7 steps to the home purchase process & how long each is going to take
1. Get Your Credit in Line – 8 weeks
“Before you can consider buying a home or securing a mortgage you need to make sure your credit is good.
It’s best to order a credit check as soon as possible so that you can view your credit score and see whether you’ll need time to improve it or not. Factors which affect your credit score will be the history of paying your bills on time and monthly debt. Credit scores can range from 300, which is the worst to, to 850, which is the best. A score of 740 or above is generally considered excellent.
If you’re not satisfied with the results, Liz Weston, personal finance columnist and author of “Your Credit Score, Your Money & What’s At Stake,” told Forbes that seeing credit score improvement might take 30 to 60 days.
Right now the banks want a score of at least 640. While there is no minimum credit score requirement to apply for a mortgage, having good credit can definitely help you. So, if you’re worried about your credit score you might need eight weeks to build it up before continuing to move forward with the home buying process.
2. Know Your Mortgage Options – 1 week
Take 1 week and dedicate it to researching different mortgage options. It can save you tens of thousands of dollars over the long term.
There are three types of mortgage loan options: FHA, Conventional and VA. It’s very important to research these options – it can save you tens of thousands of dollars over the long term.
FHA Loans
FHA loans call for a 3.5 percent down payment, so on a $100,000 home you need a $3,500 down payment. However, FHA loans are insured through the Federal Housing Administration and administered by FHA-approved lenders, so there is a premium. If your mortgage is supposed to be $1,000, you’ll pay roughly $100 more per month.
In accordance with Home Guides, FHA financing offers lower down payment requirements and relatively lenient qualification requirements. Therefore, FHA loans are common among the first time home buyer set and consumers with minimal credit history.
Conventional Loans
Conventional loans are not backed by the FHA and need at least a five percent down payment. The loans are available by banks and credit unions. Banks also look for a credit score of 680. But unlike the FHA loan where you pay a premium every month – with conventional loans you don’t, so on a $1,000 mortgage you can save anywhere from$ 80 to a $100 a month.
Although a conventional loan may have tougher credit requirements than FHA loans, should you be in the position to use one, you will probably find that interest rates are lower, as mentioned in Home Guides.
VA Loans
VA loans are for service persons and were created help veterans as well as their families obtain home financing. “VA loans are excellent. They are the only loan in the US that requires zero percent down. However, understand that the larger the down payment, the lower your payment per month will be. Overall, in July of this past year 20 percent of Americans used FHA loans, 64% used conventional loans and 11% used VA loans, as stated by mortgage software company Ellie Mae. However in the end, you’ll have to research all of your loan options and select which loan is best for your situation. So, don’t forget to take time to do so.
3. Get Mortgage Pre-Approval and Pre-Qualification – 48 hrs to 1 Month
Pre-Approval
“Smart shoppers will seek loan pre-approval prior to beginning their search for a home. We have a mortgage broker that we routinely work with and given all the required information and paperwork, loan pre-approval can take less than 48 hrs. However, that 48 hour timeline is for persons with all the correct paperwork along with an agent that has a mortgage broker on speed dial. Otherwise, if there are any obstacles, like a pending court case or messy divorce, the lender might have to have additional documents and that can make the process take longer – as much as a couple of weeks.
To get pre-approved, you’ll provide detailed information about your income and assets that will be reviewed by way of the lender’s underwriters at the bank. When you are approved, you’ll get a commitment from the lender for a specific loan amount, according to U.S. Bank National Association. This letter proves to the seller of the home that you have the resources to really make the purchase. In most cases you will need to submit a copy of teh approval at the same time that the offer is submitted to the listing agent. This way they can present it with the offer to the owner. Regardless of whether it takes you two days, or an entire month, once you’re approved you’ll receive a commitment by the lender for a specific loan amount. The pre-approval letter proves to the seller of the home that you have the resources to make the purchase.
