What You Need to Know Before Buying a House
Owning your own home has long been considered a big part of the “American Dream”, and there’s a reason for that…it’s a big deal to buy your first (or second) house. It usually requires months of planning and years of saving money for what is likely the biggest purchase of your life. In 2014, my wife and I started the process of buying our first house and quickly realized it’s not as easy as looking at houses online, finding a house you love, and getting your offer accepted.
Whether you’re buying your first house or your fourth house; a fixer upper or your dream home; a rental property or weekend getaway house, the steps are almost all identical. As ManMade readers, you are prepared and knowledgeable individuals, but having a go to list of steps to take for buying that first or next home is always helpful.
Step 1: Know Your Needs and Wishes, and Start Your Search Early
As soon as possible, start tracking the trends of home sales in your desired neighborhood(s). This could be several years before you have your down payment saved up. (It'll even keep you motivated to keep setting money aside). Make notes of listing prices, asking prices if available, and closing prices. Knowing this information can give you power when putting in your initial offer.
Step 2: Determine Your Purchase Price Range
Most lenders recommend buyers look for homes that cost no more than three to five times their annual household income, depending on the percentage of down payment. But credit score, other debt and other assets all factor into the equation. Each homeowner’s situation is unique and should be assessed on an individual basis. There are several online tools (NerdWallet, Zillow, Trulia, etc.) to help individuals roughly calculate how much house they can afford. Before getting prequalified with a lender, you’ll want to know your range of what you can afford and what you want to spend.
Step 3: Get Preapproved and Prequalified
In order to put an offer in on a house, you need to be preapproved and prequalified. This is an important step to take before you start looking at homes. Do not just go with the first lender you talk to or the bank you’ve always used just because it’s convenient! Shop around with at least 3 different lenders to lock in the best interest rates. Pay attention to closing costs and financing fees, as those can add up quickly to $1,000s of dollars. I recommend checking with a big bank, a local bank and a credit union. There are advantages and disadvantages to all three types of banks, but at least you’ll have the opportunity to make the decision which bank to go with if you shop around. There are also online tools that you can use to get prequalified, but I haven’t ever used those so I won’t speak to them in this article.
Step 4: Find the Right Real Estate Agent and Mortgage Broker
Finding the right real estate agent is an important part of the process as they can provide essential information on homes in your desired neighborhood. They can also navigate any questions in the home buying process and provide strong negotiating skills. Don’t be afraid to interview several agents until you find the one you like. You will likely look at several homes before you find the one you want and you’ll spend a lot of time with your agent, so make sure you can tolerate their company.
Step 5: Find Your Dream Home
In my opinion, this is the fun part. Start touring homes in your price range and take notes on what you like and dislike about each home. It’s nearly impossible to find a house that has absolutely everything you want, and you’ll need to compromise somewhere. Taking notes and pictures is the best way to help you remember all the homes you’ll see. You will eventually get a home inspection, but there are things that you should look for as you walk through a house that can be red flags.
Step 6: Put in Your Offer
This is where knowing the market, doing your early research and having a knowledgeable real estate agent can really pay off. You obviously don’t want to put in too high of an offer, but you also don’t want to put in an offer that won’t even get considered. Knowing if you’re in a buyer’s market or a seller’s market and the advice of your real estate agent can be the difference of your offer getting accepted or rejected. The nice part is, once you’ve come up with your asking price, your agent will do the rest. Be prepared for some back and forth negotiations – that is a normal part of the process.
Step 7: Get the Home Inspected
Home purchases are almost always contingent on getting a home inspection in order to protect the buyer from big structural damages or things that need to be fixed. This is another area that your real estate agent can help with by making suggested home inspectors. If the inspector uncovers items that need to be fixed, that opens the door to renegotiations on the purchase price. Or you can ask the seller to make the repairs instead of renegotiating. Just make sure you do a final walkthrough of the house to make sure the punch list of items has been completed.
Step 8: Work With a Lender to Select the Right Loan
There are a multitude of different loan options, depending on your unique home buying situation. Before meeting with your lender, make sure you know the basics.
Do you want a fixed loan, a 30-year loan, a 5/1 ARM? Your lender should have the tools to run the costs of each type of loan you’re interest in, which is helpful in making your decision. Ask as many questions as you need to and choose the right loan for your situation.
Step 9: Get an Appraisal
Lenders typically require and can help arrange an independent appraiser to estimate the value of the home. This is done to help ensure that that all parties involved are getting a fair price for the home. If the appraisal comes back at a different price than your accepted offer, work with your real estate agent to find the best solution.
Step 10: Coordinate and Close the Sale
With so many different parties involved, there is bound to be a mountain of paperwork you’ll need to sign to close on the sale. With the help of the real estate agents, you and the seller to determine a closing date the works for both parties. Make sure you work with your lender so the funds needed to close the house are available and ready to be transferred on the closing day. Once the check has cleared, you are ready to move into your new home and grab a piece of the American Dream.
Step 11: Decorate Your House with Great ManMade Ideas
Good luck with finding your dream home. It’s out there, you just have to find it!
Brandon
