The average buyer who uses the internet to help their house hunt spends 10 weeks evaluating various available homes, according to the National Association of Realtors. This often involves looking at properties with different numbers of bedrooms, comparing property taxes, and researching whether the sellers are open to negotiations.
After that, the mortgage closing process takes 47 days, on average, from the time a prospective buyer applies for a loan to the time they receive the funding. During this important step, prospective owners finalize key details such as the type of home loan, the schedule for making a mortgage payment, and how they plan to handle private mortgage insurance.
Beginning this process for the first time can be intimidating, but it doesn’t have to be. Here’s what you can expect from the home-buying process, in five steps:
Step 1: Get pre-qualified for a loan
Your first home will likely be the biggest purchase of your life so far. Approaching this process with a clear idea of how much house you can afford will help you make smart money decisions and narrow down the payment amount that fits your budget.
Pre-qualification is a process you’ll work through with your lender to evaluate your current financial situation, assess how much cash you can put toward your down payment and other upfront expenses, and determine how much your monthly payments will be. This process can help clarify if you qualify for a conventional loan, FHA loan, VA loan, or even a USDA loan if you meet certain requirements — each with different rules around private mortgage insurance or property taxes.
Getting pre-qualified isn’t difficult. There are several ways you can go about it, including:
- Online: Many lenders today, including Bank Midwest, have options to start the pre-qualification process online. Check out our Mortgage Center to begin the application process online with Bank Midwest. This can be a good way to see how big your loan amount may be and which loan type might work best.
- Phone: Bank Midwest customers can call 888.902.5662 to speak with a mortgage lender who can explain all the components of pre-qualification. They can also guide you on whether working with a mortgage broker could be beneficial.
- In person: Customers can also visit their local Bank Midwest branch to speak face-to-face with a Mortgage Lender about pre-qualification and the overall loan approval process. It’s also a chance to discuss how much debt you might safely take on with your home loan.
To become pre-qualified, you’ll need to provide the lender with some information about your current financial situation, including proof of income, proof of assets, and more. This will help them evaluate how much you can afford to spend on your home and whether you should consider asking for a lower purchase price. If you’re a prospective buyer, it’s a good idea to organize these documents early.
Some required documents you’ll likely need include W-2 statements for the past two years, bank and investment account statements, and your credit report (which the lender can pull for you if you give them permission to do so).
The result of this process is a pre-qualification letter, which will outline how much money the lender is likely to approve you for. It may be exciting to see the dollars and figures on paper, but before you go out house hunting, keep a few important things in mind:
- Pre-qualification is not a guarantee. When you apply for a loan, the bank may approve you for less than the amount listed on your prequalification letter.
- You don’t have to spend all the money you’re approved for. Buying a home for less than you’re approved for may help you save money and remain financially healthy. It can also help lower your monthly payment, giving you more financial flexibility.
Changes in your financial situation can affect your ability to get a loan. If you have a change in employment or income, or if you spend or receive a large sum of money, tell your lender right away to keep the mortgage company informed.
Step 2: Shop for your new house
Once you have a clear idea of how much home you can afford, you can begin house hunting in earnest. But before you begin, consider the things you want and need in a home. Ask yourself questions like:
- How many bedrooms do you need now, and how many will you need in five years?
- How long of a commute to work, school, or amenities are you willing to take?
- What home features can you not live without?
- Are you willing to pay homeowners’ association fees?
For most homebuyers, a real estate agent plays a big role in helping them find the perfect home. Finding the right real estate agent can help you navigate local property taxes, compare your purchase price to the appraised value, and determine if the sellers’ asking price fits your budget.
Step 3: Make an offer
Once you’ve found a home that you can see yourself living in for the foreseeable future, it’s time to make an offer. This is your opportunity to state how much you’re willing to spend on the home, and to name contingencies or events that will negate the offer. Some common contingencies homebuyers list in their offers include:
- Inspection contingency: Offer depends on positive results from a professional home inspection. This step often uncovers whether the home needs major repairs that could affect the final payment amount.
- Appraisal contingency: Offer depends on the appraisal indicating that the offer is in line with the fair market value of the home. If the appraised value is too low, you may need to renegotiate or increase your down payment.
- Financing contingency: Offer depends on the buyer securing a mortgage.
Once you’ve made your offer, it’s time to arrange an inspection and appraisal. Feel free to accompany the professionals conducting these assessments and to ask questions along the way. The more you know about the home ahead of time, the better.
Step 4: Finalize your loan
If you were pre-qualified ahead of time and your financial situation hasn’t changed, the process of finalizing your loan shouldn’t take long. Your key focus here is ensuring your mortgage payment schedule and payment amount align with your budget.
However, you may still need to provide additional documentation that explains your financial situation, such as tax returns for the past two years, a Gift Funds Letter (if you’re using gifted money in the purchase), and the purchase agreement for the home, including all counter offers, addenda and earnest money checks. Whether you’re working with a mortgage broker or directly with a mortgage company, ensure they have complete records.
Your lender will likely review different types of home loans with you. The most common mortgage type is the 30-year fixed-rate mortgage. This type of loan will give you the same interest rate for the entire 30 years of the loan, which makes budgeting simple. Other types of mortgage loans may have:
- Different terms, such as 10 or 15 years.
- Adjustable rates, which means the interest rate may fluctuate annually based on market conditions.
- Specific requirements, such as USDA loans in rural areas of the country, or VA loans for veterans or active-duty service members and their families. First-time homebuyers may also consider FHA loans, which feature lower down payment requirements and different rules regarding private mortgage insurance.
Once you and your lender determine the best mortgage for your situation, you can finalize the loan.
Step 5: Get homeowners insurance
It’s wise to get a homeowner’s insurance policy as soon as possible. This insurance helps safeguard your assets if your property is damaged or destroyed, making it a fundamental part of protecting your investment.
In some cases, homeowners include insurance contingencies in their offers to protect them if they can’t obtain coverage for certain events, such as earthquakes in areas where these are common, or toxic mold in homes with a history of this issue. Such contingencies can also play a role in your overall loan amount and how you approach finalizing your budget.
Homeowner’s insurance will protect you financially if your home sustains damage or becomes unlivable because of a disaster. Having this coverage in place from Day 1 of homeownership can provide you peace of mind that your investment is protected against the unexpected, and can also help support your budgeting process so you’re prepared if an unplanned event occurs.
Bank Midwest makes getting a homeowner’s insurance policy simple. Our mortgage and insurance professionals work closely together to ensure you have the right coverage for your needs. As the sellers finalize the sale and you close on your new home, confirm that your policy is active and ready to protect the property.
Updated post. Originally published January 27, 2021.
Looking for more information about the homebuying process?
Check out The First-Time Homebuyer’s Handbook.
It reviews every step of the process, from pre-qualification to move-in.