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When you’re heading someplace you’ve never been before, you plug the address into Google or your GPS to get a handy roadmap. The nav system also tells you how long it will take, so planning out your road trip is easy.
If you’re a first-timer looking at buying a home, you may long for a GPS to get you through the homebuying process. After all, how can you know how long it takes to buy a house, and what do you have to keep in mind?
Buying a house is (as you’ve undoubtedly heard) is the biggest and most complex financial decision you’ll ever make. Lucky for you, HomeLight has vast resources to help you through the process, and we’ve organized all that expertise to create a homebuying timeline checklist (and a stand-alone timeline, too) that will put you on the best path to navigate buying your first home.
The planning stage (1 to 3 years before purchase)
Buying a house isn’t something you can wake up and do today. It takes a lot of planning and preparation, possibly even some soul-searching, to decide what’s the right move in your situation.
If the idea of owning a house is beginning to appeal to you, it’s time to enter the planning phase. You’ll probably have to spend at least a year getting ready before jumping into the homebuying fray.
During this time, take these steps.
Decide if you should buy a home
Buying isn’t always the right decision, so consider if you should buy or continue to rent. A multitude of factors can influence your decision. Some things to consider include:
- The cost of renting vs. buying in your area.
- How long you plan to live in the house. There are a lot of expenses associated with buying a home, and if you move in a few years, the home may not have appreciated enough for you to recoup those expenses.
- Whether you have a stable income to cover mortgage costs.
Figure out your budget
If you decide buying is a good financial move for you, it’s time to dig into your finances. You need an idea of how much house you can afford.
While you’ll find lots of ways to ballpark your housing budget, the real determiner will be your debt-to-income ratio, or DTI. The lender wants to be sure you can pay back the mortgage plus any other debts you owe, so the bank will calculate your DTI.
The DTI formula is simple: The total monthly debt payments you have to make divided by your gross monthly income. Your debts include student loans, car loans, child support payments, and credit card bills, plus your mortgage. Mortgage lenders will generally want to keep your DTI ratio at 45% or less, including the mortgage payment (although some programs allow for up to 50%). Paying off some loans before you start house-hunting can help you to qualify for a bigger home loan.
The size of mortgage you qualify for is important data, but you need to compare it to what homes cost in your area. If it’s not enough for where you want to buy, explore other neighborhoods.
Clean up your credit
Even without a lot of debt, your credit could be a problem if you haven’t always been conscientious about paying your bills. If you have an iffy credit history, the lender is likely to charge a higher interest rate on your mortgage or possibly decide not to issue a loan at all.
You can improve your credit score, but it takes time, so start early on your homebuying timeline.
Start by getting your credit report through annualcreditreport.com, where you get a free report without having to sign up for any monitoring service. Review the report to make sure it’s accurate. If it incorrectly lists accounts you’ve paid off as unpaid, or it shows accounts that don’t belong to you, dispute the information.
You can’t have accurate information removed from your report, even if it’s negative. However, lenders are most interested in how you’ve handled your credit recently, so resolve to do better starting now.
- Pay all your bills on time. Set up automatic payments with your bank, so you don’t miss the payment deadline.
- Avoid adding new accounts.
- Start paying down balances on credit cards and try to eliminate them before you apply for a mortgage.
Start saving for homebuying costs
While buying a house obligates you to years of monthly mortgage payments, it also requires some upfront money. Start saving now to build up a nest egg. The earlier you start saving, the more you can accumulate.
The biggest amount of cash you’ll need at closing is the down payment. To get the best mortgage rate, and avoid mortgage insurance with most loans, you’ll need to put up 20% of the house’s total price. On a $300,000 property, that’d be $60,000.
You can get a loan with a smaller down payment, but you’ll likely have to pay for mortgage insurance, which will increase your monthly mortgage bill.
Be ready to pay closing costs, which could be up to 5% of the price of the house. Those funds are due on closing day.
In a hot market, sellers are less likely to pay toward a buyer’s closing costs, she notes. And buyers also need to have funds available for earnest money, inspection costs, and other upfront fees.
Explore special programs
If you’re adding up a down payment and closing costs and thinking, “No way. I’ll never be able to buy,” take a breath. You might qualify for a program to assist you in buying a house.
A multitude of agencies run down-payment assistance programs around the country. Start by doing an internet search for down payment assistance in your city or state. Government housing agencies, banks, and real estate agents may also be able to point you to a program in your area.
