What Are The Steps in The Home Buying Process?

Seven steps from start to finish.

The home buying process can be broken down into six simple steps:

1. Look at listings to set expectations right;
2. Get a real estate agent;
3. Get pre-approved for a mortgage;
4. Find the right home;
5. Make an offer;
6. Negotiate the offer; and
7. Close on the home.

Step 1: Set expectations.

Before you start contacting a mortgage lender, figure out what the market looks like right now. House hunting is about making the right compromises. A down payment is usually 20% of a home's asking price so keep that in mind as you browse listings online.

Look at how the purchase price fluctuates based on things like the neighbourhood, the size of the house, and other amenities.

Knowing what you're getting into will help you a lot when it comes to talking to your real estate agent. Don't overthink too much, this step is just so you can understand what prices look like. The next step will let you get a more refined idea of what you might have missed on your own.

Step 2: Getting a real estate agent.

Now, some people may think this is optional but the truth of the matter is that real estate professionals have access to a vast array of tools and resources that a layperson can only dream of. They also have access to a deep network of contacts and have their fingers on the pulse of the real estate market.

Prospective buyers gain a lot more negotiating power with an agent on their side. Your agent can even negotiate on your behalf. But before we get there, let's quickly look at the things you will want your real estate agent to know.

How much house? This might seem like an awkward question but it encompasses more than just square footage. A home search is just that, a search for a home that means more than numbers.

Tell them about your likes and dislikes, whether you would like a yard large enough to accommodate a pool in the future, or if you'd rather not have to worry much about landscaping and the outdoors.

Both you and your agent don't want to go through open houses that don't interest you. Professional advice is only as good as the information you give.

Another reason you may want to work with an experienced real estate agent is that they would have contacts with a mortgage broker or home inspection services. Both of these will come in a little later but they are crucial. Working with an agent can drastically cut down the time you spend looking for that perfect home and closing on it.

They're also a great source of information when it comes to the discrepancies you found in your initial cursory search. They will be able to tell you about the market conditions for specific neighbourhoods; a buyer's market in an upscale part of town might be a great opportunity compared to a relatively affordable house in a seller's market if you plan to sell down the line.

They will help you think two steps ahead when it comes to your real estate journey but now it's time to go to the next step. The step that causes you and other buyers a lot of stress and headaches: finding a path to secure financing.

Step 3: Get Pre-approved for a Mortgage

This step is a waltz of financial documents. A mortgage is asking what kind of mortgage loan your mortgage lender will approve.

Whether or not you get pre-approved depends on a lot of factors like your monthly gross income, credit card and other debt, and your credit score - among other things. At this point you are not taking out a mortgage loan, you are getting a document that proves you are ready to make an offer on a house with money to back it up. When viewing a home, buyers can set themselves apart from other potential buyers by having that pre-approval.

Getting pre-approved is an entire process in and of itself and worth talking to your real estate agent about - like we mentioned previously your agent can have contacts with a mortgage broker who can find you the best possible mortgage loan for your situation.

In terms of personal finance, this might be your most important endeavour so look at the current interest rate, ask if an escrow account would be a good idea, and take a look at mortgage companies when you get a chance.

Most sellers will look at everyone evenly, but the likelihood that a seller accepts to take the proceedings further goes up once you can show you're able to afford the purchase price and place an earnest money deposit when the time comes.

Before talking about sellers though, you need to find your dream home.

Step 4: Find the right home.

Real estate agents' bread and butter; finding the perfect fit. Now that you took a quick look by yourself through online listings, got in touch with an agent, and have an idea of what you can comfortably afford (or not), it's time to find the right property.

Home ownership is a long-term commitment, before you sign a purchase agreement you need to make sure you're going to like living in the house. If you need to put a number to it, look at your monthly payment amount for your mortgage and then the house.

This stage of the process will require a lot of questing to the seller and the seller's agent if they are present. If you spot something like a broken appliance or a crack in a wall, try to get an idea of what the agreed-upon repairs are for the property.

Eventually, you will ask for a home inspection if you settle on the house but you can ask questions before a sales contract comes into view.

Be sure not to ask for a lower price right away as that can put you on the seller's bad side quickly. When a seller rejects a buyer early in the process, it's much harder to get back in the race.

Open houses are a key part of a home sale, there's nothing like walking through the house to get a feel for what it's like. Keep in mind that a seller's agent takes a few factors in mind when setting the asking price for a property. If you can find almost the same property somewhere else at a much lower cost, then there is a reason for that. Talk to your real estate agent about what they think of the house and what a reasonable offer price would be.

If your heart is set, it's time for the next step.

Step 5: Make an offer.

This offer is one that you need to look at carefully. We cannot stress this enough, you need to understand everything in the offer. If you don't understand the contingency clause in your contract about getting your earnest money deposit back, ask. If you're unsure of who will pay appraisal fees, ask. If there are myriad legal fees with their associated legal description, ask that they be added. If you don't know who is responsible for the closing costs or if the closing date is vague, ask.

Your monthly payment for your mortgage is going to be a big part of your life but reading over your offer to see all the details of the real estate transaction is crucial. You don't want to do a final walk-through of the home only to find out you cannot move in until a later date because you didn't understand what the closing date was.

If there are legal irregularities with the property, your agent may recommend a real estate attorney who specialized in those matters; from a title search to figuring out if you need title insurance, a real estate attorney can prevent many a headache in the future.

When you make an offer is also the time where the home inspections should take place. You don't want your loan amount to go toward a house with bad insulation, a faulty electrical system, and a cracked foundation.

If something comes up, or if you think you are in a position to do so, it's time to negotiate.

Step 6: Negotiate the offer

Both your real estate agent and the seller's agent are trying to get the best deal for their clients. After all, selling a home has a big impact on someone's personal finance too.

If you can talk down the purchase price or find ways to shift fees to the seller, then you and your real estate agent can find a way to drive the price down.

Let the seller know when the offer expires, both so that you're not waiting endlessly for a decision and so that the homeowner feels some pressure on their end too. Listen to the guidance of your real estate agent and if found comparable homes at a lower price, mention it.

The worst thing you can do is alienate the seller or cause them to back off completely. Play your cards right and both of you can walk out with reasonable offers in hand.

Step 7: Close on the home

Closing on a home means that all the legal paperwork has been finalized and the new owner takes possession of the property. In some cases, a closing agent will be used to help with the process. The closing agent will work with both the buyer and seller to make sure that all the necessary documentation is in order and that no money is owed upon transfer of ownership.

This is usually where the escrow account is used to transfer the funds from the buyer to the seller as the home is sold. During the offer phase, either the buyer or the seller agrees to pay the closing costs and by the closing date, the house is yours.

Buying a home is a long, stressful journey but if you do your research and talk to real estate agents as often as you can, then you will soon find yourself in your new dream home.

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