How To Buy A House in 10 Steps
How to buy a house in 10 steps.
1. Check Your Credit
If buying on home is on your radar the first thing you need to do is know what your credit looks like. You can get a copy of your credit report at annualcreditreport.com. The three credit bureaus (Equifax, Experian, and TransUnion) are each required to give you a free credit report once a year. And I’ll start off by saying it’s not uncommon to find errors on their credit report, and this of course can could lead to higher rates on loans. Or worst yet no loan. You want to Avoid a last-minute bombshells by checking your score long before you’re ready to make an offer.
Checking your credit is the first step in getting pre-qualified for a loan and something you should do before you start looking at homes. Now you may have a trusted banker you can call on, however, banks are not always the best source for purchase money mortgages, especially if you’re a first time home buyer or maybe a few imperfections on your credit report. I’m not saying there aren’t some decent banks, but in the 20 plus years I have been in this business I have found that independent brokerage firms offer some of the best rates and a wide selection of loan products.
So, how do you know which firms are the best? The best way to find a great lender is to find a great real estate agent. Every good realtor knows which lenders are the best in their area.
2. Find A Good Real Estate Agent
Your relationship with your real estate agent is the foundation of the home-buying process. He or she is the first expert you’ll meet on your journey, and the one you’ll rely on most. That’s why it’s important to interview agents and find the agent who will meet your specific needs. You could ask a friend who they used when purchasing, referrals are always a good way to find an agent, make sure they have experience and work with first time buyers.
Now once you’ve found your agent (AKA, your new best friend), ask him or her to recommend at least three mortgage lenders that meet your financial needs. This is another big step, as you’ll be working with your lender closely throughout the home-buying process.
3. Get Pre- Qualified for Mortgage
You need to determine how much of a mortgage you can afford. You will need to go over your cash on hand, cash needed for closing cost and estimated payments from the lender.
Lenders are happy to lend you as much as your debt load allows. But will that amount make you house poor? Ask yourself, how much house do I really want to afford? Lenders look for a total debt load of no more than 43% of your gross monthly income (called the debt-to-income ratio). This figure includes your future mortgage and any other debts, such as a car loan, student loan, or revolving credit cards.
There are plenty of calculators on the web to help you determine what you can afford. If you’re pushing the limits, start reducing your debt-to-income ratio now.
4. Start Saving for A Down Payment
Make a down payment plan if you have not already done so. Most conventional mortgages require a 20% down payment. If you can swing it, do it. Your loan costs will be much less, and you’ll get a better interest rate. If, however, you’re not quite able to save the full amount, there are many programs that can help. FHA offers loans with only a 3.5% down payment. But they require mortgage insurance premiums, which will drive up your monthly payments. The U.S. Department of Housing and Urban Development (HUD) provides a list of nonprofit homebuying programs by state. Also check with credit unions; and your employer might even have an assistance program. And work diligently to correct any mistakes on your credit.
As you’re planning your savings strategy, keep in mind that banks like you to “season” your money. That is, they like to see that you’ve had stable funds in your account for 60 to 90 days before applying for a loan. Don’t worry: You can still use a financial gift from a family member or bonus received near the time you buy.
5. Start Looking at the Homes
OK , you know your credit status, you have found an agent and have a loan pre-qualifcation, its time to discuss your housing preferences and budget with your realtor and get serious about viewing house. Your agent will provide listings you may like based on your parameters (price range, ZIP codes, features), and will also help you determine the quality of listings you find online. Then comes the fun part: seeing the homes, which gives you the unique opportunity to evaluate properties in a way you can’t online.
6. Make an offer
Making an offer can feel like an emotional precipice, almost like asking someone out on a date. Do they like me? Am I good enough? Will they say yes? It’s stressful! Some home sellers simply accept the best offer they receive, but many sellers make a counteroffer. If that happens, it’s up to you to decide whether you want your agent to negotiate with the seller or walk away. This is an area where your agent can provide real value by using their expert negotiating skills to haggle on your behalf and nab you the best deal.
7. Inspections
If your offer is accepted, then you’ll sign a contract. Most sales contracts include a home inspection contingency, which means you’ll hire a licensed or certified home inspector to inspect the home for needed repairs, and then ask the seller to have those repairs made. This mitigates your risk of buying a house that has major issues lurking beneath the surface, like mold or cracks in the foundation. (No one wants that.)
8. Appraisal
When you offer to buy a home, your lender will need to have the home appraised to make sure the property value is enough to cover the mortgage. If the home appraises close to the agreed-upon purchase price, you’re one step closer to settlement — but a low appraisal can add a wrinkle. But not one you can’t deal with. Most of the time the sellers are willing to come down to reality and reduce the purchase price to the appraised value, but there are times where the two parties cannot agree and the sale is canceled.
9. Walk Through
The last stage of the home-buying process is settlement, or closing. This is when you sign the final ownership and insurance paperwork and make this whole thing official.
Most real estate sale contracts allow the buyer to walk through the home within 24 hours of settlement to check the property’s condition. During this final inspection, which usually takes about an hour, you and your agent will make sure any repair work that the seller agreed to make has been completed.
During the walk-through, you’ll also double-check that everything in the house is in good working order.
10. Then Closing
Sign that paperwork. Write those checks. Get those keys! You’ll be asked to wire any remaining funds needed to close the day before and you will spend ample time signing what seems like a million pieces of paper but in the end it’s all worth it.
The closing is the grand finale. Once everything is signed, you have the keys, the house is yours.
If you would like to know more about how to buy a house please reach out to me on the contact page to call me directly.
