House Buying 101

Disclaimer: this post isn’t to scare you out of buying a house, but rather it is to share our experience and help you be just as prepared as my girlfriend and I were. Think of this as Home Buying 101, except I’m not really here to teach you anything. I’m also not an expert, so take anything I say with a grain of salt.

Let’s talk about buying a house for a few minutes.

First and foremost, to say that buying a house is easy would be a lie; there’s the house search, the team building (i.e. your mortgage officer and real estate agent), the saving money process (which you should’ve already done at this point), and oh yeah, the financing process. Searching for the right house can be fun since it often includes going to open houses and checking out different styles to see what you really like. At the same time, finding a real estate agent can be pretty straight forward too. If you know someone, or you just so happen to meet the right agent at one of those open houses, it’s pretty much cake. Then again, I’m not an expert at any of this, so I can’t tell you how to really find the best agent for you, but maybe this article will help.

After that, and as far as your mortgage choices go, the real estate agent you choose to work with likely has an individual or company in mind that would work best for you. Alternatively, you could select your own lender by using a site such as BankRate.com or MagnifyMoney.com to find the best rates out there. For us, we were lucky enough to meet our real estate agent at an open house who just so happened to have a great mortgage lender lined up as well.

From there, the games begin, and the process is pretty much the same across the board.

For those that do not know, the mortgage process itself is pretty lengthy. You often start with a pre-qualification process that will tell you how much house you will potentially be able to afford based on a few simple questions a mortgage officer will ask you. They’ll do a few calculations, provide you with an answer, and you’ll be on your way with a bit more of an understanding of just how much money you can spend. After that, there’s a pre-approval process which is where things get a bit more serious. At this point, you’ve either found the house or your starting to narrow down the list and you really want to have your financing figured out. You’ll be filling out a mortgage application, providing some basic evidence documenting income and assets, and the lender will check your credit. Based on your income, credit history, assets, and debts, you’ll then find out what you’re actually approved for, and then you can proceed with placing an offer on a house or signing a builder agreement to build a new home.

Now, I know what your thinking… “this doesn’t sound too bad, what’s the problem?”

Well, shortly after you receive the initial pre-approval and you know what house you want to buy, or have already finalized an offer on, the underwriting process will begin. There will be additional paperwork filled out, contracts will start to be signed, and you’ll be providing the lender with a bigger window into your personal finance life. By this point, you’ll want to be able to provide tax returns, W-2’s, 1099’s, bank statements, and brokerage account statements. You name it, and the underwriter will likely want to see it. Speaking of the underwriter, these folks might as well be called undertakers, because they’re often just as scary and intimidating. At least ours was.

Your mortgage officer, or broker as some folks refer to them, is the nice sales representative. He or she knows the rules and regulations, what type of products you would likely qualify for, and how to do initial calculations, but when it comes down to the nitty-gritty, the underwriter is often the one who does most of the heavy-lifting. Chances are, this individual will call you a few times and ask interrogative questions about your finances and life. This same person will call your employer to verify you still work there too, so it’s a good idea to know your employer’s employment verification process ahead of time. Then, near the end of the process, there will be a debt verification process in which they call a few of the lenders you have debts with (credit card companies, student loan servicers, etc.), and verify the payment amount, terms, and history of the account. Sounds fun, right?

Well OK, this doesn’t seem that terrible, but when you have a variety of different bank accounts, debts, and obligations like we do, it can become quite nerve-wracking. Luckily, we keep our financial house in order and know where to find everything we needed. I’m not sure what powers they possess, but I imagine if you do leave any documentation out, they will call you on your bluff. So please, make sure you know where all your money is, where it’s going, and what you spend it on. Furthermore, the thought that any discrepancies in your credit report or questionable items in your bank statements could interrupt the process is also frightening. No one wants to lose money, especially the amount of money that’s often exchanged during real estate transactions whether it be for builder deposits, earnest money, and so on.

When all is said and done, the whole process will conclude at closing, which is where all the final paperwork is signed and reviewed with your mortgage officer, real estate agent, the seller and their representative, and even an attorney if you choose to have one there. Oh, and this all happens over a 30-60 day period (or longer) when buying an existing house, or over 6-12 months if building!

So, what’s the moral of the story you ask?

Well, to put it simply – make sure you have all your ducks in a row! Seriously, have all your documentation prepared ahead of time such as pay statements, bank statements, tax documents, and any other asset accounts you may own. Be prepared to provide written statements if you have any recent credit inquiries or new debt accounts open, and just be honest. Based on some conversations I’ve had with our real estate agent and mortgage officer, it’s astonishing to hear the number of people who just don’t have everything together in advance. As a result their closing becomes delayed, or the deal falls through all together!

Before you know it, the entire process will be over, and you’ll be living in your new home in no time!

If you made it this far, thank you! I hope you found this post to be helpful one way or another!

Until next time,

–Sean