Welcome to Buyers Guide!
Sure, renting has its perks, but nothing beats the immense pride one gets from finally closing on their first home. For many, it’s a dream come true, providing the perfect backdrop to raise a family and form cherished memories for years to come. For others, it’s a way to stop squandering cash on rent by building equity in a tangible investment instead.
No matter what your personal reasons for wanting to buy a house, the process might seem tricky or intimidating. Many may never even endeavor to go down the road towards homeownership based on this alone.
We won’t sugarcoat. It’s an involved process, at times, and requires some specialized knowledge, a good measure of follow-through, and an endless reserve of patience to deal with curveballs, setbacks, and other frustrations that may crop up along the way.
To help in your noble pursuit towards homeownership, we’ve created this buyers guide that can take you from the starting line here today all the way to signing on the dotted line and closing on your new home.
First Things First: Things You Need to Get Started
Of course, it’s not like buying fruit from the farmers market. You can’t simply walk into a realtor’s office and say, “One house, please!”
Well, actually you can, but what happens next is a bit more complicated than them simply handing you a home and sending you on your way. You’ll need a few integral things before you start on your journey.
A good credit score.
Lenders prefer to see something in the range or north of 620, so try building your credit to there or higher before going house shopping.
Cash on hand.
We don’t mean a fistful of dollars, but you need a reserve that’s liquid and ready to cover your down payment, closing costs, and other potentially unforeseen expenses along the way.
Pre-approval for a mortgage loan.
You need the bank or a mortgage lender to scrutinize your finances and pre-approve you for a certain amount of money to purchase the house. This will give you your ceiling and help you set a reasonable budget as well.
A good real estate agent.
In modern times, the Internet has a number of resources that will assist you in selecting a great property, but we very much do not recommend trying to cut the agent out of the equation.
Real estate agents know the market inside and out. They’ll know when you’re getting a good deal and when the seller is trying to rake you over the coals. They also have keen negotiation skills that will keep the price fair based on what the market is doing.
Don’t try to save yourself a few percentage points by being your own real estate agent. A great real estate agent will cost you money at the end of the process, but their value fair outweighs that fee.
Picture Your Perfect Home
Got everything we outlined above? Good.
The one last thing we should do before we get into the fray is envision the kind of home we want to buy. What sorts of things does it have or include that are must-haves or nice-to-haves? What will make you feel that your investment was an intelligent one, and that you were lucky to find such a great place?
Here are some common questions to help you narrow your search:
1. What kind of neighborhood would you like to live in?
2. What are the schools like in the neighborhood?
3. Do you need to be close to public transportation?
4. How close would you like to be to neighborhood essentials like shopping, dining, and entertainment?
5. Do you prefer old or new homes?
6. Do you have a preferred architectural style?
7. How much renovation are you comfortable taking on?
8. Do you like open floor plans or rooms with defined boundaries?
9. How many bedrooms do you want?
10. How many bathrooms do you want?
11. Do you want an eat-in kitchen?
12. Do you want a formal dining room?
13. Do you want a formal living room?
14. Do you need a garage? If so, how many cars?
15. Do you want a yard, deck, porch, pool, or other outdoor space?
16. Do you want or need a laundry room?
17. Do you prefer carpeting or hardwood floors in each room?
18. What kind of heating and cooling system do you prefer?
19. Do you want a fireplace?
20. Are there any other special needs or preferences?
Perhaps you don’t feel too strong about the answers to some of these questions, but perhaps some are very much non-negotiable. Communicate with your real estate agent regarding what’s nice to have, what’s a must-have, and what you could really go either way on. This will help them narrow your search and only offer to show properties that you would realistically consider purchasing.
The 10 Steps of Buying a House
We’ve got our prerequisites covered and we have an idea of what we’re looking for. Without further ado, it’s time to jump both feet in the deep end and start on the process of finally buying a house.
1. Buyers Guide – Research the area.
Now that you’ve thought a little about the kind of neighborhood you’d like to live in, we can take it one step further by researching actual areas that may fit some or all of the criteria we came up with. You’ll probably want to know:
• If the neighborhood is urban, suburban, or rural
• The quality of the school districts
• The crime rate
• Proximity to essentials like grocery stores, pharmacies, doctor’s offices, and more
• Proximity to your current workplace or viable new workplaces
• Proximity to shopping, entertainment, and other attractions
• Proximity and accessibility of public transportation
• Area financials including median home value and property taxes
Determine what is the highest priority, as not every area can offer everything on your list to the degree you’d like. For instance, maybe you do find a great area with great schools, a low crime rate, and plenty of things to do nearby, but the tradeoff will be that median home values and property taxes might be outside your budget.
We hope you find everything you’re looking for, but be ready to identify what you’re comfortable compromising on.
2. Buyers Guide – Create a budget.
If you’re not savvy with finances, it may be time to hire an advisor that will coach you through the basics here. You’ll get a big hint at what your budget’s ceiling is once the lender pre-approves you for a specific loan amount.
