12 Important Steps to Buying a Home

When buying a home, there's often as much stress as excitement. Understandinghow the home buying process works can make things less scary, so we've broken it down to the basic steps.

1. Determine a Budget
   Wait to start looking until you know what you can afford. Begin by looking over your monthly income and expenses and add them up. Then, factor in any new costs associated with owning a home, like maintenance and home insurance. Remember, some expenses, such as the phone and internet bills, are the same whether you rent or purchase a house. Other expenses, like utilities, transportation, or household maintenance, will be replaced by different or possibly higher costs. Now that you have your regular bills added up think about what monthly payment you would be comfortable paying every month. A standard guide is to spend no more than 28% of your gross monthly income (before taxes) on total housing expenses, which includes your mortgage payment.
2. Shop for a Lender
   Before you start looking around, it's good to brush up on some common mortgage terms and ask friends and family who recently bought homes about their experiences with the lenders they chose. Look beyond the interest rates they offer for details like being a portfolio lender. That means the loans they make stay with the lender. If you're not familiar with why that's important, listen to someone who has had their mortgage sold to understand what it's like.
3. Make a Plan for Your Down Payment
   You don't have to save up 20% for a down payment; there are mortgage options that let you buy your home with little to no down payment, as well as grants you can apply for to help build your down payment (more on that later). You can also use your down payment differently by working with your real estate agent and the seller to find creative solutions, like a rent-back provision. Don't forget to include other costs involved in the home buying process, such as closing costs, which usually need to be paid from your down payment and costs between 3% and 6% of the purchase price of the house.
4. Apply for a Mortgage
   Now that you know who you want to work with, it's time to start the application process. Each lender's requirements for applying for a home loan are a bit different, but here's how the process usually works:
   
   1. Complete your mortgage application to get pre-approved. Your lender may lock in your interest rate for 90 days while you look for a house. Read over the application and any other information given to you carefully to understand all the details. Ask as many questions as needed to make sure you have a good understanding!
   
   2. Your mortgage lender will ask you for any additional documentation, depending on requirements and the type of mortgage loan you're applying for.
   
   3. Once you've found a house and let your lender know you're ready to proceed, they will pull your credit one last time and finalize your application. It's essential that you don't make any major financial decisions between getting pre-approved and getting your loan finalized. This can be things like buying a car or opening a new credit card, and it's important because doing that might mean you no longer qualify to buy a house and your mortgage application is denied. When in doubt, as your lender!
   
   4. After approval, your lender will provide a loan estimate within three business days.
   
   If you're not familiar, learn more about the different types of mortgages you can get to find the right one for you.
5. Get a Pre-approval Letter / Credit Qualification Letter
   This provides basic information to help you move on to the next step of buying a home. It includes your maximum loan amount based on your qualifications, terms of the loan and/or mortgage type, and the expiration date of the pre-approval, usually between 60 and 90 days. Credit processes and requirements vary by lender, but most realtors will require that a borrower receive some type of pre-approval before they shop for a home. This lets all parties involved in the transaction know that you're a serious buyer and can afford to buy the house you're interested in. Learn more in our article How Do Banks Approve You for a Mortgage.
6. Choose a Real Estate Agent
   A real estate agent will guide you through the process of finding the right home and putting in an offer on the home you want. A good one will be a wealth of information for you as you continue your search, helping with any questions about things like school districts, crime rates, or resale value down the road. They'll also give helpful advice about the complex real estate market and will negotiate on your behalf to help you find properties that meet the criteria you're looking for. For all these reasons, finding someone who has a good track record and that you're comfortable working with is important.
7. Look for a House
   Now that you know your budget and have a lender and real estate agent ready to go, you can find the right house for you. Make a list of your must-haves, like two or more bathrooms, a decent backyard, or even specific neighborhoods, and any deal-breakers, such as having or not having an HOA. Give this list to your agent so they know which properties to keep an eye out for. As homes come up for sale, you can attend open houses or schedule tours to see the houses in person and make sure it's a good fit for you and your family.
8. Make an Offer
   Your real estate agent will guide you through the negotiation process and help you come up with a competitive price, contingencies to include, if any, and how to navigate those. Counteroffers are part of the process, so be prepared for the seller to come back with an offer they're comfortable with. In a competitive environment, your offer might be outright rejected in favor of a more straightforward offer. Still, your agent will help you craft the most competitive offer possible. Just remember to stay within budget at this point in the process! Your agent should be able to help you navigate this important step. In general, you'll want to consider the purchase price, the closing date, and earnest money deposited when making an offer. Here are some questions and considerations that might influence these three factors.
   