Get preapproved for a mortgage
After you’ve cleaned up your credit, saved up some money, and investigated down-payment assistance, it’s time to get preapproved for a mortgage. This is the last step before you move on to the “actively looking” part of the homebuying timeline.
It’s important to understand the difference between being prequalified and preapproved. Pre-qualification is just an estimate of what size loan you might qualify for. Lenders will simply ask you a few questions about your income and debts and then give you a ballpark number. Since they haven’t seen any paperwork, they don’t know if there are issues with your credit that could disqualify you.
With a pre-approval, you typically submit your financial paperwork with your initial mortgage application, and the lender will verify the information. Being preapproved is considered more solid evidence that you can get a mortgage, and it will give you an advantage when you make an offer on a house because the sellers will feel more confident your loan will be approved.
If you wait to apply for a mortgage until you’ve found a house you want to bid on, you could lose out to someone who’s already preapproved.
Once you’re preapproved, be sure you understand what that big dollar amount translates to in terms of monthly payments, Mason advises. Many buyers decide they’d rather pay less each month and don’t shop for a home at the top of the budget.
The shopping stage (1 to 6 months before purchase)
It’s time to think seriously about what you want in a house. Some of the decisions to make:
- Single-family, condo, or townhouse? Would you consider a modular home?
- Size, including how many bedrooms and baths? How about yard size?
- What area — in town, suburbs, or further out?
- What neighborhood are you interested in? Do you want one with a homeowner’s association?
Hiring an agent
Remember that GPS analogy we started with? A real estate agent can act as your personal navigation system once you’re ready to start looking — but only if you choose the right one. You want an agent who knows the area where you’re shopping, and one who also has experience working with buyers.
HomeLight can match you with a top buyer’s agent in your market. You can also ask for recommendations from your friends who’ve made the jump to homeownership or even scope out agents at open houses. You might want to interview a couple of different agents to be sure you can find someone you’re comfortable with.
Whether you are stuck in a pandemic, looking for a home in a different city, or just not sure exactly what you want, a little online shopping can help you narrow your choices.
Start by researching the areas that interest you, checking out things like walkability and school ratings. You can also search real estate sites to see what’s available in your chosen neighborhood, including photos.
The street view option on Google Maps is an “awesome tool” for checking out neighborhoods, Mason says.
If you find any good prospects that you can’t visit in person, a remote home tour can be the next best thing.
Navigating open houses
With a day of visiting open houses, you can develop a good sense of what’s on the market in your target neighborhood. You’ll see exactly what you can buy in your budget range. And you may discover certain features that really appeal to you — or that you definitely don’t want in your home.
It’s a good idea to create a house-hunting checklist where you can keep track of that kind of information. Remember, you’re looking for a home that’ll meet your family’s needs now and in the future.
While open houses give you an excellent market overview, now is the time to rely on your real estate agent to help you find the house that is “the one.”
Your agent will consult the multiple listing service, or MLS, looking for homes that meet your criteria in your area. Most agents check at least daily looking for new listings, and they can arrange a private showing, where you can tour the property without fighting open house crowds.
To be certain of what you’re looking for, your agent may send you listings and get your feedback about whether they match your criteria and what you like or dislike about them, Mason says. Noting that people may have to take time off work or hire a babysitter to visit a house, she explains, “I don’t want to waste anyone’s time. I want to be sure my buyers are only seeing the homes that are their top choices.”
After her buyers clearly define what they are looking for, she says they find a home in an average of three weeks.
Determining a good offer price
The shopping phase can last a few weeks or longer, depending upon your area’s housing market and how particular your wants and needs are. However, when you finally find The House, you may need to act fast when you make an offer.
Your agent can help you determine if the asking price is fair by showing you “comps,” or prices and details for comparable houses in the area that sold recently. With that info, you can determine if the asking price is fair or if you want to offer less. For example, if the home needs some expensive repairs, it might be reasonable to negotiate a lower price.
The buying stage (1 to 2 months before closing day)
Once you sign the document with your offer and your agent conveys it to the seller’s agent, things get serious. They also speed up.
The purchase agreement will put you on a clock with set deadlines for certain steps in the process. Here’s where a homebuying timeline and checklist can be a lifesaver.
Negotiate the price
Once you’ve made an offer, the sellers can accept it or come back with a counteroffer. You should probably expect one, so know what you’re willing to accept.
