Whether you’re planning to move across the country or down the street, it’s essential to know how long it takes to buy a house. Timing your move with your job and other factors is necessary for a smooth transition.
While the length of time it takes to buy a house does vary, it’ll likely be within a common range. Still, there are things to watch out for that could slow your house-buying process down.
Here, we’ll go over:
House Buying Preparation
Before you jump to the fun part and start shopping for houses, there’s some things you should do to clear the slate.
If your credit score and debt-to-income ratio look good and you have enough cash to cover the down payment, closing costs, and cash reserves, you can skip to the next section. If you’re not sure, keep reading before you start house shopping. You might need to take a few months or more to address these factors.
Check Your Credit Score
When it comes to buying a house, a lot weighs on your credit score. If your credit score is really low, there could be challenges in qualifying or even getting a mortgage at all.
The better your credit, the better mortgage loan program and rate you can potentially get. The main thing your credit score affects is your mortgage interest rate. Lower credit scores mean higher interest rates. Higher interest rates mean higher monthly payments and more interest paid overall.
Give Your Credit Score a Boost
Checking your own credit score is a “soft” credit check, which means it won’t affect your credit. When you’re actually applying for a loan, your lender will check your credit, which will count as a “hard” inquiry. Your credit will take a hit from hard inquiries, so be mindful about how often and when hard credit checks are happening.
There’s a few things you can do to raise your credit score:
- Check for errors: Check your credit report for errors. If there’s missed or late payments on there that didn’t happen, you can have it corrected. Know that any delinquencies that did occur will typically stay on your credit report for seven years.
- Timely and full monthly payments: Your payment history makes up 35% of your credit score. Thus, making payments in-full and on time every month has a big impact on your credit score. Set up payment reminders and keep your balance at zero. Take care of past-due bills and call your creditor to see if you can have them removed from your report after paying them.
- Watch your credit utilization: Your credit utilization is the proportion of your credit that you use. For instance, if the credit limit on your credit card is $2,000 and you spend $400, your credit utilization for your credit card is 20%. To raise your credit score, keep your credit utilization on all of your credit below 30%.
Don’t open new lines of credit that you don’t need just to increase your credit limit. In fact, opening new lines of credit lowers your credit score temporarily, so it’s best to space out applying for new credit. Instead, you can ask your creditor for a credit limit increase without a hard inquiry.
While you can consolidate some of your debt for a better rate, it’s best to pay it off as soon as possible rather than simply moving it around.
Credit Scores Minimums
Different loan types require different minimum credit scores:
- Conventional loans require a score as low as 620+
- FHA loans tend to allow lower scores
- VA loans require a score as low as 600+
- USDA loans require 620+ but may accept “alternate” credit
However, if you want to put down a small down payment, you’ll need a higher credit score.
Calculate Your DTI
Your DTI, or debt-to-income ratio, helps lenders determine if they’re comfortable giving you additional debt. Your debt-to-income ratio shows how much of your income is going towards debt payments. You can calculate your DTI by dividing your total monthly debt payments by your gross monthly income.
For instance, let’s say the only debt you have is student loans and an auto loan. If you had to pay $400 for your student loans and $500 for your car payment, your total debt payments are $900. If your monthly income was $3,000, then your DTI would be 30%:
If your DTI is too high, you won’t be able to qualify for a mortgage. Getting the green light for a qualified mortgage means you’ll need to meet certain DTI requirements, but FNMA will allow a DTI up to 50% with an automated underwriting approval.
Reduce High DTI
If your DTI is too high, you may need to consult with a lender to obtain a prequalification to receive an approval before even thinking about buying a house. You can reduce your DTI by:
- Increasing your income
- Reducing your debt, or
Increasing Your Income
You can increase your income by negotiating for a raise or getting a side gig. There’s online resources to help prove your market value to your boss while negotiating. In today’s gig economy, there’s a lot of flexible side jobs like food delivery and dog walking. If you can land a gig on the internet, you could be freelance writing or tutoring online from the comfort of your own home.
Decreasing Your Debt
There’s no way to get around debt besides paying it off. To pay off debts faster, make sure you’re living well within your means. Get rid of unnecessary expenses, reduce monthly payments where you can (i.e. your phone bill), and adapt your lifestyle to be less costly where you can.
