There are several steps to buying a house, and while they may seem to center around shopping for your new home, there is more to think about than interior décor.
One of the first things you need to wrap your head around in the home buying process is the financial aspect and how prepared you are.
When you start to feel overwhelmed, remind yourself of all the benefits of being a homeowner. These include the following:
- A smart long-term investment
- Financial security
- Privacy
- The ability to customize the home, including renovations
- Improved stability
Step 1: Get Your Finances in Order
You need to make sure you are financially ready to purchase your home. This means there are a few things you need to check off because even a starter home is a large financial commitment. You need to consider what your goals are. If you are purchasing with a partner, you need to thoroughly discuss whether or not the two of you are on the same page. What happens if someone needs to relocate for work? What about starting a family? Consider the pros and cons and what the big picture entails.
Check Your Credit Score and Credit Report
Get your credit report and follow the steps necessary to raise your credit score. The sooner you start working on raising your credit score, the better chance you will have of getting the home you are longing for. A high credit score is one of the best ways to ensure you get a mortgage with a lower interest rate. Plus, understanding the options you have with your credit score can be useful.
Determine How Much You Can Afford
You also need to make sure to determine the price range you can afford. You need to consider all your obligations, the house location, your income, and the amount of down payment you will need. Once you have these numbers, you will have a better idea of what kind of monthly payment you can afford.
Get Pre-approved for a Mortgage
The next step is to get pre-qualified for your mortgage. Your lender provides a pre-approval letter that shows how much you are pre-approved for.
Keep in mind that there are several types of home loans, including:
- Conventional loans: This loan type is not backed by any government agency. A conventional loan covers a maximum of 80% of the property’s appraised value or purchase price.
- Fixed–rate loans: These loans always have the same interest rate for predictable monthly payments.
- Adjustable–rate loans: These start with a low introductory rate, and then the rate goes up and down at set intervals. It can let you take advantage of falling interest rates, but it is harder to plan for.
- Government–backed loans: These include loans from the Federal Housing Administration, Veterans Affairs, and U.S. Department of Agriculture.
Get Your Down Payment Ready
While working to raise your credit score and getting approved for a mortgage, you need to start saving for your down payment. A 20% down payment used to be the standard, but smaller down payments are becoming the norm. A smaller down payment or no down payment means that mortgage insurance will be necessary It should be noted that this will increase your monthly payment.
When saving for your down payment, don’t forget that you will also have to save for closing costs. These will typically be about 3-6% of your loan amount. It is also smart to have extra funds on hand in case you have to make unexpected repairs to your new home or need to pay for your mortgage in an emergency.
Step 2: Find a Real Estate Agent
Once you have completed the above, raised your credit score, and have worked to get approved for your mortgage, it’s time to find a real estate agent.
While the primary function of real estate agents is to help you find a house, their role is more involved than that. They guide you through the process, arrange showings of properties, and help you with offers. They even handle negotiations for you.
The good news for buyers is that you typically don’t have to pay for a real estate agent. The seller typically pays the commission of both real estate agents involved, with your agent typically receiving a 3% fee.
Interview Multiple Agents
You may get lucky and find a great agent the first time you talk to someone, but that is not usually the case. Smart home buyers will interview several agents to find a good fit. You want someone who understands your needs, is a good communicator, and has experience.
As a rule of thumb, you, as the buyer, don’t want to use the same real estate agent as the seller of a home. This will lead to a conflict of interest when negotiating.
Choose an Agent Who Is Experienced and Knowledgeable
Your real estate agent will guide you through the process of buying a house, so you should hire someone experienced and knowledgeable. They should know details for each of the steps to buy a home and be able to give you tips.
In addition to ensuring that the home buying process goes smoothly, your agent should have good connections in the local industry. They likely work with other real estate agents to help you find homes that fit your needs. They will also have connections with lenders to help you get pre-approved for a mortgage. A good realtor may even have recommendations for contractors to help you make changes to your property after purchasing it.
Communicate Your Needs and Wants
Once you have chosen your real estate agent, it is time to share what you are looking for in a home. Be clear with the agent about your requirements and the nice to have in your new home. Discuss with them your financial situation and budget. Then, listen to their advice.
Thanks to their experience, your realtor may come up with questions you haven’t taken into account. For example, maybe you haven’t considered whether you want to be close to parks or by a certain highway.
Step 3: Start Your Home Search
Now, you are ready to start looking for a property. In today’s digital age, you will mostly look online for home listings. There are many websites offering property listings, and your realtor can also recommend some. Once they understand your preferences, they can send you some listings as well.
At this point, your goal is not just to find a house you want to buy. You also want to get a feel for how your expectations and needs match up to what is available on the market. Within a short time, you should be able to confirm whether your budget and requirements are realistic.
The following are some of the most important things to look for when browsing home listings:
- Single-family home vs. condo
- Attached homes vs. detached houses
- Square footage
- Price
- Home condition (and necessary repairs)
- Number of bedrooms
- Number of bathrooms
- Property taxes
- Public transportation
- Local entertainment
- School districts
View Homes
Once you have browsed a few listings, it is time to see properties in person. Consider visiting open houses and ask your realtor to schedule viewings of other properties. This is where your real estate agent’s connections will come in handy. Ideally, you should visit a home at several different times of the day before committing to buy it. This will let you see how the neighborhood varies throughout the day.
