Buying real estate is a monumental step in one’s life. Whether buying an investment property or a primary residence, purchasing real estate is an important step to building wealth. Understanding the steps involved in the buying process can ensure it runs smoothly and that you make informed decisions. Below, we’ll provide you with a guide to the key steps in buying real estate, from setting your budget to closing the deal.
Step 1: Set Your Budget
To start off your search, you need to determine your budget. This will help you to narrow down your options and make your search more efficient. Important factors to consider when setting your budget are:
Finances - What’s your income, expenses, and current debt? Use this to see how much you can comfortably afford for a down payment and the ongoing monthly mortgage payments.
Additional (Hidden) Costs - The price of the property is only one number. Extra costs are incurred in the form of closing costs, property taxes, insurance bills, and maintenance expenses—both expected and unexpected.
Step 2: Mortgage Pre-Approval
Another smart step prior to viewing properties is to get pre-approved for a mortgage. Getting pre-approved by a lender is like getting a conditional offer that outlines how much you’ll likely be able to borrow and the interest rate you’ll borrow at. Here’s the process of getting pre-approved:
Shop Around Different Lenders - Different lenders offer different loan types and interest rates. It’s in your best interest to compare multiple lenders in order to find the best deal for your situation.
Submit Financial Documents - You’ll have to provide income statements, bank statements, tax returns, and other pertinent financial documents to the lender.
Understand the Terms - Review the terms of the loan, interest rate, and monthly mortgage payment to ensure that it fits within your budget.
Step 3: Finding a Real Estate Agent
Real estate agents are professionals who specialize in the home buying and selling processes and can provide invaluable assistance to all homebuyers, especially those experiencing the process for the first time. Some important things an agent can assist with are:
Property Search
Deal Negotiations
Purchasing Process
Step 4: Searching for the Right Property
Since you have established your budget and a loan pre-approval, you’re in the perfect position to start searching for a home. A few important things to do in this stage are:
Create a Wish List - Make a list of your priorities (must-haves). Ex) Location, square footage, number of bedrooms and bathrooms, and other necessities specific to you.
Open Houses and Showings - Attend these events to get a glimpse of properties in person. Seeing a property in person allows you to take in the feel of the home, and allows you to visualize how you could thrive in the space.
Think Long-Term - Some properties may have the ideal location and square footage but not meet another requirement—or any other combination. This doesn’t necessarily mean that you should eliminate the option from your search as it’s crucial to look beyond aesthetics and consider structural components, floor plan, remodeling potential, and more. Sometimes you may feel it’s the right decision to renovate a home rather than find a different one you’re not as fond of.
Step 5: Making an Offer
Once you’ve found your ideal property, it’s time to put in an offer. Listed below are important steps in the process—your real estate agent should help you with this:
Consider the Current Market - Depending on the time, it could be a seller’s market or a buyer’s market. In a seller’s, an offer may need to be close to or above the asking price while in a buyer’s, there will be more room for negotiation.
Submit a Formal Offer in Writing - After deciding on an offer, your real estate agent will prepare an offer letter that outlines how much you’re willing to pay and any specific terms you have. This could include contingencies such as financing, appraisal, or home inspection.
Negotiate - The seller has the ability to accept, reject, or counter your offer. If the seller decides to counter your offer, you can decide to negotiate from that point, accept their counter offer, or walk away entirely.
Step 6: Conducting Due Diligence
After your offer has been accepted, your transaction will enter the due diligence stage. At this time, you should fully investigate the property before committing to the transaction. Important measures to take include:
Property Inspection - A professional inspector should be hired to assess the property’s condition. In this inspection, they’ll search for structural, electrical, plumbing, and roofing issues.
Appraisal - Lenders—the companies loaning you money—typically require an appraisal in order to ensure that the property’s value is in line with the amount being loaned to you.
Title Search - This is a search to ensure that the seller of the home actually legally owns the property and doesn’t have any outstanding legal issues or claims.
Step 7: Finalizing the Financing
Once the due diligence stage has come to a close, it’s time to finalize your mortgage. Things needing to be done at this time include:
Interest Rate Lock - This means that the lender will offer you a “rate lock” which secures your a specific interest rate, preventing you from future day-to-day market fluctuations impacting interest rates.
Review Loan Terms - Once again, review the loan terms to ensure that there are no discrepancies between what you’re looking for and what the lender is providing. After, you’ll receive a disclosure statement that outlines the complexities of the mortgage.
Step 8: Closing
This is the last step in this exciting process. Things that will take place in this last stage are:
Final Walk-Through - Before your closing meeting, a walk-through should be completed to verify that the property you’re purchasing is in the condition you expected to purchase it in.
Sign the Paperwork - You’ll be presented with documents regarding your mortgage and the transferring of property ownership that you must sign.
Pay Closing Costs - These are some of the “hidden” costs we were talking about. Closing costs typically include lender fees, title insurance, and recording fees, which usually make up 2-5% of the purchase price
Receive the Keys - This is the BIG step. At this point, you’ve completed the process completely and officially own the property. After receiving the keys, it’s time to move in!
Conclusion
Buying real estate is a complicated process and a major financial decision. From setting a budget to closing, there can be many surprises that show up, but with the right preparation and real estate agent, the process should still go by smoothly. Remember, always make informed decisions when it comes to your financial future, especially real estate purchases.
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