Save for Down Payment, Closing Costs, & Cash Reserves
If you’re looking to buy a house soon, you’ll need to make sure you have enough cash for a sizable down payment, closing costs, and cash reserves.
While there are 3% down loan options, it’s more common to put 5-10% down, depending on your qualifications. If you’re getting a conventional loan and can put down 20%, you’ll avoid having to pay any mortgage insurance. Remember: the lower your down payment, the higher your credit score will need to be. Closing costs are typically 2-5% of the loan amount, and having two months worth of mortgage payments in cash reserves is common.
Take a look at the money in your account and use online calculators to figure out how much house you can afford given these costs. If you don’t have enough money to cover a down payment, closing costs, and cash reserve requirements, take some time to save up. We recommend that people look for houses that are no more than three to five times their annual household income if they plan to put down 20% and have some other debt.
Optional: Get Pre-Approved for a Mortgage
Getting pre-approved with a lender isn’t necessary, but it’s another step you can take to get an estimate of how much you can afford to spend. Your lender will check your documents to pre-approve you for a certain loan amount. They’ll want proof of your income, assets, your credit score, and identification documents.
It’s important to note that just because you’re pre-approved doesn’t guarantee financing. Pre-approval simply shows how much you might be able to borrow. Getting pre-approved usually takes two to four weeks.
How Long It Takes to Buy a House
Once you know your house price range, have a decent credit score, and cash in the bank, you’re ready to start the home buying process.
Find a Real Estate Agent and Start Shopping
The first step to buying a house is to find a real estate agent. Your real estate agent will help you shop around for a house that’s in your budget and has what you’re looking for. There’s lots of things to take into consideration when looking for a house. Besides the size and cost, things like the surrounding neighborhood, which direction the house is facing, and how much work the house needs should be considered too.
Buyer’s Market vs. Seller’s Market
When you start shopping, it should become apparent fairly quickly if you’re in a buyer’s market versus a seller’s market. If you’re in a buyer’s market, there will be more people trying to sell houses than there are people to buy them. In a buyer’s market, you’ll have the upper hand. If you’re in a seller’s market, you’ll be facing a lot of competition from other buyers. In a seller’s market, you may even have to put in offers on houses that are higher than the list price in order to even have a chance at getting the house.
If there’s plenty of houses and not many buyers, this stage of the home buying process will take less time. If the market is hot and competition is high, it could take you longer. In most areas, the summertime is when you’ll see the most houses on the market.
Offer and Negotiation
Once you hear back from the seller on an offer, you’ve entered the negotiation stage. If the seller is in a good position, you may receive a counteroffer. Offers and counter offers aren’t just limited to the price of the house. You can negotiate things like closing costs and whether the washer and dryer are included too.
While there’s no limit to the number of counter offers that can go back and forth between the buyer and seller, negotiation likely won’t take you more than a week.
Once the buyer and seller have come to an agreement, a purchase agreement will be drawn up and signed by both parties to seal the deal. The purchase agreement will include the purchase details as well as the closing date, moving date, and contingencies like getting a mortgage and an appraisal.
Contract to Close
So you’ve found a house that the seller agrees to sell you—congrats! Now, you will be “in escrow,” which is the process you have to go through before closing on the house.
Going Into Escrow
Going to escrow means that an escrow account will be opened and held by a neutral third party, separate from your lender. The escrow account holds the required funds needed in the closing process.
Selecting a Mortgage
You’ll work with a mortgage company to select a mortgage that works for you. The main mortgage types are:
- Conventional mortgages: If you qualify for a conventional loan, it’s likely your best bet, and is what most people have.
- FHA loans: FHA loans are affordable, government-backed mortgages for those who can’t afford conventional mortgages.
- USDA loans: USDA loans are affordable, government-backed mortgages in rural and suburban areas.
- VA loans: VA loans are affordable, government-backed loans for veterans and surviving spouses.
- Jumbo loans: A jumbo loan is for when a conventional mortgage isn’t big enough.
