Home Buying Process: Steps from Pre-Approval to Closing

Step 1: Get Pre-Approved (Before House Hunting)

Pre-approval determines your maximum purchase price and shows sellers you're serious.

What it requires:

• Proof of income (pay stubs, tax returns)
• Credit check
• Proof of down payment funds
• Debt assessment

What you get:

• Pre-approval letter (valid 90 days)
• Maximum purchase price
• Interest rate quote
• Monthly payment estimate

Example: Pre-approval on $100,000 income

Income: $100,000/year Down payment available: $80,000 (20%) Max loan amount: $80,000 ÷ 0.20 = $400,000 property

Lender pre-approves you for $320,000 mortgage (80% of $400,000). Maximum purchase price: $400,000

Pre-approval vs. Pre-qualification:

• Pre-qualification: Rough estimate, no credit check
• Pre-approval: Actual commitment (unless income changes)
• Always get pre-approval before house hunting

Step 2: House Hunting and Making Offers

Offer strategy:

• Start 5-10% below asking price (in normal markets)
• Increase offer if property in high demand
• Include contingencies (inspection, appraisal, financing)

Example offer on $400,000 home:

• List price: $400,000
• Your offer: $385,000
• Contingencies: Inspection, appraisal, financing
• Down payment: $80,000 (20%)
• Closing timeline: 45 days

Contingency importance:

• Inspection contingency: Protects you if major issues found
• Appraisal contingency: Protects you if home appraises low
• Financing contingency: Protects you if loan denied

Without contingencies, you're locked in regardless of problems.

Step 3: Offer Accepted – Now the Hard Part

Timeline: 45 days (typical) from accepted offer to closing

Immediately after offer accepted:

1. Order home inspection (next 7-10 days)
2. Finalize mortgage application
3. Appraisal scheduled by lender
4. Title search ordered

Step 4: Home Inspection ($500-800)

Critical step: Professional inspector spends 2-3 hours examining entire property.

What they check:

• Foundation and structural integrity
• Roof condition and remaining lifespan
• HVAC (heating/cooling) system
• Plumbing and electrical
• Water damage, mold, pests
• Appliances
• Windows and doors

Typical inspection report: 20-50 pages with photos and cost estimates.

Worked example: Inspection reveals issues

Inspector finds:

• Roof has 5-7 years remaining (should have 15): Repair cost $12,000
• Water damage in basement: Potential $8,000 repair
• HVAC system 15 years old (typical life: 15-20): May need replacement soon ($8,000)
• Electrical panel outdated: Recommended upgrade $3,000

Total issues: ~$31,000

Your options:

1. Renegotiate price down $31,000
2. Request seller make repairs
3. Walk away (if inspection contingency included)
4. Accept as-is, plan repairs

Without inspection contingency: You're stuck paying full price with known $31,000 in needed repairs. Bad deal.

With inspection contingency: You can renegotiate or exit.

Step 5: Appraisal ($500-700)

Lender orders appraisal to ensure home is worth the loan amount.

Appraisal process:

• Licensed appraiser inspects property (1-2 hours)
• Compares to similar homes recently sold
• Provides opinion of current value
• Lender reviews to ensure value >= loan amount

Example: Appraisal gap scenario

• You offered: $400,000
• Down payment: $80,000 (20%)
• Loan requested: $320,000 (80%)
• Appraisal value: $380,000 (comes in $20,000 low)

Problem: Lender will only loan 80% of $380,000 = $304,000

• You need: $320,000 (to cover offer)
• Lender will provide: $304,000
• Gap: $16,000

Your options:

1. Increase down payment to cover gap ($96,000 instead of $80,000)
2. Renegotiate purchase price to $380,000
3. Walk away (if appraisal contingency included)
4. Bring more cash

Appraisal contingency is critical. Without it, appraisal gap is your problem.

Step 6: Underwriting (10-14 days)

Lender reviews full application: Income, assets, debts, credit, employment, property appraisal.