   Remember the following points as you and your agent put together the offer on a house.
   
   Purchase Price
   • Do repairs need to be completed?
   • Are furniture or appliances included?
   • Will the seller be paying for any closing costs?
   The Closing Date
   • Closing dates typically require a minimum of 30 to 60 days.
   • Sellers generally prefer shorter closing dates
   • Buyers depend on their lender for the time required to close the financing.
   Earnest Money Deposit
   • Earnest money refers to a buyer's deposit that accompanies a buyers' offer; earnest money demonstrates a good faith commitment to the seller.
   • Typically 1-2% of the purchase price.
   • Sellers often consider a higher earnest money deposit as a measure of the motivation of the buyer.
   • If the buyer's offer is accepted, the deposit is usually held by the escrow or closing officer.
9. Home Inspection
   Why the need for an inspection? As a buyer, you want to be sure you're getting what you paid for, and sellers want to be sure they're in the clear if problems come up after the home is sold. Unless you agree to different terms, in general, the buyer pays for the home inspection of the exterior and interior of the house. A licensed inspector evaluates the property for any issues, like structural problems, plumbing, pests, and more. Based on those results, you can renegotiate with the seller or, if the issues are big enough, back out of the deal to find a different house. In general, we recommend never waiving the inspection contingency. The risk of not uncovering potential repair issues or defects is not worth a short-term savings of time or negotiating advantage.
10. Ask for Repairs or Credits Based on Inspection
    When the inspection comes back, you and the seller will both receive a copy, including a list of what was found during the inspection. Sometimes, these repairs are minor, such as a creaky floorboard or a light switch that doesn't work, but other times, more complicated repairs will need to be made. You can use these repairs as leverage to either have the seller fix them before the sale is completed, cash back at closing from the seller (seller credit), or ask for a lower price on the house. More expensive repairs are things like roof repair or parts of the subfloor failing, but before making a decision either way, use your best judgment and consult with a professional and your real estate agent to determine the best way forward. The lender may require some of the repairs to be completed to close the transaction.
11. Home Appraisal
    Your lender will arrange an appraisal of the property to evaluate its value and confirm the price you and the seller agreed upon before your mortgage paperwork is signed. Sometimes this is done by an algorithm that will check the sale price of comparable homes in your area, and other times an appraiser is required to evaluate the house in person, so the time frame can vary widely but can take between a week or up to a month when it's the busy season. Your lender will be able to give you a good idea of how long this step will take.
12. Finalize Your Mortgage and Close the Deal
    Once your offer is accepted, negotiations are over, and your appraisal comes back, you'll work closely with your lender to finish any paperwork and loan conditions and provide any documents you have not already sent in to finalize your mortgage. You'll also work with other companies to complete the process, such as a title company. Once the deal is closed (loan documents are signed and recorded), the house is officially yours! The very last step is to update your address and set up utilities, and once that's done, you have everything you need to move in and enjoy your new home.

WaFd Bank is Here to Help

When it comes to getting your finances in order for the ups and downs of life, a little planning goes a long way. Whether you're a seasoned budgeting pro or new to saving (check out WaFd Bank's account options while you're here), your local WaFd Bank branch is available to help you reach your financial goals. Open an account online, visit your local branch, or give us a call at 800-324-9375 to learn more and open an account today.

All loans subject to credit approval.