The Home Buying Process

Ten Essential Steps to Buying a House

Simplifying the Home Buying Process

Bank of Internet USA knows that purchasing a home is one of the biggest and most important decisions you will ever make. This is why we have provided this simple, straightforward guide on how to buy a house.

The ten essential steps involved in the home buying process include:

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1. Set Your Budget

Before you start shopping for a home, determine your budget. A general rule of thumb is that your total monthly home payments should not exceed 36% of your gross monthly income, and your total monthly obligations (including your mortgage payment, taxes, and insurance) should not exceed 45% of your gross monthly income.

For example, if your total gross monthly income is $5,000, your monthly housing payments (including principal, interest, taxes, and insurance) should not exceed $1,800 (36% of $5,000 is $1,800) and your total monthly obligations (including your housing payment, car payments, credit card payments, etc.) should not exceed $2,250 (45% of $5,000 is $2,250).

2. Line Up Your Cash

Now it’s time to gather your cash so you know how much you can put toward a down payment before looking into home purchase options. Depending on the type of home loan you choose, you will be required to make a down payment ranging between 3.5% and 20% of the price of the home. (One notable exception is a that requires no down payment.)

It’s important to remember that with a down payment of 20% or less, you will have to pay for private mortgage insurance, which adds about 0.5% of the total loan amount to your mortgage payments for the year.

3. Get a Mortgage Pre-approval

It’s important to figure out how much of a home loan you qualify for and before you start house-hunting. Otherwise you may end up missing out on your dream home because you don't have things lined up financially. Getting a mortgage pre-approval will allow you to shop for a home with confidence. Knowing the loan amount for which you are likely to be approved will add negotiating power to your offer.

Once you find the home you want to purchase, we will work closely with you to pair you with the ideal or and guide you through every remaining step of the . To get mortgage pre-approval, you will be asked to provide us with , proof of assets, and other financial information. We, in turn, will review your credit worthiness for a specific home loan option and issue a pre-approval for that loan amount--given that your financial situation does not change between the pre-approval date and close of escrow for the new loan.

4. Find a Real Estate Agent

While most home sellers list their houses through real estate agents, it’s important to understand that their agents work for them and not you; they are almost always taking a commission on the sale and will be working to get you to pay as much as possible for the listing. It is recommended that you hire a buyer’s agent to act as your representative during the home buying process. In most cases, this real estate agent will not charge a direct fee to you, but instead will split the commission that the seller’s agent gets upon sale of the home.

5. Search for the Ideal Home

Now that you’re ready to find a home, you'll find that the old home buying adage "location, location, location" is actually true. Location will be play a crucial role in . You'll like want to look for homes in neighborhoods that are a reasonable distance from your regular commutes. The quality of school districts may be an important factor for you to consider, as well as proximity to your place of work, shopping, entertainment, and family and friends.

There are many online search engines and other resources that can help you find homes in communities that may be of interest to you. Your real estate agent can also access the MLS (Multiple Listing Service) for you and perform queries to help you find the ideal home as soon as it hits the market.

6. Make an Offer

Once you find the house you want, work with your real estate agent to move quickly to determine an initial offer and make your bid. You may want to research at least three homes that have recently sold in the neighborhood; if you make an offer on the low end of the spectrum, its success will likely depend on the current climate of the housing market in that particular area.

If the local housing market is slow, you may have some leverage. If the market is hot, your offer may not even be considered, and you may lose out on the home you want. A good real estate agent will take all of this into consideration and advise you accordingly.

7. Review the Contract and Sign on the Dotted Line

Once you’ve reached a deal, have your lawyer or real estate agent review the contract to make sure the deal is contingent upon you obtaining a mortgage, a home inspection that shows no significant defects, and a guaranteed walk-through inspection by you 24 hours before closing. You’ll also need to make a good faith deposit—usually 1% to 10% of the purchase price, which you will deposit into an escrow account. The seller will receive that money only after the deal has closed; if the deal falls through, you will get the money back only if any of the contingency clauses failed.

8. Obtain Your Home Loan

Now, it’s time to finalize your home financing and lock in your home loan. If you have already gotten a mortgage pre-approval, this should be a fairly simple process. If you have not been pre-approved, you will need to obtain approval for your new home loan. In either case, contact your Bank of Internet USA Mortgage Consultant to ensure that you have a mortgage loan that is tailored specifically to your home purchasing needs.

9. Get an Inspection

Inspecting the new home for needed repairs, mold, plumbing issues, and other problems is a critical step towards protecting yourself from unknown expenses after you close on the home. Ask to be present during the inspection, and be prepared to learn a good deal about your new home. Failing to have a home inspection performed before signing closing papers is .

If the inspector finds any major problems, bring them up with your real estate agent and discuss options as to how they should be dealt with. You will most likely want the seller to rectify the problem before you move in or have the cost of the repair deducted from the price of the sale.

10. Close

Three days before closing at minimum, you’ll receive the closing paperwork from Bank of Internet USA. This documentation will include all of the final details of the transaction and the terms of your mortgage. There should not be any surprises here; the terms of the transaction should not have changed from any documentation you have already reviewed. If there is anything you do not , now is the time to ask for clarification.

We will also arrange for you to close the mortgage by sending a notary to your home, office, or any other convenient location of your preference. Then, all that’s left to do is sign the final paperwork and wait for the mortgage to fund.