If you’re thinking about starting a career in real estate and have no idea what actually happens during the process, you’ve come to the right place!
Buying a house is one of the biggest financial investments a person will ever make, so it’s important to understand the steps to buying a house, from establishing a budget, to looking at homes, to getting the keys.
Step 1 – Determine Budget
The first thing a buyer will do is figure out their budget. What can they actually afford to pay per month for a mortgage? Once they know, they’ll want to find a lender and get pre-approved for a loan. Depending on their credit score, they may be able to afford more or less than their initial budget determined. Knowing what they’re able to afford helps you as the agent filter out homes that fall in their price range so they don’t end up looking at homes that are well above what they can realistically afford.
Once they know what you can actually afford, they’ll want to find a reputable real estate agent, which is you!
Step 2 – Working With A Real Estate Agent
Once you’ve agreed to work with the buyer, you’ll help them narrow down what they’re looking for – neighborhoods, school districts, bedroom/bathroom requirements, square footage, etc. – so you can start pulling listings to show them.
If they see some homes that meet their criteria and want to go look at them, you will set up a showing so they can walk through the house. Depending on how firm they are about certain details, or what things they are not willing to compromise on, you may end up showing them many homes. But don’t let that be stressful! You want to make sure they find the right house, so looking at a lot of homes can actually be beneficial. They may find some new features that they like, learn that they don’t like the features they thought they had to have, and they may end up liking a new style of home that they had never considered. It’s really important during this step to encourage them to be open to new ideas and suggestions, because they may just find their dream home in an unexpected place.
For more information on working with a real estate agent, you can read our blog, “Is a Real Estate Agent Necessary to Buy a Home?”
Step 3 – Making An Offer
Once your buyer finds a home that meets their needs, it’s time to make an offer! This is the exciting and stressful part, because depending on the market, they could end up in a bidding war with other interested parties.
An offer letter must be submitted in writing, including details like the buyer’s name and current address, the price they’re willing to pay for the house, and a deadline for the seller to respond to the offer. You will write the letter on the buyer’s behalf (although they can write it themselves if they choose), and then you will get in contact with the seller/seller’s agent to submit the offer. Most offers include an earnest money deposit, which is usually 1%-2% of the purchase price. The earnest money deposit goes toward the down payment and closing costs if your client buys the home. If they agree to the home sale and later back out, they lose that deposit.
After the office is submitted, the seller can respond in one of three ways:
- Accept the offer: If the seller accepts the offer the buyer can continue with the process
- Reject the offer: If the seller rejects the offer, the buyer can choose to submit another offer or move onto another home
- Give you a counteroffer: The seller may come back with a counteroffer, which means they may change the purchase price or the terms of the sale. The buyer can then accept the counteroffer, reject it, or make their own counteroffer.
Negotiations can take some time after the offer is submitted, but that’s where the real estate agent can help manage them. If an agreement can’t be reached with the seller, your client shouldn’t be afraid to just walk away and you can focus your efforts on a different house. Once the buyer and the seller have come to an agreement on the offer, they can move on to a home appraisal and inspection.
Step 4 – Home Inspection
Lenders don’t always require a home inspection to get a loan, but the buyer should still get an inspection before they commit to buying a property.
During a home inspection, the inspector will go through the home very thoroughly and look for problem areas. They’ll look at the electrical systems, plumbing, HVAC, check the roof for leaks and safety, make sure the foundation is sound, and more. After the inspection is finished, you’ll get a report from the inspector with any problems they found in the home, which you’ll share with your buyer.
If you want to read more about what home inspectors look for during an inspection, you can check out our affiliate blog post, “DIY Home Inspection Checklist – Everything You Need to Know”. There you will find a list of everything an inspector will go over in the home.
No home inspection is perfect, so there will always be things noted on the report. You will go over the report and share with your client any major issues that should be addressed, but it’s a good idea for them to review it as well. Small issues like chipping paint or a clogged sink aren’t grounds for negotiation, but if there is mold, lead paint, or cracks in the foundation, the buyer may want to reconsider the purchase.
It is common to include a home inspection contingency in the purchase offer. This gives the buyer the option to back out of a purchase or negotiate for repairs without losing their earnest money deposit if the home inspection reveals major issues.
If there are issues found with the home, buyers can ask the seller to correct the issues in one of three ways:
- Ask for a discounted purchase price as a result of the report
- Ask the seller for a credit to cover some of the closing costs
- Ask the seller to fix the issues before closing
As the real estate agent, you will submit the requests to the seller’s agent. The seller will either accept or reject the request. If you have an inspection contingency in the offer letter, your buyer can walk away from the sale and keep their earnest money.
Step 5 – Home Appraisal
A home appraisal is a report that gives the current value of the property. An appraisal is necessary before buying a home with a mortgage loan.
Lenders require appraisals because they won’t lend out more money than the home is worth. If the appraisal value comes back at $250,000, and the offer was $300,000, getting financing will be an issue.
Homebuyers can include an appraisal contingency in their offer, which are drawn up to allow them to back out of a purchase or negotiate a lower price without losing earnest money if the home appraises for less than what they offered.
Step 6 – Final Walkthrough
Even if your buyer is 100% committed to the house, they should do a final walkthrough before they close. This allows them to make sure that the seller made any repairs that were requested and hasn’t left any of their belongings. This is the chance to make sure everything in the home still works appropriately and looks the way it should. If everything is in order, you can take the next step toward closing!
Step 7 – Closing on the Home
The lender is required to provide a Closing Disclosure, which lets the buyer know what they need to pay at closing and summarizes the loan details. This will be provided three days before closing. The buyer will want to go through the closing disclosure and make sure the numbers don’t vary too much from the loan estimate that they were given after their initial loan application. The loan estimate includes information like the estimated interest rate, monthly payment, and closing costs.
At the closing meeting, the buyer will need to bring an ID, a copy of the closing disclosure, and proof of funds for the closing costs. Proof of funds is a document that shows how much money they have available. This can be as simple as a bank statement, or they may need a letter from their bank that states the exact amount of accessible/liquid funds they have available. Mutual funds, life insurance, shares, bonds, or proof of possessions do not qualify, as the funds must be liquid.
The buyer will sign a settlement statement, which lists all the costs related to the home sale, like the down payment and closing costs, which will be paid at this time. They’ll also sign the mortgage note, which is a promise to repay the loan, and the mortgage deed of trust to secure the mortgage note. And now they’re a homeowner!
To recap the steps to buying a house:
- Set a budget
- Work with a lender to get pre-approved for a mortgage
- Find a real estate agent
- Start looking at properties
- Submit an offer
- Get an appraisal and home inspection
- Do a final walkthrough
- Sign the papers at the closing
Learning the process is obviously very important for you as the real estate agent, but the better you understand it, the easier it will be for you to walk your clients through it. The more experience you gain, the more confident you will be as you work with clients and help them through the process. First time homebuyers can be especially anxious about how it all works, because they’ve never done it before, but if they’ve got you in their corner, they’re going to come out the other side with a home they love and a positive experience.
If you’re ready to jump into a career as a real estate agent, let us know! We’re ready to help you get started. You can visit our website at www.pdhrealestate.com to learn more, email us at firstname.lastname@example.org, or call us at 866-492-1867.