Overview of the Home-Buying Process
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Are you thinking this is the year you want to become a homeowner? If so, we would love to help you!
Many find the home-buying process overwhelming, which leaves often leaves potential buyers stuck waiting, continuing to rent, building wealth for others and never actually pulling the trigger.
Many times, people start the home search only to stop because they feel they cannot find the “perfect home.” Newsflash: the perfect home does not exist unless you likely complete a true custom-home build. Even then, I hear stories all the time of homeowners changing their mind on desires, functionality, etc. once the “perfect custom” home is complete.
As a first-time home buyer, it is so crucial to remember your first home is not your forever home! That first home should be the first stepping stone to help you build wealth and equity, which can then fuel your next purchase, which can often be closer to your “dream home.”
Now, let’s dive into what the home-buying process looks like.
Pre-Approval
First up, we always recommend sitting down with our team to work through this cycle and answer questions before getting too far down the process.
Next up, is the pre-approval process. Here, we provide you with some recommendations on our local lenders that we advise you to contact with to determine your budget and what you are willing and able to spend on a new home. This gives you the outline of the funds needed to actually make the purchase, and what your monthly payment may look like.
The sales price drives all of this, so you cannot start looking at homes until you know the range of a sales price you would be able to spend. We recommend this step in the very beginning because sometimes once people review the numbers, they need more time to prepare and set up a game plan to get there.
Home Search
Once you have obtained a pre-approval letter from your lender the true fun begins! This is when we will begin house hunting: searching online, visiting homes and looking to see what you do and don’t like in a property in our best effort to match you with the right one!
Making The Offer
Once we have found the right home, we begin the offer process. The formal offer entails the sales price you are presenting to the home seller, your closing time line, the inspection period length, loan approval length and a few other facets that we’ll walk through at time of an offer (are you asking for a seller credit, closing cost assistance, etc.).
A majority of the terms of the offer are negotiable. However, it’s common the seller may counter back by making slight changes that may better fit their needs or desires. A seller counter should not discourage because real estate is a team sport, and it’s ultimately finding a middle ground that works for both parties.
Up-Front Costs
One question I get often from buyers is, “What are the up front, out-of-pocket expenses?”
Earnest Money: Also referred to as binder, can be around 1% or less of the sales price. For examples, if you’re buying a $300,000 home, expect to put down about $3,000 up front. This can sometimes be broken up by a portion up front and then another portion after the inspection. This money comes back to you, and goes toward your costs due at the closing table.
Inspection Costs: This is directly paid to the vendor whom you choose for the home inspection, and can be paid via credit card. Most inspections cost about $300 - $600 varying on home size and what you’re having inspected.
Appraisal: This varies by lender and their protocol. Sometimes, the lender will take your credit card when you complete your loan application, or sometimes it is added into your closing costs at the end. Either way, on average appraisals are between $400 - $600.
Additional: Beyond the three above, you will just have your standard closing costs and down payment. Closing costs typically run buyers around 2% of the sales price of the home, and then the downpayment varies on your loan type.
Under Contract
Once you’ve found the one, have submitted your offer and reached terms with the seller, you’re now are officially under contract! You have submitted your earnest money, and now you will get to work on the home inspection process.
You will select the inspector, and they will complete a thorough check on the home of all facets-foundation, roof, electrical, plumbing, wear and tear, and also point out ongoing maintenance recommendations, etc. Once you receive the report back, you will be able to review with your agent, and compile a list (if any) of repairs you would like the seller to fix. This is also negotiable, and sometimes sellers will do some, all or none of the repairs you have asked for; or sometimes they may offer a credit instead. You will work through the potential repair request with the seller and once you have reached a middle ground, solidify the requests.
The seller will work on the repairs while your loan is being underwritten. You would have submitted your documents to the lender the first week of being under contract. During this time, the lender may come back and ask for updated documents, which is common and review the appraisal report. Once this is done, you should receive loan approval. Once you have loan approval, the process is nearly done!
The Final Steps
Finally, you’ll want to complete a final walk through of the home to ensure the repairs have been made by the seller, also collecting receipts, etc. from anything so you have those on file for the future.
Then, the lender will give you an official clear to close with the title company, typically paid for by the seller. The lender will compile all the documents you need to sign off for your loan and title, and you will schedule your closing date!
Then, the day of closing belongs to you, woohoo! And on this day you are a new homeowner :)
