing the closing paperwork; many more steps are involved. The home buying process can sometimes be lengthy, and there may be various obstacles one needs to navigate along the way. If you’re interested in hearing all the steps involved in how to buy a house, this guide is for you!
How Long Does It Take to Buy a House?
One of the most common questions we receive is, how long does it take to buy a house? Unfortunately, there is no sure answer. Each home purchasing experience is different, and no two clients are the same. Variables such as your financial history, your home wishlist, and any issues discovered along the way will certainly influence how long it will take to purchase your home.
How Much Do You Need to Buy a House?
There are a lot of financing options available. Your financing will be contingent upon how much money you have available to place as a down payment. Veterans using a VA loan, or folks who qualify as a low to moderate income household and are purchasing a home in a rural area through the USDA loan program, can purchase a home with zero money down.
Many first time homebuyers choose to finance through the Federal Housing Administration, or FHA. The FHA has a minimum down payment amount of 3.5% of the total home value. For instance, a $200,000 home would require a down payment of at least $7,000, whereas a $400,000 home would require a down payment of at least $14,000. If you’re curious how to buy a house but you have a low credit score, explore an FHA loan. The credit score requirements are more lenient with these loans.
Individuals financing the purchase of their home through a conventional mortgage can also elect to put down a small down payment, but as a result, you may need to pay private mortgage insurance each month. Private mortgage insurance will increase your monthly mortgage payments.
Steps Towards Home Ownership
There are steps you can take along the way that will make the home purchasing experience more streamlined and less stressful for all parties involved.
Start Saving for A Downpayment
It’s wise to start saving for a down payment as early as possible. Even if you are eligible for a loan with zero money down, or 3.5 percent, you may still want to put additional money down at closing. Remember, the more money you put down on your home, the more equity you’ll have in your home, plus a lower monthly payment.
Determine What Your Spending Limit Is
Another step worth taking is to do a personal assessment of your finances. How much money would you be comfortable spending each month on a mortgage payment? Look at all of your bills, debt, and financial obligations. Will any debt be paid off soon, or will you carry that debt for many more years?
A good rule of thumb is to not have your mortgage payment exceed 25-30% of your annual income, but that is also entirely dependent on how much debt you have. If debt is draining your cash, you may not be able to afford a home that’s 25% of your annual income.
Get Preapproved for a Mortgage
Now that you have a better understanding of how much money you’d feel comfortable spending each month, it’s time to see how much money a bank would be willing to lend you. If the bank is willing to lend you $300,000 for a mortgage, you and your realtor can drill down your home search for homes that are within this price range.
Just because a bank pre approves you for a certain amount doesn’t mean you need to spend that much money. If you personally don’t want to exceed a $1,500/month mortgage payment, it doesn’t matter if a bank is willing to lend you money that would equate to a $2,200/month mortgage payment. Stay disciplined and only purchase a home that is within the price range you're comfortable with.
Hire a Good Real Estate Agent
Once you are preapproved for a mortgage, it’s time to find a great real estate agent . Ask friends or family members who they use, and if they had a pleasurable experience working with that realtor. A good real estate agent does more than just open the front door during your home tour. They educate you on the home, help identify anything you should be aware of, and will help negotiate the best price possible.
Shop Around for Your Home
You and your real estate agent should discuss what’s important before beginning your home search. You may want/need 4 bedrooms in your home and a large garage. Or, you may be more interested in having a large backyard with an outdoor entertainment space. Whatever is on your wishlist, the realtor can help find it for you.
Common requests, such as number of bedrooms, bathrooms, square feet and price can all be built into a custom home search that your realtor can set up for you. Keep in mind the duration of time you plan on spending in this home. If you’re thinking about starting a family, make sure you take the school district into consideration. This may require you to do your own research because realtors are bound by anti-steering rules.
Make an Offer
Once you find your ideal home, take the next step and make an offer! You and your realtor will discuss what your offer price should be. In a competitive market, you may not be able to submit a low offer. If the house has been idle on the market for a few months, start low and gradually increase if needed.
If the seller accepts your offer, you’ll likely want to get the house inspected by a professional. Although this typically costs a few hundred dollars, it’s essential. A professional home inspection will help identify issues that are wrong with the house, and can aid in negotiations. After inspection, you may also want an attorney to oversee the contract negotiations and ensure nothing is overlooked.
Order an Appraisal
Your lender may require an appraisal. This simply means a professional appraiser puts a value on your home. If the appraiser values the home for $250,000 and the seller is trying to sell the home for $300,000, that’s a problem.
However, if the appraiser values the home for $325,000, and the seller is asking $300,000 for the home, you’ll kick off your loan with positive equity in the home! The purpose of the appraisal is so the bank understands the fair market value of the home and their interest is properly secured.
Work With a Mortgage Company for a Loan
With the appraisal out of the way, it’s now time to finalize your loan with a mortgage company. There are many different mortgage options on the market, so be sure to evaluate all options to find the loan that's best suited for you.
If you have limited or impaired credit, or you don’t want to put down a large down payment, you might consider financing options offered by the FHA. You can purchase a home with a credit score as low as 580 and just a 3.5% down payment.
For qualifying individuals or families, the Department of Veteran Affairs, and the United States Department of Agriculture, offer financing options with no money down. Be sure to check with your lender to see if you qualify for any of these options.
Gather Paperwork & Close the Sale!
Much of the loan finalization process involves a great deal of paperwork. You will likely be required to provide bank statements, pay stubs, and tax returns. Ask your lender to provide you with a checklist of all the materials you’ll need and begin gathering the necessary paperwork to help move your closing process along. Once everything is gathered and submitted, you’ll receive your final approval if you meet underwriting guidelines, and you're clear to close on the home. Congratulations!
Now You Know How to Buy a House!
There are certainly a lot of steps involved when it comes to purchasing a home. Everyone has their own circumstances and desires, which makes the buying experience unique to the individual.
Those looking to purchase a home with no money down will need to secure a loan that is backed by the federal government, such as a VA or USDA loan. Many first time home buyers that do not qualify for a VA or USDA loan, will choose to finance their home through the FHA. The FHA makes home ownership a more reachable goal for millions of Americans. You’ll be able to get a loan with a credit score as low as 580 and a down payment of 3.5%.
Working with the right realtor and mortgage broker will help streamline the process for you. These professionals are phenomenal resources, and will answer the many questions you’ll have throughout your purchasing experience!
This page last updated: October 18, 2022