The process of purchasing a home, whether it's your first home or an upgrade or a downgrade, typically takes a minimum of 3 or 4 months and can take significantly longer depending on your situation as well as the situation that the home seller is in.
Not every process is the same, but Jason Marcus of Freedom Mortgage in Melville, NY has put together a great 1-pager on the mortgage/home purchase process that he labels 'Loanopoly' which I will summarize below.
Jason recommends that you start your process by going to your loan officer to see what you can afford. This is likely to be your most important step as realtors will try to gauge if you can afford a house before they even show it to you. Your mortgage broker or loan officer will help you put together a pre-approval. This pre-approval will provide proof to realtors and to sellers that you are able to afford the home that you are going to look at. It doesn't approve you for a loan, but it does provide a fairly clear roadmap as to what you should look at and what you will be steered away from.
Once you are pre-approved you can go through the next few steps, which are:
- Find a Home that fits your needs and fits within your budget.
- Make an Offer. There's typically some negotiation, some back-and-forth and potentially bidders trying to outbid each other.
- Before you go into contract on your home, you should have a home inspection. This is not a requirement, but unless you are a contractor or a housing engineer you need to have someone look at the house to make certain that the house is structurally sound and you understand what it is that you are buying.
- Sign the contract. This is the part of the process that indicates that you are 'on the hook' to purchase the house. This contract is signed by both the buyer and the seller of the house outlining the terms of the deal - the price, the estimated date of closing (the actual transaction) and any additional terms that were initially negotiated and agreed to.
Once you (the buyer) have a signed contract now you and your representatives have to get to work. A good realtor will assist you in this entire process and this next phase will be invaluable to you in keeping the process moving as it can be a very hectic process as there are a lot of parties involved at this point. This next phase is where you are arranging for your financing to pay for the home. Once you have a fully executed contract (see above), the next steps are:
- Apply for your loan This step can be done directly with a bank representative (or another company that will be lending you the money) or you can use what's known as a mortgage broker. The job of a mortgage broker is to get you a good deal on your mortgage -- they typically work directly with a limited number of banks but if you have a really good broker it's their job to get you a good deal. That's why they get paid. During this part of the process you will need to provide a financial life story (for the previous 2 or 3 years) so be prepared with W2s, pay stubs and possibly tax return information as well as all bank and investment account information.
- Appraisal A bank will not lend you more than the home is worth so once you have applied for your loan, the bank will order an appraisal on the property. This is where the bank (or their agent) makes a determination as to the value of the home. If you are purchasing a $300,000 home and putting down $30,000 the home will need to appraise for more than the $270,000 of loan that you are applying for.
- Appraisal Report If there are any outstanding issues at this point your bank will notify you of any issues prior to loan approval.
- Title Report Your attorney will sumbit the title report to the banks attorney for review and clearance.
- Get Homeowners Insurance A copy of the appraisal and mortgage clause will be provided to you so that you can get homeowners insurance. The first place you should look is to the company you have your car insurance with to see what kind of discounts you will be eligible for. Don't end the process there, make the insurance companies compete for your business with their rates.
These are all of the steps that you, your attorney and your realtor will be going thru in preparation for closing. The closing is where you (the buyer) actually purchase the home from the seller. For the remainder of the process make sure that you work closely with your realtor to understand the ins and outs of the closing process as the rules in each state could vary. Once you are notified that you are 'Clear to Close' there's still a few more things to get done.
- Schedule Your Closing Based on whatever your state's rules are your realtor will get all of the parties involved scheduled for the transaction. There's usually a bank representative, 3 lawyers (yours, the sellers and the banks), a couple of realtors and possibly a title representative present at the closing, so there's a lot of people to coordinate.
- Final Walk Through Borrowers will typically do a final walk-thru of the home the night before (or morning before) the closing to make sure that nothing has changed since the process began. This allows for any final changes or issues to be worked out prior to the closing.
- Closing All parties will sign documents, certified checks are exchanged and any additional payments get made during the closing session. Again, every state will have some nuances with this process and each bank is likely to have different requirements, so again, work closely with your representatives to make sure that you are ready.
- The house is yours. The first thing that you'll likely do after getting all this done is that you should contact all utility companies about the change in ownership so that you have power.
Now it's time to celebrate owning your new home.