Buying a House in 6 Easy Steps
Buying a home is a big undertaking and probably one of the most important purchases of your life. This is why I urge all of my clients to be well informed and educated when buying a home or property. The more research you do and the better equipped you are with knowledge and a basis for how things work, the more prepared you will feel and the more confident you will be in your purchase. Here’s my six steps on how to buy a house.
Step 1. Pre-Approval
Find out exactly how much home you can afford. This might need improving your credit history or score, paying off some debts, or saving for a down payment. Get a copy of your credit history and make sure there are no errors or mistakes. Correct anything that might be a red flag for lenders and pay down any debts so that your debt to income ratio is acceptable to most lenders. A credit score of 680 or higher is considered good credit. Anything lower than 680 and you might have to pay sizable fees and higher interest rates. It really pays, literally, to get that credit score as high as possible.
Once you’ve improved your credit or if you already have good to excellent credit, it’s time to apply for a home loan. Find a mortgage broker that you trust and fill confident with. Just as you would shop around for the right house, you’ll need to shop around for the right home loan. Ask about deals, special programs, mortgage options and interest rates. You can apply to more than one lender at a time, but this is a hard credit check, and if you do it all in one week, it usually will only count for one hard credit check, even if it’s been done by multiple lenders.
Once you’ve been pre-approved, ask your lender for a pre-approval letter, this letter can be submitted with your offer to prove that you’ve already done your financial homework and are literally ready to buy their home
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Step 2. Find a Great Agent
Once you have a good idea of how much home you can afford, talk to a real estate agent. You can do this first, however, and that agent (like myself) can direct you to a reputable mortgage lender. Ask potential buyers agents questions on how they conduct business. A buyers agent works only for the buyer, not the seller of anyone particular property. One thing most buyers don’t realize is that they can have their own representation free of charge. Agents receive a commission on whatever home you choose, but having your own agent through the process means your interests and goals are kept at the highest priority. Working with the listing agent as your representation, means that the seller is their top priority, not you. This is why it really is important to have your own buyers agent.
Step 3. Save for down payment, closing costs
There are a few out-of-pocket costs to homebuying even if you choose a USDA home loan or VA loan, with very little to no down payment. You may need to pay for the appraisal, closing costs, and home inspection. Home inspections are typically $200-$800 depending on the type of inspection and the size of the home. This is paid directly to the home inspector.
Closing costs can be built into the price of the home if the value can support it. For instance, if a home has a maximum value of $400,000 and you want to wrap in $10,000 in closing costs, that means the home would have to appraise for $410,000, which is not always the case. If you under price your offer, there may be enough room.
Earnest money deposit is another out-of-pocket cost. This is typically 1% to 3% of the purchase price of the home. This can be in the form of a check, cashier’s check, or money order and will only be deposited once there is mutual acceptance on the offer.
Step 4. Find a Home, Make an Offer
As your real estate agent I’d love to have a list of requirements and search criteria. I’d also like a list of things that you will not tolerate such as a home on a busy street or a home not a desired school district zone. This can help narrow down your choices to the right home. Once you have a list of properties, I urge you to drive by these homes as possible. The house might look great on paper, but up close and personal, it’s the nicest home on the block, while the others are falling apart. Taking a drive-by can also give you a sense of commute times, distance to grocery stores, schools, and other amenities.
Once you have a good idea of the homes you are serious about, but schedule a time to go and look at them in person. Once you find a home you love we make an offer, counter offer until it is approved and move on to home inspection.
Step 5. Home Inspection
A home inspection is something that no one should neglect. Again, this is the biggest purchase you’ll probably ever make and not knowing everything you can about it is like buying a half $1 million worth of stock you know nothing about. A company your home inspector throughout the property and home and ask questions about the stability and dependability of appliances, structural materials, and items in the home. This is a great way to determine how long your roof is going to last, how certain appliances will perform, and when you might need to consider repairing or replacing things. Once you receive the report from the home inspection, it’s up to you whether you choose to request items from the seller, except the inspection as is, or “choose your own adventure” so to speak.
Once we decide on the home inspection and the seller approves it (mutual agreement) then we can move on to pending.
Step 6. Finalize
After the home inspection is completed, you can start to breathe a sigh of relief. Things are working like clockwork, you can plan on packing and relocating, start the change of address process, and gather final documents if needed for escrow and title. A couple of days before final signing you’ll want to do a final walk-through on the home. This confirms any repairs or replacements the seller was instructed to perform during the home inspection, and it just verifies that the home has not been trashed since the last time you saw it. Sellers are required to keep the home in good working condition or to the degree that you last saw it save any repairs or replacements on the home inspection.
Escrow or title (or maybe your real estate agent) will call you and for final signing. You will sign after the sellers have side and be ready to write a lot. There are usually 50+ documents to sign, initial, and verify and this can get overwhelming. Be sure to ask any clarifying questions and double check figures. If anything is out of the ordinary, we can stop and question the documents.
Once final signing is completed escrow performs their final duty of submitting the deed of title to the county in which the property resides, distributing funds, and notifying the buyer’s agent that the deal has funded. Only then can your real estate agent had you the keys. The home is now yours! Welcome home!