While finding and viewing homes, you will work closely with your agent to find homes that fit your criteria. They will likely show you properties at a range of price points. This will help you decide what you want from a home.
Step 4: Make an Offer
Once you find a home that you love, it is time to make an offer. This is one of the most exciting parts of the home buying process because you are taking a concrete step closer to your dream of homeownership.
It is also another area where your realtor’s expertise comes in handy. They can help you determine if a listing’s asking price is reasonable and whether you should offer above or below it. Your agent’s advice will be based on comparable listings in the area. Your agent will also help you craft the offer letter to include the following information:
- The seller’s name
- The property’s address
- Your name
- Your offer price (and down payment)
- Your earnest money deposit
- Your contingencies (including inspection and appraisal)
- Fees, including closing costs
- Preferred closing date
- Preferred move-in date
- A deadline to respond by
Whether your initial offer is accepted or you end up negotiating with the sellers, your agent will help you. They will lend a hand as you negotiate the terms of the sale as well. Remember that sellers can accept or reject your offer or give you a counteroffer. If they reject your offer, you can still submit a new offer at a different price.
A Note on Earnest Money Deposits
While not always the case, it is common for offers to include an earnest money deposit. This is usually just 1% or 2% of the home purchase price. This deposit shows your commitment to buying the property, and you will typically lose it if you agree to a sale, only to cancel it later. Assuming you buy the house, however, the earnest money deposit will become part of your down payment or closing costs.
Step 5: Get a Home Inspection
Once your offer gets accepted, it is time to move on to the home inspection stage. This is when a professional thoroughly inspects your house to assess its condition. Home inspectors test roofs, appliances, electrical systems, and more. At the end of the inspection, you’ll receive a report.
Make sure to go over the inspection report carefully, as you don’t want to miss anything. It is best to be present for the inspection, as this lets you ask questions.
Any advice on how to buy a house will include a home inspection. This is the best way to be aware of potential problems in the property, as those can lead to significant expenses down the line.
You can also include an inspection contingency in your home offer. This is a common method that lets you either negotiate repairs or back out of the sale if the home doesn’t pass the inspection. Importantly, this contingency clause lets you back out and refund your deposit.
Step 6: Get a Home Appraisal
After the home inspection, you will get a home appraisal. This stage of the house buying checklist is when a professional estimates the property’s market value.
Every lender will require a home appraisal. This step lets your lender confirm that you don’t overpay for the house. That could leave the lender in a bad position where you owe them much more than the property is worth, and they would stand to lose money if you default.
You pay the appraisal fee, but your lender usually chooses the appraiser. As a bonus, the home appraisal confirms that your offer was a fair price.
Negotiate Based on Contingencies
Smart home buyers have appraisal contingencies in their offers. These are similar to inspection contingencies, as they let you renegotiate or back out of a deal without losing your deposit. After the inspection contingency appraisal, you may ask the seller to complete certain home repairs or lower the selling price.
Step 7: Purchase Homeowners Insurance
Homeowners insurance is one of the most important things to know before buying a house. This coverage will protect you financially if your home is damaged or even completely destroyed. The insurance coverage should be enough to fully replace the property. This amount can be different from the appraised value of the home or your purchase price.
Your lender will require you to have homeowners insurance before you close on the sale. It minimizes the lender’s financial risk as well as your own financial risk.
Step 8: Final Walkthrough
The final walkthrough takes place just before closing. As such, it is your final opportunity to inspect the house before you close. Confirm that the house is in the agreed-upon condition, and the seller completed any repairs they said they would. You can also confirm that all of the appliances or anything else that was included in the sale is still there. This is also the time to ensure that the seller didn’t accidentally leave anything behind.
Step 9: Close on the Sale
Three days before the closing, you will receive the Closing Disclosure from your lender. This will summarize your home loan details and outline your closing costs. Confirm that the loan details are close to your original loan estimate.
Finally, it is time to close on your home sale. This is when you sign all of the paperwork. You also pay closing costs and the down payment, and you sign your mortgage note. At the end of closing, you officially own the house.
Step 10: Move In and Enjoy Your New Home
All that’s left to do is move in and start enjoying your new home. Many people repaint the walls or complete a few renovations or repairs before moving in. It tends to be easier to do these things before you are living in the space.
Common Questions
What are the 3 most important things when buying a house?
The location, condition, and price are the most important things to keep in mind when buying a house. You also want to consider the neighborhood, the housing market, the yard, heating and ventilation, living spaces, bathrooms, and other amenities.
What do you need to know before buying a house?
Before you buy a house, you should know what your budget and credit score are. You also need to know your requirements and preferences as well as the state of the market where you plan on buying.
How long is the home buying process?
Buying a home process can be as quick as just four weeks, but it can also take up to six months. The time it takes to buy a house depends on your offer, potential negotiations, your chosen lender, and the local housing market conditions. For reference, you can be pre-approved for your loan in a single day, and once your home is under contract, it takes approximately 49 days until closing.
Prepare for a Smooth Home Buying Process
Buying a home can be very rewarding financially and emotionally. It is a major investment but is usually a sound financial investment. With the above 10 steps, you will make the home buying process go as smoothly and stress-free as possible.