Pre-Qualification
Now, getting pre-qualified is different. It does not have to have a commitment from you or even the bank. Instead, it’s basically an assessment of whether your debt-to-income ratio fits U.S. Bank guidelines for home loans. This is usually a quick procedure, and based only on the information you provide to your lender. Your pre-qualified amount is not a sure thing; it’s only the amount for which you might plan to be approved. Therefore, a pre-qualified buyer is less valued when compared to a pre-approved buyer. Bear that in mind.
4. Choose a Real Estate Agent – One to 30 Days
Gen Y contains the largest share of first time home buyers at 68 percent, based on the Home Buyer and Seller Generational Trends Report 2015. Regardless of age, everyone is very likely to find an agent via referral from a friend, neighbor or relative or work with an agent that they previously used when buying a home or selling a home.
On the flip side, there is no real method to choosing an agent. We’ve been told we were chosen because We looked like a nice couple on our website. Plus, picking a real estate agent can take only a few minutes in the online world. However, it’s Alright to take longer than just a few minutes to find a real estate professional, especially for the first time home buyer who wants to ensure a positive first time experience. Allow yourself a timeline, say one month, to locate a real estate agent that you trust. Remember you are hiring them, so interview a few of them and ask questions such as:
Just how long have you been in the business?
What is your average list-to-sales-price ratio?
May I review documents that I will be required to sign?
Regardless, every first time home buyer need to be diligent when checking out real estate professionals to make sure a positive first time experience.
5. Research Potential Houses and Neighborhoods – Three Weeks
Searching for homes has become much more streamlined as well. With websites such as Realtor.com and Trulia.com buyers can often make a short list of properties before reaching out to an agent. Even with this technology available at your fingertips. We suggest taking a couple of weeks to think about what house you want and what neighborhood you can afford. However these sites can be used to give you an estimate of what you can afford. Real estate websites generally offer versatile search parameters for instance year the house was built and lot size, so make the most of them to help you find the best home for you.
It’s a good idea to break up your housing criteria into needs, wants and desires. Needs are those amenities that the buyer simply can’t live without. Wants are those amenities that could be nice. Desires are those amenities that will be over the top wonderful.
6. Find the Right House and purchase It – Varies
“After the initial meeting the realtor will send the buyer various listings that meet their criteria and the buyer can determine whether they would like to see any of the properties. But once the buyer finds a property that they love, the process moves extremely quickly. The problem is that sometimes it takes awhile to find the house that you simply love. We’ve had had couples take one day and couples that take up to 12 months.
Regardless, be patient until the right one comes along. When it does there are a few things the purchaser is expected to do during the home buying process:
Get an updated pre-approval letter.
Meet with your realtor to write the offer.
Present your check for the deposit.
Once the offer is written and signed by the buyer the realtor will present the offer and the seller has three options; accept, reject or counter. If the offer is accepted, and the buyer included a home inspection contingency, then your realtor will schedule a house inspection.
7. Get a House Inspection – One Week
A home inspection is the most critical thing you can invest in when purchasing your house. The consumer and real estate professional can only see cosmetic defects while walking through the property, whereas a home inspector will conduct a comprehensive inspection. The actual inspection can take about two to three hours, but having the inspector to your house can take as much as one week. We have a home inspector that we work with frequently, but don’t feel pressured to utilize ours. It’s your choice. The home inspector will look over everything: plumbing, electrical, mechanical, structural and cosmetic appearances.
The home may look like the one for you, however, if it comes with thousands of dollars in repairs or maybe larger issues, you might want to make sure it is still worth your hard earned money. First time home buying is difficult, don’t cause it to harder by failing to get a house inspection. Know the home you’re buying before you buy it. Overall, it may be difficult to put a hard timeline on buying a home because no two buying experiences are the same. For example, researching a neighborhood may take weeks for a couple that moves to a new city, however a local couple may know intuitively where they would like to live within a few minutes. As a home buyer, specifically a first time home buyer, you need to perform due diligence throughout the entire process and put yourself in the best situation to ensure success when buying a home.