Before you buy a home - 1. Understand how much you can afford by determining…
When most people are considering purchasing a home they want to get a feel for how long the process will take. Interestingly, the process time varies by age group. For example, buyers under the age of 50 tend to search for a home for 11 weeks before finding one; whereas buyers over the age of 49 tend to look for eight weeks, according to the Home Buyer and Seller Generational Trends Report 2015.
Here are seven steps that are integral to the process and how long each will take.
1. Get Your Credit in Line — Eight Weeks
“Before you can consider purchasing a home or securing a mortgage you need to make sure your credit is good,” said Qureshi.
It’s best to order a credit check as soon as possible so that you can see your credit score and know if you need time to improve it or not. Factors that affect your credit score are your history of paying 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 happy 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 could take 30 to 60 days.
“Right now the banks are looking a score of at least 640,” said Qureshi. Although there is no minimum credit score requirement to apply for a mortgage, having good credit can definitely help you. So, if you’re concerned about your credit score you might need eight weeks to build it up before moving forward with the home buying process.
2. Know Your Mortgage Options — One Week
Take one week and dedicate it to researching different mortgage options. “It can save you tens of thousands of dollars over the long term,” said Qureshi.
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,” said Qureshi.
“FHA loans require a 3.5 percent down payment, so on a $100,000 home you will need a $3,500 down payment,” said Qureshi.
However, FHA loans are insured by 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.”
According to 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 are not backed by the FHA and require at least a five percent down payment. The loans are offered by banks and credit unions.
“Banks also look for a credit score of 680,” said Qureshi. “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, if you are in a position to use one, you might find that interest rates are lower, as stated in Home Guides.
VA loans are for service persons and were established to help veterans and their families obtain home financing.
“VA loans are excellent. They are the only loan in the US that requires zero percent down. However, remember that the bigger the down payment, the lower your monthly payment will be,” said Qureshi.
Overall, in July of last year 20 percent of Americans used FHA loans, 64 percent used conventional loans and 11 percent used VA loans, as stated by mortgage software company Ellie Mae. But in the end, you’ll have to research all of your loan options and decide which loan is best for your situation. So, make sure you take time to do so.
3. Get Mortgage Pre-Approval and Pre-Qualification — 48 Hours to One Month
“Smart shoppers will seek loan pre-approval prior to beginning their search for a home,” said Jason Haynes, broker associate at CENTURY 21 Stopper & Associates. “I have a mortgage broker that I routinely work with and given all the necessary information and paperwork, loan pre-approval can take less than 48 hours.”
However, that 48 hour timeline is for persons with all the correct paperwork and an agent that has a mortgage broker on speed dial. Otherwise, if there are any stumbling blocks, like a pending court case or messy divorce, the lender may require additional documents and that can make the process take longer — up to a few weeks.
To get pre-approved, you’ll provide detailed information about your income and assets that will be reviewed by the lender’s underwriters at the bank. If you are approved, you’ll get a commitment by 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 make the purchase, and some cities won’t let you submit an offer without a pre-approval letter, Qureshi said.
No matter if it takes you two days, or an entire month, once you’re approved you’ll get 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.
Now, getting pre-qualified is different. It does not require a commitment from you or 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 a quick procedure, and based only on the information you provide to the lender. Your pre-qualified amount is not a sure thing; it’s just the amount for which you might expect to be approved. Therefore, a pre-qualified buyer is less valued than a pre-approved buyer. Keep that in mind.
4. Find a Real Estate Agent — One to 30 Days
Gen Y has the largest share of first time home buyers at 68 percent, according to the Home Buyer and Seller Generational Trends Report 2015. Regardless of age, everyone is likely to find an agent via referral from a friend, neighbor or relative or use an agent that they previously used when buying a home or selling a home.
On the other hand, Haynes said, “There is no real method to choosing an agent. I’ve been told I was chosen because ‘I looked like a nice guy on the website’. Plus, picking an agent can take only a few minutes in the online world.”
However, it’s OK to take longer than a few minutes to find a real estate agent, especially for the first time home buyer who wants to ensure a positive first time experience. Give yourself a timeline, say one month, to find a real estate agent that you trust. Remember you are hiring them, so interview a few of them and ask questions such as:
- 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 asked to sign?
Regardless, every first time home buyer should be diligent when checking out real estate agents to ensure a positive first time experience.
5. Research Potential Houses and Neighborhoods — Three Weeks
“Searching for homes has become much more streamlined as well,” said Haynes. “With websites such as Zillow.com and Trulia.com buyers can often create a short list of properties before reaching out to an agent.”
Even with this technology available at your fingertips, Qureshi suggests taking a few weeks to think about what house you want and what neighborhood you can afford. But these sites can be used to give you an estimate of what you can afford. Real estate websites generally offer versatile search parameters such as year the house was built and lot size, so take advantage 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,” said Candy Miles-Crocker, associate broker at Long and Foster Real Estate, Inc. “Needs are those amenities that the buyer simply can’t live without. Wants are those amenities that would be nice. Desires are those amenities that would be over the top wonderful.”
6. Find the Right House and Buy It — Varies
“After the initial meeting the realtor will send the buyer various listings that meet their criteria and the buyer can decide if they would like to see any of the properties. But once the buyer finds a house that they love, the process moves extremely quickly,” said Miles-Crocker.
The problem is that sometimes it takes awhile to find the house that you love. “I’ve had had couples take one day and couples that take up to one year,” said Qureshi.
Regardless, be patient until the right one comes along. When it does there are a few things the buyer 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,” said Miles-Crocker.
If the offer is accepted, and the buyer included a home inspection contingency, then the realtor will schedule a house inspection.
7. Get a House Inspection — One Week
“A home inspection is the single most important thing you can invest in when purchasing your home.,” said Garcia. “The consumer and real estate agent can only see cosmetic defects while walking through a property, whereas a home inspector will conduct a thorough inspection.”
The actual inspection will take about two to three hours, but getting the inspector to your house can take up to one week. Most real estate agents have a home inspector that they work with frequently, but don’t feel pressured to use theirs. It’s up to you. The home inspector will look over everything: plumbing, electrical, mechanical, structural and cosmetic appearances.
“The home may look like the one for you, but if it comes with thousands of dollars in repairs or even larger issues, you need to make sure it is still worth your money,” added Garcia. First time home buying is difficult, don’t make it harder by not getting a house inspection. Know the home you’re buying before you buy it.
Overall, it can be difficult to put a hard timeline on buying a home because no two buying experiences are identical. For example, researching a neighborhood may take weeks for a couple that moves to a new city, but a local couple may know intuitively where they want to live within 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 succeed when buying a home.