Steps in the Home Buying Process

Updated: Mar 4, 2021

Buying a home, especially your first home, can be simultaneously the most exciting and the most stressful time in your life. You can simply to react to calls, emails, and requests as they roll in, or you can be prepared. Here is a sample 20-step process to buying a home, based on my home-buying experiences. These aren't necessarily completed in this exact order. If you understand these steps, then you’ll know what you need to do and what to expect when purchasing a home, so you don’t have to be reactive and stressed out.

1. Gather your personal and financial information.

You may be surprised how much information your lender will need. I recommend putting the following information in an electronic file so you’re ready to go. This information will arm you to have an intelligent conversation with a lender. You’ll also be ready to go if you find a house you want to buy right away. You should also know your approximate credit score.

a. Proof of income from the last 2 years: W-2’s, 1099’s, etc.

b. Tax returns from the last 2 years.

c. Picture of your driver’s license.

d. Picture of your social security card.

e. Last 2 pay stubs.

f. Most recent bank statement, from which you’ll be making your down payment.

g. Employment history, including contact information.

h. A list and values of your assets and liabilities.

2. Speak to a lender.

Most lenders look for your total house payment to be less than 28% of your gross income. This payment includes principal, interest, taxes, insurance, PMI, and HOA fees. For example, if you make $60,000 per year ($5,000 monthly), a lender would look for your payment to be $1,400 or less, or 28% of $5,000. The lender will be able to tell you what the maximum purchase price of the house can be to keep the payment lower than this amount, which depends on which loan you get and how much you put down. The lender will discuss different loan options (FHA, conventional, etc.) and help you decide which is best for you.

They will also furnish pre-approval letters for you to submit along with any offers, proving you have the financial ability to purchase the home.

Ask the lender how much time they need from contract date to close date, so you know which close date to suggest in your offers. This period is normally about 30 days.

Also, ask what the lending fees and closing costs will approximately be.

Note that just because you are approved for a certain loan amount, it does not mean you need to buy a house for the maximum price. If you are or want to be an aggressive saver, consider buying one for half as much as you’re approved for (if you can).

3. Contact a real estate agent.

With the ease of internet searches, you may be tempted to forgo a real estate agent. As a buyer, there’s no reason not to have one. The seller pays the buyer’s agent’s commission out of the sales price. Furthermore, the agent will have experience and insights to aid in your search. They also have access to the multiple listing service (MLS), where most listings are. We once saw a home on the MLS that was not listed online at all for the first 6 months it was on the market. It was listed only on the “income property” section of the MLS. We’re pretty certain potential buyers never even knew it was listed. Don’t leave all the searching to the agent, though! Search on your own as well.

4. Look at homes.

Work with your agent to create a list of homes you’re interested in. Your agent will set up showings. Try to cluster them, if possible, to make things easier for everyone. Keep in mind the sales price you’re comfortable paying. Sellers typically come down in price when they sell, but be realistic. If you’re approved for a $300,000 house, it’s probably safe not to look at any listed for $500,000. On the flip side, try not to compromise on what you’re looking for. If you want a garage, only look at houses that have garages (assuming these are available in your price range).

5. Make an offer.

If you find a home you like, make an offer on it. My advice is not to be anchored to the list price. If a home is for sale for $250,000 and you do not want to pay more than $200,000, then offer $200,000 or less, even if you arbitrarily think they’re hoping to get $240,000. The seller can always make a counteroffer (in my experience, they almost always do). You never know what the seller will accept. You can make an offer by submitting an executable contract or through your realtor (who could make a verbal offer). If you submit a written offer, all the seller has to do is sign the contract and you’re under contract for the home.

This process can be nerve-wracking at first – especially once you see how long the contract is. In addition to the price, the contract will include fillable fields regarding your loan type, close date, earnest money amount, and other miscellaneous items. For example, in Florida the washer and dryer are not automatically included, and you must write this stipulation in if you want them. It will also contain pages of other legalese that you should review with your agent (and an attorney if you’re not using a standard contract). If you’re getting financing, include an appraisal contingency too.

Note that in addition to your down payment, you’ll be responsible for closing costs that can total about 3% of your loan. On our most recent offer, we asked for and received closing cost assistance of $5,000. If you don’t have cash or simply want to hold onto as much of it as possible, you can offer a higher purchase price with closing cost assistance. Using the above example, you could offer $207,000 with 3% in closing cost assistance, which would mean you’re basically offering $200,790. Alternatively, you could offer $205,000 with $5,000 in closing cost assistance, which is like offering $200,000. (Note that the home will have to appraise for the contract purchase price.) Don’t be afraid to get creative! One real estate book I read said to offer an odd number, like $201,100, to make your offer stand out and cause the impression that some high-level analysis went into it.

6. Get an accepted offer.

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