The home buying process can be broken down into 9 chronological steps. The following will walk you through each of the steps so you will know what to expect and how to be best prepared.
The 9 Steps to Buying A Home
Pre-Step : Start Early
The moment you start entertaining the idea of buying a home, you should start creating a plan for how you are going to make that happen. Whether that means starting a savings plan to come up with the down payment, shuffling investments to purchase a second home, visiting the town or city you are thinking of moving to, or simply planning how you will sell your current home and seamlessly transition to your new home...you should have a plan.
Step #1: Get Pre-Approved
The majority of people that purchase a house require a mortgage to do so. So, before you start looking at houses and falling in love with one, you need to know that you will be able to get a mortgage. It is always a best practice to have your financing pre-arranged before you enter into the home buying process.
There are three main sources of financing
Traditional Banks – If you already have a great relationship with your current bank, this is a good option. Usually they will give you pretty good terms on your mortgage because they are already familiar with you.
Mortgage Brokers – They have the most options. Mortgage Brokers can use most of the major banks, plus many other lenders. They will be your best bet to truly finding the best option for your particular situation.
Creative Financing – The options here are endless and are great for investing, or if you cannot qualify for a mortgage through the banks or mortgage brokers.
Don't be afraid to talk to a few different lenders to know all of your options.
It is very important that once you have received a pre-approval that you do not make any substantial purchases or apply for additional credit...so no new car, no new furniture, no new credit card. Your pre-approval is based on your debt-servicing ratio, so if you take on additional debt, or credit, it can disrupt this ratio and you may not qualify for the mortgage you thought you were getting.
Step #2: Find a Real Estate Agent
Working with a real estate agent makes the buying process much easier on you. It is your agent's job to navigate the process for you and help you find the properties that meet your specific criteria and goals. Using an agent you know, or feel very comfortable with, and trust, is vital to this relationship and to your enjoyment and satisfaction during the buying experience.
After selecting your agent, be sure to meet with your agent to discuss your home buying goals. You don't want to skip this step. It will be virtually impossible for the agent to properly help you without actually knowing your motivation for moving and the specific criteria you want your new home to meet.
At or after this meeting, you will be given the opportunity to sign a Buyer Representation Agreement. Most people feel very skittish about signing contracts and aren't sure they want to do this. The reality is that the Buyers Representation Agreement is a good thing for the buyer, it means that the agent is obligated to look out for your best interest in the search and transaction for your new home. They are 'your person', they are part of 'Your Team'.
Step #3: Start Home Shopping
Now that your agent knows the type of home you're looking for and the price you can afford, your agent can search potential properties for you to look at...it's time to hit the pavement.
Now the fun begins. This is where you really want to keep the goals you set during the initial meeting top of mind. During your showings, if you visit a property that isn't inline with your goals, eliminate it quickly. However, if it is inline, you can easily add it to your shortlist or even write an offer. Quickly identifying properties inline with your goals will save you the headache of viewing hundreds of homes and getting discouraged.
Step #4: Make an Offer
Once you have found a home that will suit your needs, the next step is to prepare and present an offer. When you write your offer there are some key components.
Terms – Terms are the clauses that make up the contract. These are the items that are agreed to and will be upheld, otherwise there is a breach of contract.
Conditions – Conditions, on the other hand, are clauses in the contract that must be fulfilled in order for the transaction to proceed forward. Typical conditions are for a home inspection, or for the buyer to be approved for financing. If conditions are not able to be satisfied, then the contract dies.
Deposit – In order to write an offer, you will need about 1% of the sale price for a deposit. This is initially a show of good faith in a transaction and is fully refundable if the conditions of the contract are not removed.
Price – Your agent will assist you to determine the best offer price. Your agent must work in your best interest and will work to help you get your best deal.
The Offer Presentation and Acceptance Procedure – After the offer is written and signed, it is the agent's job to present the offer to the seller. An offer usually entails a process of counter offers until a mutually accepted offer is reached. Once an offer is accepted, all parties will need to sign the documents.
Step #5: Remove Conditions
Once the offer is accepted, it is time to proceed with satisfying your conditions. This usually involves arranging and performing a home inspection, getting all your personal information and the property information to your mortgage broker or bank. Your real estate agent will assist you to make the necessary arrangements to ensure the process continues to run smoothly.
Once the conditions are removed, the sale is considered "firm" and the property is considered "sold". If the conditions can not be removed, your agent will notify the seller's agent, and unfortunately the deal dies.
Step #6: Prepare for Closing
Now that all of the conditions have been removed and the deal is firm, it's time for all the official paperwork to be conducted to transfer the funds and ownership according to the contract.
Lawyers – By now you have probably provided your lawyer's details to your agent. Your agent's brokerage will ensure the lawyers receive all the required paperwork. You will be meeting with the lawyer about a week before you take possession and will need to provide your insurance information, the balance of your down payment, payment of fees, sign documents, and finalize anything else that is required before you own the home.
Down Payment – If your down payment is not readily available, make the necessary arrangements to obtain it. It is important to note that liquidating certain assets can take upwards of 30 days, be sure to consult your Bank or Mortgage Broker about this.
Insurance – When you meet with the lawyer they will actually ask to see a copy of your insurance, as it is a requirement of the mortgage. No insurance, no money. To obtain your insurance have a copy of the listing with all of the specifications of the home on it for your insurance agent.
Step #7: Preparing for Possession
Typical possessions are 30 – 60 days, however it can be quicker. Get the following items completed as fast as possible, as this will alleviate stress
Movers – If you are using professional movers, book early. Possession dates commonly fall on the 1st, 15th, or 30th of the month. Movers fill up their schedule very fast, so call ahead and make the arrangements early.
Utilities – You need to plan for the hook-up or transfer of utilities for when you take possession of your new home in advance. This includes cable, internet, power, water, and gas services.
Mailing Address – This probably doesn't sound very important but it is a step you want to make sure gets done thoroughly to make sure no bills or accounts go past due. Gather all of your bills, statements, tax information, healthcare information, anything you make automatic payments on, any subscriptions, any clubs or organizations in which you belong and provide your new address.
Step #8: Final Walk Through
Generally the day before possession day, you and your agent will do a final walk through of the property. This is to ensure the home is in the same condition as when you made the offer to purchase. Typically the walk through goes satisfactory, however, if there is any new damage or something is not according to what was agreed upon in the contract then the lawyer will be notified. The key release will still happen according to plan but the lawyers may choose to hold back some of the funds to cover the repairs for the damage.
Step #9: Key Release & Possession
On possession day your agent will wait to get the 'go-ahead' from the lawyers, that all funds have been received and the land title has been transferred. That call indicates that the deal is done and the keys can be released to you as the new owners.
Congratulations! You may move in.
Final Note...
After you take possession, questions may arise. Unless they are urgent, write down your questions. After a few days in the property your agent will make a follow up call to answer your questions or assist you to find the people or services that can help you.
I hope this has helped you to know what to expect when buying your next house so you can be confident and comfortable with the process.
If you need a trusted agent, I would love the opportunity to be 'your person'.
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