How to buy a house: a step-by-step guide
5. Get pre-approved by multiple lenders
If you’ve successfully completed the first four steps of home buying, you’re ready to gather important information and get pre-approved.
Each mortgage lender has their own pre-approval application requirements, but you should expect to provide these when you get pre-approval to buy a home:
- Social security number (and you will authorize a credit check)
- Copy of your photo ID
- name and address of the employer
- Pay stubs for the past two months
- Bank and balance sheet statements for the past two to three months
- Tax and W-2 declarations for the last two years if you are an employee
- Business income tax returns and 1099 if you are self-employed
- Documentation for any unearned income you want to consider (such as social security, disability, alimony, child support, pension)
- Documentation for any gift funds you plan to use for the purchase
- Proof of home insurance (you’ll buy the actual policy when you’re ready to close)
Once your offer is accepted on a home, the lender will also need information about the property.
Make all your applications within 14 days
Applying for a new mortgage can lower your credit rating. However, multiple mortgage applications made within a short period of time will count as one application. This allows you to search for the best loan without a significant negative effect on your score.
The period of buying a mortgage varies from 14 to 45 days, depending on the credit scoring model used. When you apply to buy a home, you won’t know which model a creditor will use. So the best way to protect your credit score is to make your requests within 14 days.
Each lender you apply to will give you a loan estimate. This is a standard form that spells out the details of the loan that the lender is offering you. This form makes it easy to compare mortgage rates, fees and other details in mortgage offers.
What if you are refused?
If you don’t qualify for a mortgage, find out why. You can ask the loan officer for comments. Then you can work on improving the factors that are harming you and hopefully try again in a few months.
In some cases, you just need to look for a different type of mortgage. Maybe you don’t qualify for a conventional loan because you don’t have enough for the down payment. Talk to first-time home mortgage lenders about your eligibility for a government guaranteed loan that requires a lower down payment. The VA loan and the USDA loan have no down payment requirements. Either is a great choice for people who want to buy a home and qualify for these programs.
In addition, independent professionals may have difficulty finding a mortgage. These people should speak to a lender who provides non-qualifying mortgages, where the underwriter can verify the income in a number of ways. If that’s your case, check out our guide to self-employed mortgages for more details on your next steps.
Depending on your situation, you may want to find a mortgage broker who can help you buy a home. These professionals have more resources and might even have expertise in the type of loan program you need. Some brokers are paid by the lender and some add the fees to the borrower’s closing costs.
6. Choose a real estate agent and view the houses
One of the most important steps in buying a home is finding a good agent. A real estate agent is a licensed professional who represents a buyer or seller in a real estate transaction. Their job is to know the housing market in your area and the best strategies for buying a home. A REALTOR® is a licensed real estate agent who is a member of the National Association of REALTORS®. Not all agents are REAL ESTATE AGENTS.
A seasoned buying agent will be very familiar with the home buying process and can help you get the most out of it. Real estate agents collect fees. These fees are usually paid by the seller when you buy a home.
The real estate agent is your lawyer in a complex and frustrating research and bidding process. Without help, you might be more likely to miss important lists, limitations, or exclusions. You could be bidding too much or too little for a property. Realtors know how to buy a home and help you negotiate the entire process, from reading listings to finding homes, making offers and helping with closing.
7. Choose a house and make an offer
Making an offer on a home is one of the most exciting parts of the process.
Sometimes the biggest potential barrier to buying a home is competition from other buyers. You may need to bid on multiple homes before a deal goes through. If you are shopping for your first home, chances are other people are looking in the same price range. And unfortunately, investors love to grab the most affordable homes. So you could find yourself in a bidding war.
Talk to your real estate agent about the best strategy for buying a home in your market. Some buyers go out with an offer above the asking price, especially if the house is a perfect fit. Others write a personal letter to the seller or even do a video message. Many sellers would rather put their home in the hands of a family rather than an investor, so a personal appeal might be worth a try.
8. Have your home inspected
Once your offer is accepted, have the home inspected by a licensed home inspector. This is to alert you to any red flags before you buy a home. The inspector will examine items such as the home’s heating and air conditioning system, plumbing, electrical, foundation, roof, basement, windows, doors and some structural components.
If there are serious problems, they will be noted in the inspection report. Then you have the choice of negotiating with the seller, buying the house as is, or forfeiting your offer. Keep in mind that the purchase is not dependent on a satisfactory inspection unless this condition was specified and accepted when your offer was made and accepted. If the purchase is not subject to inspection and you choose to opt out, you could lose any deposit you paid.
Home inspections help protect you, but usually aren’t necessary. Appraisal protects the lender and is almost always required.
9. Close and collect your keys
Even in the digital age, when buying a home, most lenders still require home mortgage closing to be done in person so that you can sign in ink in the presence of a notary. Some lenders can arrange the closing at your home or office at a time convenient for you. Others are held in a title company office or other location.
At closing, you will sign many documents related to your loan. You don’t have to sign anything that you don’t understand. Take your time to read each document and ask questions if you need to.
This puts you at the end of your home buying journey. All you have to do is collect your keys. Congratulations on your home purchase! And if you still have questions, check out our comprehensive checklist for homebuyers.