Homeownership is a significant step in anyone’s life that is often associated with joy and comfort. However, the ups and downs of the home-buying process can be overwhelming for interested buyers who are not prepared for the challenges they may have to face. 

By most estimates, you can expect to spend anywhere from 3-6 months buying a new home, not including potential issues uncovered during inspection or appraisal. 

To save on stress and better prepare for what’s ahead, we’ve created this 11-step homeownership guide that breaks down all the important steps you need to know to buy a home. 

Step 1: Find a Qualified Agent and Broker

Many people don’t realize it until they go through it, but real estate involves several moving parts. Just to complete a single home transaction using a conventional loan, you can expect the following entities to be involved. 

  • Lenders
  • Lawyers
  • Appraisers
  • Inspectors
  • Title companies

What a real estate agent offers you is access to an inventory of tools and partners associated with their brokerage. For most homebuyers, this saves you lots of time and money having to compare quotes from different lenders, lawyers, and inspectors. 

A trusted agent will even help you search for homes in your target neighborhood and provide advice on what to look out for so you don’t encounter anything unexpected.

Step 2: Get Pre-Approved for a Mortgage

Another reason we recommend finding an agent before you actually start searching for homes is that you’ll want to get pre-approved to see what prices and loans you qualify for. 

Getting pre-approval through a lender (via your broker) will allow you to place formal offers on homes without the risk of being denied by the lender. This imparts good faith to the seller and makes it more likely that any offer you place will be accepted.  

Plus, pre-approval will save you time down the road when you place an offer because your lender will already have valuable information, such as W2s and renter’s history, that can take days to process. 

Step 3: Create a Financial Plan for a Down Payment

Once you have a realistic idea of how much you qualify for, you can start creating a financial plan for a down payment. 

Some common loan and down payment requirements you should familiarize yourself with include:

  • Conventional Loans (5-20%): Traditional mortgages offered by every major bank. 
  • FHA Loans (3.5-5%): Conventional loans backed by the FHA, which are only offered to first-time home buyers.
  • VA Loans (0%): Conventional loans backed by the VA and only available for veterans. Veterans may be eligible for more than one VA loan over their life. 
  • USDA Loans (0%): Loans backed by the USDA and intended for low-income families in rural and some suburban areas. 

Be aware that conventional loans under a 20% down payment often require private mortgage insurance (PMI), which increases monthly costs. FHA loans come with their own unique mortgage insurance (MIP), which will need to be paid in the first years of the loan. 

You’ll also need to budget for more than just the down payment. Closing costs can also amount to 2-5% of the total price amount and will not be included in the loan unless you bundle it in there. You will also need 1-3% set aside for an “earnest money” deposit, which is refundable but due once you make an offer. 

Step 4: Research the Area You Want to Live In

If you’re moving to a new state or city, you must research the area before committing to a new home. Often, the price of a home will be adjusted based on several factors that impact the home, including its nearby:

  • School District
  • Crime Rate
  • Amenities
  • Job Opportunities

Remember, finding a bad home in a good neighborhood is often a better investment than a good home in a bad neighborhood. You can always fix your home, but once you decide to move somewhere, it’s not always easy to pick up and leave. 

Step 5: Search Through Listings and Start Visiting Houses

Narrow down your search to a few select neighborhoods that fit your ideal price range and start searching through listings. Depending on the intensity of the local market, you may not always have the luxury of visiting a home, but it’s recommended nonetheless. 

Your agent will probably recommend you visit a lot of homes and place multiple offers at a time to increase the chances of getting a home you desire.

Step 6: Make an Offer and a Deposit

Once you find a home you like, contact your real estate agent to place a competitive offer. Your agent will optimize your offer based on comparable homes in the area and seller motivation. Is the seller still waiting to buy a new home and willing to wait for the right offer? Your agent might recommend you go higher. 

If an offer is rejected, you can talk through ways to renegotiate the offer or find a comparable home with your broker.

Once accepted, you’ll need to cough up that earnest money deposit. Luckily, this deposit is refundable if anything goes awry during the deal. 

Step 7: Perform an Inspection

The first thing your broker will recommend after placing an offer is performing an inspection. Most lenders will only require a standard visual inspection, which covers everything from the roof to the foundation.

Of course, you can get more detailed and order a deeper inspection to see if there are any not-so-obvious repairs that will need to be made. 

Step 8: Apply for a Mortgage

In the meantime, you’ll need to apply for a formal mortgage and wait through all of the tedious details of the underwriting process. After providing your lender with a litany of various documents, you will be approved for a loan and lock in your interest rate.

In general, homes under contract take 30-60 days to close, depending on inspection, appraisal, and underwriting. 

Step 9: Wait for Appraisal 

Before finalizing an offer, your lender will perform its own appraisal. An appraisal will view the material condition of the home after inspection and compare the price to three previous and comparable properties that have been sold in the area.  

If the appraisal finds any issues or quotes the home lower than your offer, you will be forced to renegotiate your deal. 

Step 10: Apply for Mortgage Insurance

One final step you will be required to take before signing your papers is getting your home insured. Homeowner’s insurance is a non-negotiable tool that is required by your lender to protect your home as long as it’s under loan from the bank. Your lender may require specific coverage limits, depending on the type of loan. 

Shop around to find the best quote for you. 

Step 11: Perform the Final Walk-Through 

Now it’s time to finally close on your home. Once an inspection, appraisal, and title search have been made, you will be given the keys and the deed to your new home. Now, you can breathe easy as you are finally the owner of your new home!

We hope this guide helped you and that you check out more from Selling the Southern Life to learn more about buying and selling your home. 

FAQs

What is earnest money?

Earnest money is a secure deposit placed days after an offer has been made to ensure that the buyer is capable of purchasing the home. This deposit also gives the buyer time to secure financing. 

How long does the home-buying process take?

On average, the home buying process can take up to 6 months, with contracts taking 30-60 days to close and the initial research, shopping, and pre-approval stage taking up to 4 months. 

What is private mortgage insurance (PMI)?

Private mortgage insurance protects lenders if the borrower defaults on their loan.