Buying a home, especially if it’s your first home, can be a new adventure and an exciting time. And once you find the home of your dreams, you might be ready to move in right away and start decorating. But the home-buying process is quite complicated, and could involve an awful lot of waiting.
Numerous factors play into each and every home-buying experience—factors that can lengthen, or sometimes shorten, how long it would take for you to get your home of choice.
In this post, we’ll share four of the milestones that indicate whether you may be ready to buy a home and how long the loan process normally takes. We’ll also walk you through, step by step, the following components of a typical home-buying experience:
• getting pre-approved (note: different from “pre-qualified”)
• finding a house
• negotiating your contract
• the closing process
In each step, we’ll share ways you might be able to streamline the process and we’ll touch on issues that can slow each part of the loan process down. The goal? To help make your home-buying experience as painless as possible so you can actually enjoy purchasing a new home that fits within your budget and meets your needs.
Making Sure You’re Ready to Buy
Looking for some indicators that you’re ready to buy a home? Consider these questions:
• Are you buying for the right reasons? One real estate agent we talked to shared how people who gush about decorating rather than discussing the long-term commitment involved in home buying may not be ready to take the plunge.
• Do you have the necessary income and debt-to-income ratio? Lenders pay close attention to whether or not a buyer has consistent income and job continuity. They also check debt-to-income ratios to see if buyers can really afford their mortgage payments.
• Are you ready to manage your own home repairs, financially speaking? If you’re used to renting, this can be a significant change.
• Are you choosing a location that fits your lifestyle?
If you are ready, then here’s a timeline of what you can typically expect.
Home Loan Pre-Approval
Returning to our original question (how long does buying a house generally take?), know that getting pre-approved for a mortgage can significantly simplify the process once you’ve chosen a house you want to make an offer on. That’s true for at least three reasons:
• You’ll have gathered together information that’s needed.
• You’ll have completed key paperwork ahead of time.
• You’ll know how much house you can afford and the loan pre-approval will spell out conditions identified up to this point that need to be met for final loan approval, so you can avoid wasting time wondering what you may need to buy a home or bidding on homes currently out of your financial reach.
Each lender’s pre-approval process may be slightly different. In general, the lender will want to see:
• Proof of income: Lenders often want to see two years’ worth of income through a combination of documents such as tax returns, paystubs, and W-2 statements for each borrower.
• Down payment, closing costs, and cash reserves: For a lender to determine how much house you can afford, the company will need to know how much you plan to put down, and they’ll want to verify that you have those funds, plus what’s needed for closing costs. They’ll also want to make sure this doesn’t drain your every penny, because they want to feel confident you can make your mortgage payments. If you’re putting down less than 20% for a down payment, you may also need to purchase private mortgage insurance (PMI that protects the lender. You may want to ask your lender whether they offer home loans with less than 20% down and no PMI. SoFi offers no PMI on our jumbo loans with only 10% down in most cases.
• Debt-to-income ratio: The lender will use a formula to help make sure you can pay both your mortgage and other outstanding debts, such as car payments, credit card loans, student loans, and so forth. Debt-to-income ratio can vary based on lender and loan program.
• Good credit: How that’s defined can vary by lender and loan programs, but you’ll have your credit score and history checked as part of the loan pre-approval process.
When you find out how much of a loan you’re pre-approved to receive, you can start to look at houses in your price range.
Note: You may want to make sure you’re pre-approved, not pre-qualified. Getting pre-qualified is typically faster and easier, but the lender isn’t making a commitment to lend during the pre-qualification process, because generally at the pre-qualification stage, income and assets are not yet verified by the lender. Yes, it’s better than nothing, but then you’ll need to apply for financing approval later on in the process.
The good news: If you’ve got all your paperwork together, the pre-approval process is typically pretty fast and can streamline the home-buying process overall. That’s because the borrower’s credit, income, and assets are all signed off on by an underwriter, so all that’s left is to find an eligible property and close. If you don’t get pre-approved, the answer to your question—that of “How long does the process of buying a house take?”—will likely be longer.
Finding a House
Whether you’re looking for the traditional house with a white picket fence, a cutting-edge condo with the latest in amenities, or something else entirely, you now have a target budget and can attend open houses and otherwise see homes of choice.
How long this process will take is, to some degree, up to you. You might want to go all-in, spending every free minute looking at houses, or you might take a more measured pace (it can help to ask how long your pre-approval is good for—if it expires you can usually reinstate the pre-approval quickly by supplying the lender with updated income and asset statements). You might quickly find the house of your dreams or you might need to search for a bit longer.
To streamline the process, it can be helpful to be clear in your own mind about what you definitely need, what you’d like to have but are willing to negotiate, and what is not acceptable to you. This should include location, number of rooms/bathrooms, acreage and so forth, plus the school district, if that’s relevant.
It can also help to have a real estate agent who clearly understands what you want and is committed to finding that home for you.
Negotiating Your Contract
After you find the house you want and are ready to make an offer, the question of “How long does the house-buying process take?” takes on another iteration. That’s because it’s time for you to make a monetary offer on the home; if the seller quickly accepts the offer, that could move things along more quickly.
But, the seller might counter-offer, as just one example, and you’ll need to consider that offer and so forth. The speed of the house-buying process can vary significantly in this stage.
Plus, as part of your offer, you may also want to include key contingencies, such as:
• Home Inspection: During this process, an inspector may assess the structural aspects of the home, along with the wiring, heating, cooling, foundation, plumbing, and so forth. Buyers usually pay for this inspection—and lenders need to approve a property before they move forward with a loan.
• Loan Approval: Your offer, for example, could be contingent upon the house appraising for at least the sales price. (The lender might require some repair prior to close if there are health and safety issues.)
After all issues are worked through and you receive final loan approval from the lender, the loan contingency can lifted and your final walk through with the realtor can be scheduled to make sure that any issues are appropriately addressed. Once you’re satisfied, it’s time for the buyers and sellers to sign closing documentation.
The Closing Process
The lender and closing agent or attorney each play a role in creating paperwork for buyers and sellers to sign. You will be given a Closing Disclosure usually at least three days before loan signing, which outlines the loan terms, closing costs, etc. Reviewing this disclosure document allows you to ask questions and get answers ahead of the actual loan signing. The buyers and sellers will sign documentation and all monies will be wired to the appropriate parties for settlement.
In some states, buyers and sellers must physically meet to sign the papers with their attorneys. In other states, the two parties may never meet, separately signing their parts of the documentation. Lastly, the note and deed will be recorded with the appropriate county to transfer title to the new owner. Then, you will officially be given the house keys as the brand new owners of the home.
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