Getting an accepted offer on a house you like, and can afford, is hard enough. But what comes after can be just as harrowing. Here’s what to expect.
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According to reports, the U.S. housing market is short millions of homes, meaning the options for buyers are very limited. As such, homes not only get offers shortly after becoming available — they frequently get multiple offers.
With so much against you, it can feel like just getting an offer accepted is the hardest part to buying a home. Unfortunately, things don’t get much easier after you’re under contract. There are still many, many things to do — and just as many things that can go wrong. Let’s take a look.
Hurdle No. 1: The financing
These days, it’s more or less a requirement to get pre-approved for a mortgage before you put an offer on a house. (In fact, some agents won’t even let you see a house without a pre-approval letter!)
However, that pre-approval letter doesn’t mean very much once you’re under contract and need to solidify your financing. At this point, you need to actually apply for the mortgage loan. This means submitting piles of paperwork. If you’re an employee, that can include:
Tax documents: You will need at least your most recent tax return.Pay stubs: You’ll need to provide at least two months’ worth of pay stubs to show your income. If you’re buying a house in another state, you’ll likely need at least one or two pay stubs from the new state to prove your income hasn’t changed.Bank statements: The bank wants to know you can pay your closing costs and down payment, so you’ll need to show bank statements from at least the last month (though sometimes two months) to prove you have the necessary cash on hand.An employment letter: You may need to provide a letter from your employer verifying your employment status.
For folks who are self-employed, the list is slightly different:
Tax documents: You will need to provide at least two years of tax returns to show you have a steady income. Ideally, you want to show the same or greater income the second year.P&L for the current year: Depending on how far you are into the current year, you may need to provide a P&L (profit and loss) statement. You can generate this from your accounting software if you use it, or you may need to work with an accountant.Bank statements: This is the same as for employees, in that you need to show bank statements to prove you have the cash for closing costs and any down payment.A personal letter: If you’re moving to a new location, the bank may want a statement from you to verify that your income won’t change when you relocate.
Once you submit all of your paperwork, your mortgage loan application will be submitted. After it’s processed, it will head to the underwriters who will make the final decision on whether your mortgage is approved.
Hurdle No. 2: The inspection
As soon as your offer is accepted, you’ll need to schedule the home inspection. You will typically only have seven to 10 days to get the inspection done after you are under contract.
A home inspection will generally take an hour or two, depending on the size of the property and number of outbuildings. The inspector will evaluate the outside of the property, as well as every inch of the inside, from the attic to the basement. They’ll also take a ton of pictures.
If possible, try to be present for the inspection so you can find out any issues in person, as well as ask any questions you may have.
After the inspection is finished, the inspector will write up a report with all of the potential issues. Certain problems may be all on you, but others may be something you want to bring up to the seller. You can ask them to fix the problems before closing, or you can ask for a credit at closing that reduces your purchase price.
Hurdle No. 3: The appraisal
Once you’re satisfied with the condition of the home, the bank will send out an appraiser to value the property. Basically, the property is the collateral for your mortgage loan, so the bank will want to verify that the house is worth at least as much money as they’re about to give you.
If the house appraises at or over the purchase price, you’re good to go. If the house appraises for less than the purchase price, however, you have a few options:
Make up the difference yourself, in cash.Try to negotiate with the seller on a lower price.Walk away and start over again with another house.
Hurdle No. 4: The title
If you’ve made it through the financing, inspection, and appraisal, then it’s time for the title attorneys to get in on the action. In this stage, they head downtown to look up the homeowner records, usually going back 30 or 40 years.
During the title process, the title company will look out for anything that may cause a legal issue with passing ownership of the property on to you. So, they’ll look for existing mortgages, liens, unpaid taxes, or other restrictions.
Finally, the title company will issue a title insurance policy. This protects the recipient in case there are any legal issues that pop up such as a dispute over the ownership of the property.
Closing and keys, oh my
Provided you make it over each of these hurdles, you’ll finally get a closing date. At this point, all you have to do is hand over a ginormous check and sign more paperwork. But when that’s over, you’ll get the keys to your home.
Buying a house can be a long, exhausting process. There are a lot of things to do, and so many places where things can go wrong. At the end of the day, however, there really is no place like home.
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