Homebuying Process: Top 10 Steps to Buying Your Dream House
Finding and financing the right property can be a considerable challenge. From finding an agent to closing the deal, multiple steps are involved. It can be overwhelming even to think about your to-do list.
We have dissolved the entire home buying process in 10 actionable steps. Use these ten steps as a guide to buy your home with confidence, and make the right decision.
Improve Your Credit Score
We cannot stress this enough. Review your credit score before you start looking for your dream house. Take your time to improve the numbers. A high credit score helps you save thousands of dollars in the long run. In one case, increasing a score from 640 to 760 can result in a saving of $66,000 for a $200k house.
Get your free credit report:
You can request a free annual report from Equifax, TransUnion, and Experian.
It is smart to review your credit score every three months so that you are aware of the changes. If you find any discrepancies in the report, get in touch with the respective firm. You can dispute the false information, and get it corrected before you submit your mortgage application.
You might notice different readings when you compare data from credit reporting bureaus. This can happen because every institution has a different algorithm for score calculation. However, every algorithm looks at your payment history, credit utilization rate, loan applications, debt-to-income ratio, credit maturity, and loan types.
The best way to improve your credit score is to pay all your bills on time. Most credit score calculations will also consider the payment of utility bills. If your credit score is currently less than 720, it is best to improve the numbers before you buy your house.
How Much Can You Afford in Mortgage Payments?
Carefully analyze your financial situation.
Be realistic. Failure to pay your mortgage on time can create problems, and worst of all can result in foreclosure. You can calculate the debt-to-income ratio to make sure that it meets the qualification criteria. Generally, lenders approve the loan if your maximum debt-to-income ratio is 43%. Most lenders prefer that your DTI is no more than 36%, and your future mortgage installments should not be more than 28% of your monthly income.
Other than this criterion, you need to look at your expenses. A mortgage lender may be willing to lend you $400,000; however, only borrow as much as you can return. Mortgage payments should be affordable. That’s the idea!
Find Your Agent
Real estate agents help you with complex transactions. It’s imperative to work with someone who you can trust and who knows the local market well.
Hire a tech-savvy agent who can help you navigate the market with confidence. He will help you define the best price for your dream house, as well as the features you should be looking for.
Get Pre-Approved by a Lender
It’s easy to pre-qualify for a loan. Pre-qualification gives an idea of how much money the lender will be willing to lend you. It’s not a guarantee that you’ll get the money.
Mortgage pre-approval is different. A pre-approval is also not a guarantee, but it’s the lender’s commitment to give you the loan if all conditions are met.
For two reasons, it helps to get pre-approved for a mortgage.
- You’ll know the near exact amount you can get, and the lending terms.
- When choosing between multiple offers, sellers prefer a pre-approved buyer. Being pre-approved means that you can afford their house, and your bank will give you the loan.
Let’s Start Looking at Homes
At this stage:
- You know the price range of your dream home.
- A top real estate agent is working on your behalf to find the best suitable properties.
Now, it’s time to start looking at homes in your preferred areas — work side by side with your agent. When you visit the houses, you’ll get the chance to revise your goals. You can make a list of your likes & dislikes. A small pool may look great on paper, but actually, it can be a hassle to manage such amenities. Refine your search and again start looking for your dream home.
Send Your Offer
Okay, so you have found your dream house?
It’s time to send an offer. That’s when things start to get more serious. Don’t worry. Your agent will help you craft the perfect offer. You can discuss the price range and aspects of your proposal.
Remember that the listing price is only the beginning. Understand the seller’s motivation. In many cases, you can offer incentives in exchange for a reduced price. If the seller is on a tight timeline, you can offer to buy the house quickly (being pre-approved helps here). The point is to put your best step forward. Don’t send low-ball offers, but you also don’t have to go above the listing price. Strike a balance with an offer that’s closest to the market price.
Negotiate the Offer
Wait after sending the offer. The seller will review your proposal. You may not hear back, or you might get an exciting “yes.”
The seller can also send you a counteroffer. Your real estate agent will be your advisor. He will let you know whether and how should you negotiate terms with the seller. Once the seller accepts your offer, you can move towards the closing day.
Inspect Your Prospective Home
The mortgage lender requires that you inspect the house and ensure that the property is safe for living. You want to check the home for any issues. Later on, you don’t want to spend money on fixing errors that you could have negotiated earlier.
It is critical to inspect the property. You are investing money, and you need to protect your investment. That’s important even if you are buying a house with all cash.
If the inspection results are right, that’s excellent news — nothing to do here. However, if the home needs repairs, you are back to step 8. Your real estate agent will help you negotiate repairs/price with the seller.
Homeowners Insurance and Power Supply
Your home is the collateral for the loan. That’s why mortgage lenders require you to purchase an insurance plan. You’ll need to find a reputable insurance firm. Don’t forget to ask your realtor for recommendations.
Another critical step is to get the utilities established. You don’t want to move into a dark and cold house. Contact the relevant companies and ask them to start providing the service on your move-in date.
The Closing Day
Congratulations, you made it. There is practically nothing to do on this day. You’ll be signing, agreed-upon contracts. Your real estate agent will be there for you. However, it can be one of the most exciting & stressful days of your life. You are making a transition, and it’s okay to be tense. Before you know, the day will be over. You will have keys in your hand, and you can move into your beautiful house on the agreed date.