Once you’ve selected a mortgage and your mortgage application has been processed, loan underwriting will begin. The underwriter is responsible for determining whether the loan is acceptable to the lender. Underwriting includes:
- Verifying borrower qualification: The lender will want to make sure you’re likely to pay back the loan. They’ll look at things discussed in the first section like your credit score, debt-to-income ratio, loan-to-value ratio, employment history, and cash reserves, among other things.
- Home inspection: As the buyer, make sure you’re paying attention to the home inspection. You want to make sure you know what you’re buying. Your home inspector should give you an inspection report that covers the quality of the foundation, the roof, appliances, plumbing, electrical, and more. A good home inspector will be very thorough. You can request that the seller makes repairs if they’re needed.
- House appraisal: The lenders will arrange an appraisal of the property to make sure it’s worth it to lend you money to buy it. No bank will lend you more money than the property is worth. Make sure to ask for a copy of the appraisal report.
- Title search and insurance: Getting the title searched and insured are a part of the underwriting process that protect you as the buyer.
When you close on a house, the title will be transferred to you. Before that happens, you’ll want to make sure that the title is clear. If that title is clear, that means there are no liens, unpaid taxes, zoning ordinances or other issues connected to the property. The last thing you’d want when buying a new house is to find out that you’re responsible for problems left over from the last owner.
Getting the title insured protects you against another person claiming the property, fraud, liens, and other possible defects.
If underwriting goes well and conditions have been met, you’ll soon be on your way to closing on your home.
Reasons Your Loan Application Could Be Denied
Remember, pre-approval does not guarantee you’ll get a loan. There are many things that could go wrong in underwriting:
- Low appraisal: If the house is worth less than the financing you’re trying to get for it, you won’t get the mortgage. You likely won’t win an argument against the appraisal. To continue getting a mortgage on a house with a low appraisal, you’ll need to cover the cost gap.
- Job-related factors: If there’s gaps in your employment or anything questionable, this could affect whether the lender thinks you’re able to pay back the loan. Having a good credit score, large down payment, low debt-to-value ratio, and cash reserves can help offset this.
- Short sale or foreclosure: A short sale or foreclosure in your recent past could affect whether or not you get a mortgage. If this could be an issue, bring it up early with the lender.
House-Buying Timeline Summary
Assuming everything goes relatively smoothly it could take you anywhere from two to six months to buy a house. If you have room to build up your credit or need to save more for a down payment and closing costs, add an additional three or more months.
Potential House-Buying Delays
All of the time frames above assume a relatively smooth house-buying process. Unfortunately, there’s some things that can cause delays and make buying your house take longer.
Proof of Income
Proving your income is a basic tenant of buying a house. It’s one of the many ways you prove to your lender that they should trust you to pay back the loan. Even if your income is solid, you could be facing some obstacles if your income is unconventional.
Self-Employed and House Shopping
For instance, if you’re self-employed and applying for a mortgage, you’ll need to show your 1040 tax returns rather than W-2s. If, like many self-employed people, you write off a lot of expenses, this decreases your net income—the income that’s used to determine your debt-to-income ratio. A lower reported income will raise your debt-to-income ratio, which could make it more difficult to qualify.
As a self-employed individual, you’ll need to show that your net income is high enough qualify.
There are some things you can do to improve your odds of being approved for a mortgage:
- Register and license your business
- Delete this bullet point they are still self employed: Pay yourself a W-2 income
- Decrease your debt and tax deductions to improve your DTI
- Maintain separate personal and business accounts and good records
- Save up for a larger down payment
Most lenders use automated underwriting to help them create mortgages correctly. Automated underwriting systems are used to underwrite conventional conforming loans, FHA loans, USDA loans, and VA loans.
With automated underwriting, the lender will enter in all the pertinent information into a software. That software determines if you pass all of the typical mortgage requirements. If your mortgage application is rejected in automated underwriting, your mortgage may be considered for a manual underwrite depending if the findings allow a manual review.
If you need a manual underwrite, it’s likely because your credit score was too low or your debt-to-income ratio was too high. Being new to building credit, having complicated earnings, or having a recent bankruptcy or foreclosure could also trigger a declination or possible consideration for manual underwrite.
If your mortgage needs a manual underwrite, you’ll still have to prove to the lender that you can pay back the loan. Manually underwritten loans have their own guidelines that you have to meet in order to qualify for a mortgage.