Underwriting checklist:

• Verify income with employer
• Review credit report
• Assess debt-to-income ratio
• Verify down payment funds
• Title insurance ordered
• Final property inspection (lender's)

Common underwriting issues:

1. Debt-to-income ratio too high

   • Max ratio: 43% (housing cost + all debts ÷ income)
   • Example: $5,000 mortgage + $1,000 car payment + $500 student loan = $6,500 monthly debt
   • Monthly income needed: $15,116
   • If you earn $15,000, ratio is 43.3% (slightly over)
   • Solution: Pay down debt or increase income

2. Employment issue

   • Changed jobs recently
   • Contract position without new contract
   • Gaps in employment
   • Solution: Letter of explanation or wait until stable employment

3. Large deposit unexplained

   • Suddenly deposited $20,000 before closing
   • Lender worried it's a gift loan (rules restrict gift loans)
   • Solution: Provide bank statement showing funds were yours, or gift letter if gift

4. Credit issues

   • Late payments within last 2 years
   • New accounts opened recently
   • Collections or liens
   • Solution: Explanation letters addressing issues

Underwriting is where deals fall apart. Stay in contact with lender.

Step 7: Title Search and Insurance

Title search: Confirms seller actually owns property and there are no liens or claims.

Title insurance: Protects against title defects (cost ~0.5% of home price).

Example on $400,000 home: Title insurance ~$2,000

Protects against:

• Spouse making claim (ownership dispute)
• Liens from previous owner's debts
• Forgery or fraud
• Boundary disputes

Title insurance is required by lender (and highly recommended).

Step 8: Final Walkthrough (1-2 days before closing)

You do a final check of the home before closing.

Check:

• All agreed repairs were made (if seller agreed to repairs)
• Appliances included are present
• No new damage
• Utilities working (test lights, water, etc.)
• Agreed items removed (seller's furniture)

Worked example: Final walkthrough disaster

You agreed seller would repair roof. In final walkthrough:

• Roof still not repaired (seller got extension)
• One appliance missing (seller's moving it to new house)
• Water damage visible (new issue)

Your options:

1. Delay closing until repairs complete
2. Request repair credits at closing
3. Close and sue later (expensive, not recommended)

Final walkthrough catches last-minute problems.

Step 9: Closing (Sign Documents)

Closing day: Final signatures and transfer of funds.

Documents signed:

• Promissory note (your promise to repay mortgage)
• Deed of trust (lender's security interest in property)
• Closing disclosure (final costs summary)
• Loan papers

Final costs paid:

From your funds:

• Down payment: $80,000
• Closing costs: $10,000-$15,000
  • Lender fees: $1,000-$2,000
  • Appraisal: $600
  • Title insurance: $2,000
  • Attorney/title company: $500-$1,000
  • Property taxes (prorated): $2,000-$3,000
  • Homeowners insurance (1 year): $1,500
  • HOA transfer: $200
  • Recording fees: $100

Funding the mortgage: Lender wires $320,000 to closing agent

Title transfer: Seller signs deed, property transfers to you

Recording: Deed recorded at county recorder's office

You now own the home.

Common Closing Costs Breakdown

On a $400,000 home with $80,000 down:

Cost	Amount
Lender origination	$1,500
Appraisal	$600
Credit check	$100
Title search	$300
Title insurance	$2,000
Attorney/closing agent	$500
Survey	$400
Recording fees	$100
Property taxes (prorated)	$2,500
Homeowners insurance	$1,500
HOA transfer	$200
Total	$9,700

Closing costs are typically 2-5% of home price.

Contingency Checklist: Don't Miss These

Make every offer with these contingencies:

1. Inspection contingency: Right to walk away or renegotiate if inspection reveals issues
2. Appraisal contingency: Right to walk away if home appraises for less than offer
3. Financing contingency: Right to walk away if loan denied
4. Clear title contingency: Right to walk away if title issues found
5. Homeowners insurance contingency: Right to walk away if unable to get insurance

Offers without contingencies are risky and tie you in completely.

Red Flags During Buying Process

Warning signs:

1. Seller pushing to close before inspection
2. Seller pressuring to waive contingencies
3. Appraiser seems rushed or inexperienced
4. Lender can't explain why loan was denied
5. Title issues discovered late in process
6. Final walkthrough reveals damage not disclosed

If these happen, slow down and get professional advice.

Action Items: Navigate Home Purchase Successfully

1. Get pre-approved before house hunting: Know your budget
2. Include all contingencies: Inspection, appraisal, financing, title
3. Schedule professional inspection: Mandatory, not optional
4. Review appraisal promptly: Dispute if you disagree with value
5. Stay in contact with lender during underwriting: Answer questions immediately
6. Do final walkthrough: Check for last-minute issues
7. Review closing disclosure: Verify all costs 3 days before closing
8. Get homeowners insurance quotes: Required before closing

The home buying process is complex, but contingencies and inspections protect you at each step.