In addition to settling on a price, you and the seller need to agree on fees and earnest money, contingencies, and when certain milestones (like the home inspection and closing) will take place.
Get a home inspection
As soon as you have a house under contract, you want to arrange for a home inspection.
The inspector will make sure the home is structurally sound and that the major systems, like HVAC, work properly. The inspector will also look for issues like water leaks, damaged roof shingles, and signs of pests.
If the inspector finds items you’re concerned about, you can ask the seller to fix them. This can lead to another round of negotiations. The seller may balk at an extensive list of potential repairs, so buyers usually focus on the most expensive fixes and ones involving safety.
Apply for a mortgage (1 month or more before closing)
Depending on your lender and how busy the mortgage market is, you’ll probably need to apply at least 30 days before the closing date. In December 2020, the average time to close a home loan was 58 days, according to data from ICE Mortgage Technology. The contract may also specify you have to have proof of mortgage by a specific date.
Lock in your mortgage rate (you select the timing)
If you didn’t lock in your mortgage rate when you applied for a mortgage, you’re probably anxiously watching what rates are doing every day. Only you know how much you’re willing to risk the rate going up instead of down, but at some point, you should decide what rate you’ll accept and lock it in.
If the rate lock only lasts for 30 days, lock the rate when you’re within 30 days of closing or as soon as you are satisfied with the rate.
Since you’ve already been preapproved for a mortgage (yay!), this should be a breeze. The lender may want some updated paperwork from you. But as long as your income and debt status haven’t changed, there’s nothing to worry about.
Get an appraisal (3 to 4 weeks before closing)
Your lender will order an appraisal as part of the approval process, and the appraiser’s visit often takes place a week or two after you apply for the loan.
An appraisal is a neutral opinion of the house’s fair market value, based on a physical inspection and analysis of comparable sales.
Most of the time, the home will appraise at or above what you’re planning to pay for it. If the appraisal comes in lower than the negotiated price, you’ve got more work to do. The lender can’t issue a mortgage for more than the home’s appraised value, so your options include increasing your down payment or asking the seller to reduce the price.
Complete the title review (about a week before closing)
During a title review, or title search, a title company checks all the legal documents related to ownership of the house. It also covers deed restrictions, easements, and liens on the property. The title search is usually completed near your closing date, and problems with the title can cause a delay in closing.
At closing, consider buying title insurance. This policy, which has a one-time premium, will protect you if the title company missed something in the search, and after you’ve moved in, someone with a claim to the property shows up.
Secure homeowner’s insurance (a week before closing)
Your lender will require that you buy homeowner’s insurance, but it’s a smart financial move anyway. Start by contacting your insurance agent, if you have one. Otherwise, see if your real estate agent can recommend one.
You may be able to cut costs by bundling your homeowner’s insurance and auto insurance. Shop around and get quotes from a few agents to find the best deal.
If your home is in a flood zone, you probably also need to purchase flood insurance. Take care of that now, too.
Get cleared to close (3 to 4 days before closing)
When you apply for a mortgage, the mountain of paperwork you submitted gets sent to an underwriter, whose job is to make sure the information is complete and meets the lender’s standards for giving you a mortgage. Once the underwriter has done that, you’re cleared to close — which is just banker talk for, “We’re doing this deal, and soon.”
Final walkthrough (day before closing)
The final walkthrough allows you to check that the sellers have done what they promised in terms of making repairs. You’re checking on the condition of the house, and your agent can make arrangements with the sellers so you can get in.
The closer to closing you perform the final walkthrough, the better. The later you perform this pre-closing inspection, the more likely the seller has moved out of the property (depending on what’s specified in the contract). When the property is vacant, it’s easy to make sure nothing is missing, and nothing unexpected was left behind.
Closing (purchase day)
Finally! The day you’ve been dreaming about for a year or more is here. You’re becoming a homeowner.
The exact closing process may vary from state to state, but expect to sit in a room and sign a pile of paperwork. If you’re confused about any of the forms, ask for an explanation. (You won’t be the first person, or the last, with that question.)
You’ll also have to provide the funds for your down payment and closing costs and show you’ve purchased homeowner’s insurance.
Once all the closing documents are signed, you’ll get the keys to your new home. This long, complicated trip you began mapping out months ago is almost complete.
Header Image Source: (Nicole De Khors / Burst)