However, you don’t want to fly as close to the sun as possible, as you risk overextending your finances or leaving yourself vulnerable if a major life event disrupts your livelihood or income in any way.
Experts recommend allotting no more than 30% of your monthly income on household costs, which include:
• Association dues, if applicable
Run the numbers, or hire a pro to help, and come up with a figure that is manageable but also accounts for emergencies, inflation, and other essentials like retirement planning, college funds, or a nice vacation here and there.
Make sure you budget for the big checks you’re going to write at closing too. You’ll need money for the down payment, closing costs, and possibly private mortgage insurance depending on how much money you were able to put down upfront.
How much will you need?
For a down payment, you may be able to secure a loan while giving up as little as 3% upfront, but you’ll most likely be saddled with private mortgage insurance as a tradeoff. Paying between 10 and 20% of the home’s value instead will work wonders to prevent having to pay PMI after closing.
The closing costs usually run you another 3% to 6%, so budget accordingly.
3. Buyers Guide – Choose a lender and get pre-approved.
If you do your homework and dig deep into your finances before going to the lenders, you’ll be in for less surprises involving what you’re able to afford or get pre-approved for. If you haven’t though, you’ll be doing a lot of legwork gathering documents now to submit and await approval.
Don’t be afraid to shop around for a great lender though, as different lenders offer different interest rates and closing costs. They will have different qualification guidelines as well, so you may or may not qualify to clinch the best deal in town. Definitely research each option and try to qualify for the best deal available. It will only save you money in the long run.
Also consider intangibles as well, like customer service. Maybe you might be eligible for a slightly lower interest rate at one lender, but if their loan mortgage originators drag their heels and dodge your phone calls then you may be better off parting with the fraction of a percent and going to someone more reliable.
Once you land on the lender that will work best for you, it’s time to gather a plethora of financial documents and other essentials and get the actual pre-approval. Pre-approval is essential to moving forward in the process, as prequalifying is not the same. Whereas prequalifying does not guarantee you’ll secure the loan, pre-approval is as good as gold and tells the seller and their team that you are good for what you offer.
Once you are pre-approved, you now have a ceiling for what you are able to afford. Hopefully it is in line with your budget, or you may need to return to Step 2 and refine a bit.
4. Buyers Guide – Find a real estate agent.
If you’re considering going it alone, reconsider. Having a qualified real estate agent at your service helps ease the sometimes overwhelming burden of navigating the market, finding your dream home, and actually engaging the seller in a way that optimizes your chances of actually closing on it.
Beyond helping provide peace of mind, the real estate agent is also integral in finding properties that fit your outlined criteria that are within your budget, asking appropriate questions on your behalf, engaging the sellers, negotiating, and receiving all necessary disclosures at the proper time.
As with any professional, not all real estate agents are created equal. We recommend having a sit down, phone call, or Zoom chat to determine if they’re a good fit for you before agreeing to proceed further. You’ll want to find out how many years of experience they have, how familiar with the neighborhoods you’re interested in they are, what they feel are their professional strengths, and, of course, what they’re like as people.
For example, you might sit down with the most successful, most experienced real estate agent in town and find there’s just something about them that rubs you the wrong way. That doesn’t mean they’re not a great real estate agent, but they may not be the right one for you.
To make the experience as stress-free as can be, try to find an agent that boasts ample experience but also has a personality and vibe that you find agreeable. It’ll make the process a whole lot nicer in the long run!
5. Buyers Guide – Start shopping!
Alright, future homeowner. You talked about it ad nauseam, planned, budgets, did math, and took a whole bunch of steps so far. But you haven’t stepped foot into an actual house, until now that is!
Finally, you have everything you need to start touring homes. Your agent might bring you to a home for a private tour or recommend open houses to look over viable properties in your selected neighborhoods that contain some, most, or all of your prerequisites.
Now you get to live a fantasy for a little while and imagine yourself living in a number of prospective properties. Can you see yourself there? Can you imagine what it will be like living on that street in that neighborhood? Can you imagine what you’ll put in each room after the seller removes all their tacky stuff?
More importantly, what kind of condition is the house in? Are things in good working order with a new appearance and shine, or do you see red flags? Is there paint peeling? Is it noticeably colder in some areas? Do you see water stains anywhere?
Your real estate agent will really earn their keep here, as they will likely identify many issues with a house that you may miss. These issues may not be deal breakers, but they will indicate some wiggle room during the negotiation if you’re expected to accept the home as is.
6. Buyers Guide – Make an offer.
We don’t recommend making an offer on the first property or even the twenty-first property if there’s something amiss and it’s non-negotiable. Remember– you’ll be living here, presumably, for a few years, possibly a few decades. The house needs to have all of your must-haves, most of your nice-to-haves, and also be within your budget.
If the house checks these boxes, it’s time to make an offer. Here’s another place where your real estate agent will come through big time, as they know the market and they know what will be a fair and reasonable offer.
