A Breakdown of the Home Buying Process: Home Buying Guide Part 3

FAMILY

Buying a home is exciting. This process can be fairly confusing, however, as it involves a variety of complex steps—each of which comes with its own unique timeline. But if you know what to expect, the home buying process should go rather smoothly. Once you’ve determined where you want to live, what type of house best matches your lifestyle, and what you can afford, you’re ready to start looking.

The Offer

Your offer should depend on the state of the market and the selling price of comparable homes.

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When you find the house of your dreams, you may be lucky enough to get it for less than the asking price. But you may also end up paying more. To get a good sense of the price you can expect to pay, look at the benchmarks of comparable homes in the area. If they’ve been selling for less than their asking price, and it’s a buyer’s market with lots of homes for sale, you can feel confident in placing a lower offer, such as 80 or 90 percent of the asking price. A seller’s market where there’s not much inventory is a bit different; if you really love the house, it would be in your best interest to offer the full asking price—or potentially more—provided it’s within your budget. Once you decide to make a specific offer, your agent will notify the seller immediately.

The Counter

After you’ve made an offer, several things can happen: the seller can accept your offer, reject it, or make a counter offer. If your offer is accepted, you can go on to the next step. If your offer is rejected, you have the option to make a new offer or walk away. If the seller makes a counter offer, you can either accept it, counter back, or walk away. Once you and the seller agree on a price and sign the purchase agreement, you can move on to the next step. Remember there are no set time guidelines for this part of the process. Depending on the agreement you make, the counter exchange can take twenty-four to forty-eight hours, or even longer.

The Inspection

Most deals provide you with a limited amount of time—typically about five to ten days—to get your house inspected. As such, it’s best practice to set up an inspection right after you sign the purchase agreement. And, as a precaution, you should make sure your agreement is contingent upon a positive house inspection.

When preparing for the inspection, it’s important to keep in mind the home inspector will simply alert you to any potential problems. It’s then up to you to decide whether or not those problems are significant enough to affect your final purchase decision. If you decide you still want the house after the inspection, you can move on to the next step.

Earnest Money and Escrow

Upon signing the purchase agreement, a buyer needs to put down earnest money to let the seller know he or she is serious about making this purchase. Earnest money is usually between 1 and 3 percent of the purchase price, and your real estate agent can guide you on what’s typical for your area. This earnest money is put into a third-party escrow account held by a title company, an attorney’s office, or a real estate broker.

The Mortgage

Unless you plan on paying for your home in cash, you will need to take out a mortgage. Even if you’ve already been pre-approved for one, you still have to take the time to get the loan commitment. You will probably need to supply your lender with certain documents to prove your income, assets, and employment as well. As CBS MoneyWatch reports, the process that takes place from mortgage underwriting to receiving the commitment letter can take as few as eighteen days, but it can also take up to forty-five days or more depending on the lender and how quickly you can provide the necessary documents.

The Appraisal

According to Bankrate, most lenders require a loan-to-value (LTV) ratio of 80 percent. As such, if the house you want has a low appraisal value, you may not be able to afford it. But if the house is appraised for about what you’re paying or more, you’ll be in good shape. Your contract should state when the appraisal needs to be completed. This process takes place after the purchase agreement is signed but before you’re granted the loan.

The Closing

You should set aside a few hours to attend the closing.

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If all goes well during the home buying process, you make it to the “closing,” which serves as the finish line. Typically, it can take about thirty to forty days for a prospective home buyer to get from offer acceptance to closing. At this point, you will sign a variety of documents that will transfer the property from the seller to you. Time suggests you should be prepared to pay between 2 and 5 percent of the cost of the home at closing. At the end of the closing, you will receive the keys to your new home.

The house buying process can be complicated, but a good agent (or an experienced friend) can guide you through every step.

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