Whether you’ve decided to purchase your first home or are ready to grow into the next, homebuying can be an overwhelming process. A bunch of terms you don’t know, all the documents to read, a big financial move to make, and not to mention choosing the home that’s right for you! While a dedicated lender is always available to assist you, it’s important to educate yourself on the process.
It's important to be an informed buyer.
Your dream of homeownership can be a reality. We’ve laid out the 6 steps of the process so you can understand exactly what you are going into:
Prepare to be a Homeowner
Get Pre-Approved for a Loan
Shop for your Home
The Underwriting Process
Final Loan Approval
Become a Homeowner
Step 1: Prepare to be a Homeowner
You’ve officially decided to buy a home. Congratulations! It’s time to reach out to your bank and find the mortgage lender that’s right for you. They will be your guide at your lending institution, navigating you through the mortgage process and putting the keys to your new home in your hands.
A few actionable items as you start:
〇 Build a budget and determine a mortgage payment that fits your financial lifestyle. We have a calculator you can use to estimate what a monthly payment would look like with different loan, down payment, and rate amounts.
〇 Consider the extra costs of homeownership. While rates and home prices may fluctuate throughout the process, it’s important to have the whole picture of what you can afford. Beyond the monthly payment, be sure to include the cost of home insurance, maintenance, and bills (electricity, water, garbage, etc.) in your budget. That 100-year-old farmhouse is really chic (and cheap) until it needs a new roof 3 weeks after you move in!
〇 Research possible financial assistance. You’ve probably heard you need “20% down to purchase a home”, but that’s not always true. Your lender will provide information on grants and programs available should you qualify or need assistance. These programs can help lower the percentage you need for a down payment, provide funds towards your closing costs, or some other form of aid. Understanding your options, or having an idea of what could be available, will make you an informed homebuyer.
〇 Allocate down payment and closing funds. For your down payment, collect bank statements for proof of funds. You will need these in the next steps. And consider adding a line item to your budget for the lump sum expense of the closing costs
Step 2: Get Pre-Approved for a Loan
While it’s hard to resist jumping right into the home search, getting pre-approved is essential to starting a smooth loan process. Apply online or meet with your lender to determine your budget and financing options.
A pre-approval is a document that lets realtors and sellers know how much the institution is willing to lend to you. This number is based off a preliminary look at your income, assets, credit, and discussions about possible grants and programs. Most realtors require this letter before they will show you a home. It allows them to show you properties they know you can afford, to secure a loan in a timely manner, and will tell them who your lender is. A good relationship between your realtor and lender can make the whole purchasing experience much easier.
Here is where your budget from Step 1 can help. Compare the pre-approval amount to your budget. Is it below what you needed, just right, or maybe it’s higher than anticipated? Should your pre-approval not match your budget, don’t let it burst your homebuying bubble. Discuss any questions or concerns with your lender. They will have a better understanding of why the amount is what it is and can help you make an informed financial decision.
TIP: Avoid falling for the dream home that you can’t afford! Don’t set the “minimum price” filter on your home search to the same amount as your pre-approval. This will only show you houses available at the highest end of your budget! Use the pre-approval number to set the “maximum price” filter instead.
Step 3: Shop for your Home
This is the fun part! Your internet browser will be full of tabs for home-selling sites and your car will gain some miles while canvasing neighborhoods for open houses. Make a list of your absolute must-haves, the maybes, and the automatic no’s. Maybe you absolutely must have a backyard and prefer a ranch style home, but the best yard comes with a two-story walkout basement. What are you willing to compromise on, what is essential to have in your new home?
Working with a realtor during this step can make it easier to purchase a home. Especially in a more competitive market where negotiations, multiple offers, and low inventory may occur. They can help you get into home showings, filter for your must-haves, and provide an extra opinion on possible renovations, red flags, and prices.
Remember that budget we reviewed earlier? Take a look at your financials again before ‘officially’ moving on a property. And do it periodically. While you want this step to go fast, it may take months to find the right home. Be prepared for when the time and the home is right so you can make an offer in a snap! When the offer or contract is accepted, celebrate, then contact your lender to tell them the good news. It’s time to dive in! (Note: A pre-approval document typically has a shelf life of 120 days. If it takes you longer than that to receive an accepted offer on a property, your lender and/or realtor may require an updated letter to continue house shopping.)
Step 4: The Underwriting Process
While you're planning for your move, your lender is preparing for your loan closing. An appraisal will be scheduled for the property and underwriting begins at the bank.
Your lender will guide you through this step, working with you to help you understand the intricacies of your loan. Any qualifications and documentation needed for grants and programs will be provided at this time, and proof of home insurance will need to be submitted. Unless otherwise stated in the contract or offer, a home inspection may be necessary for final approval. Your realtor or lender can help you schedule an inspection.
This step can be a lot of “hurry up and wait.” In between document signing and reviewing, keep in check with your budget and limit other financial decisions. The underwriting period is not the time to look at buying a new car, to open a new line of credit, or to move around large sums of money. Any significant movement on your bank statements or changes to your credit report could cause delays in closing on your home. When in doubt, contact your lender.
Step 5: Final Loan Approval
About 45 days later (on average) you will reach the end of the closing process. All documents have been submitted, reviewed, and approved. Underwriting is complete, and the title work is being processed. A closing date is scheduled to take place at the title company or location agreed upon by the buyer and seller. Your lender will provide you with documentation that lists your final loan amount, your itemized monthly payment, and closing costs. They will also let you know how closing funds will need to be provided (ex. certified check or wire transfer).
You are about to make a huge financial move. It’s important to review documents thoroughly and talk to your lender with any questions, clarifications, or concerns you may have. Timing is also imperative the last few days before closing as some documents require signatures in a specific timeframe. Pay attention to these dates and keep in contact with your realtor and lender. Missed signatures or last-minute changes can push back the closing date.
Step 6: Become a Homeowner
It’s closing day! Before you head to your appointment, grab your favorite pen, the funds needed for closing, and don’t forget any documents you may need (like a valid government ID or other items listed by your lender). Let the excitement of this achievement push you through all the document signing. As soon it’s over you will add a new key to your keychain.
And that’s it! Easy peasy, right?