You don’t want to come in too low or the sellers may dismiss you outright, but you don’t want to offer asking price right out of the gate unless it is a hot sellers market and homes are regularly selling for over asking price.
When making an offer, be sure to include a few contingencies in the deal. For one, a mortgage contingency dictates that your offer is only valid so far as you are able to secure funding. With a pre-approval in hand, it’s a formality more than anything else, but it could save your skin if something happens to complicate the deal before closing.
In addition, you want to include an inspection contingency, which will assume the deal hinges on the fact that a comprehensive home inspection will not turn up hidden problems like structural damage, mold, asbestos, lead-based paint, roof damage, code violations, or defects with the electrical, plumbing, or mechanical systems. Many of these can reveal that an otherwise appropriately priced house is a money pit in disguise that will pose incredible problems immediately after the property is purchased.
Some sellers might ask to waive the inspection and encourage a quick close, calling it “mutually beneficial.” It’s prudent not to forgo this formality, however, as it’s better to lose the deal entirely than to rush through and find out later that you will need to spend thousands to tens of thousands to address significant problems that an inspection would’ve revealed.
7. Buyers Guide – Get a home inspection and appraisal.
If we weren’t clear above, you really want that inspection. Home inspectors very much earn their keep. They crawl in crawl spaces, sometimes even under the house. They get up on the roof. They scrutinize every last detail of the home to determine what is to code, what is in good condition, what might need renovation, repair, or updating, and more.
Never let a seller strong-arm you into waiving the inspection. Some are willfully hiding problems, others are just encouraging negligence on your part so they can take the money and run. Always get an inspection. Always.
In addition, you want a home appraisal done. Using a series of comps including recent sales in the area, market trends, public records, and a thorough property inspection, the appraiser will make a determination on what the home is actually worth and see how it measures up against the asking price and your offer.
If the inspection turns up anything significant or the appraisal is substantially different from the asking price and offer in play, it may inspire one or both parties to return to negotiations and make sure they’re in agreement regarding the final price.
8. Buyers Guide – Get homeowner’s insurance.
Purchasing homeowner’s insurance is usually not too bad, assuming you already have a policy with an insurance provider. If, for instance, you have a great insurance provider covering your automobile policy, it may make sense to purchase homeowner’s insurance through them and get it done quickly and easily.
Just as with lenders, not all insurance policies are created equal. It may be prudent to shop around first to ensure you get great coverage at an affordable rate. Again, you don’t want to overextend yourself in terms of cost, but you’ll want to ensure you have adequate coverage in all the essential areas including the dwelling, other structures, personal property, and liability.
Prefer to live dangerously and try to save money by not purchasing homeowner’s insurance? Too bad. No mortgage lender will finance your purchase if you don’t have this required insurance to protect what is essentially their asset until the mortgage is paid.
9. Buyers Guide – Do the final walkthrough.
At this juncture, you’re probably exhausted and eager to just sign and get this thing over with already. Don’t lose your resolve just yet, as you’ll need to do the final walkthrough one or two days before closing to ensure everything is copacetic with the property.
This is your last chance to ensure the property is still in good condition before it is officially yours and therefore your problem. If any repairs were negotiated and the seller assumed the responsibility, this is your chance to inspect and make sure they kept up their end of the bargain.
Pro tip– if you notice the house requires anything major during the inspection phase and the seller agrees to “have it fixed” before closing, recommend taking care of it yourself in exchange for a break on the price.
Some sellers will “fix” things cheap by themselves or by hiring unskilled laborers to cut corners and make it look halfway decent. The only way to be sure it is done to your standards is to oversee it personally, and the purchase price should be adjusted to reflect this.
Provided everything looks good during the walkthrough, all you must do is take a deep breath and prepare for the final step.
10. Buyers Guide – Closing time!
And at long last, you sit down with the lawyers, the agents, and the sellers, and everyone signs on the dotted line. If you arrived at a great deal and everyone’s happy, you might pop champagne, smile, laugh, and wish each other well. If the deal was wrought with back and forth, disagreement, and high emotions, just try to grin and bear it until the meeting is through.
Three days prior to this integral meeting, your lender will send the Closing Disclosure so you can familiarize yourself with the terms, closing costs, and outstanding charges and fees associated with the closing.
If everything looks good, you can freely sign everything and the property title will officially pass to you. You will need to sign all documents during the closing and pay all outstanding fees. After that, you will have officially closed on the house.
Congratulations! You are now officially a homeowner!
Buying a home is an involved process that many find intimidating. If you’re lucky, you’ll find a great lender, great agent, your dream home, cooperative sellers, and everything will be within budget. Unfortunately, this is often not reality, and instead you’ll have to be proactive and patient, sometimes for months at a time.
It’s not always an easy process, but using our guide above will help you manage each step and stay on target to secure the home of your dreams. With our tips in the buyers guide and a little follow through, you can do it! We believe in you!
Good luck, future homeowner!
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