8 Steps to Buying A Home
- Decide to buy: The purchase of a home is the best “accidental investment” people can make, because it lays the foundation for a life of financial security and personal choice. Equity buildup, value appreciation, and tax benefits rank among the best reasons to buy a home. Additionally, consider the following facts:
- If you are paying rent, you can very likely afford to buy a home.
- There is never a wrong time to buy the right home, if you find a good buy and make sure you have the financial ability to hold it in the long run.
- The lack of a substantial down payment doesn’t prevent you from making your first purchase.
- A less-than-perfect credit score won’t necessarily stop you.
- The best way to get closer to buying your ultimate dream home is to buy your first home now.
- Buying a home doesn’t have to be complicated. There are many professionals to help you!
- Hire your agent: Hiring the right real estate agent is important because of his/her multiple roles. They will educate you about the market, analyze your wants/needs, guide you to homes that fit your criteria, coordinate the work of other professionals (insurance assessors, mortgage brokers, underwriters, inspectors, appraisers, escrow officers, buyer’s/seller’s agents, bankers, title researches, etc.), negotiate on your behalf, maintain paperwork and deadlines, and solve any problems that arise.
- Secure financing: While this part of buying a home is terrifying to some people, the process is actually quite simple.
- Choose a loan officer/mortgage specialist.
- Make a loan application and get preapproved.
- Determine what you want to pay and select a loan option.
- Submit to the lender an accepted purchase offer contract.
- Get an appraisal and title commitment.
- Obtain funding at closing.
- Find your home: Before jumping in the car to look at endless property options, consider your wants and needs, including location, size, neighborhood, features and amenities desired, and priorities among each of these values. Also consider if you are interested in a fixer-upper, condo, or new home construction.
- Make an offer: Keep a realistic perspective as you conduct the business of making an offer. Consider price (must reflect the true market value of the home), terms (schedule, what stays in the home, real estate fees, closing costs, home warranty, earnest money), and contingencies.
- Perform due diligence: Because you can’t “return” your purchase like an item at a department store, it’s important to have homeowner’s insurance and property inspections in place.
- Close: The last stage in buying a home is the lender’s confirmation of the home’s value and leal statute, and your continued credit worthiness. Your agent will keep you informed about progression of this step. In the meantime, stay in control of your finances, return all calls and paperwork, communicate weekly with your agent, confirm documentation with your agent a few days prior to closing, obtain certified funds for closing, and conduct a final walk-through of the home. On closing day, you will sign documents to finalize your mortgage, pay the seller, pay your closing costs, transfer the title, and make arrangements to legally record the transaction as public record.
- Protect your investment! Even after closing, your agent can help you with many things, such as handling your first tax return as a homeowner, find contractors to help with remodeling, help your friends find homes, and keep track of current market value. Keep it clean and stay on top of damage and wear. Remember, attention to home maintenance is essential to protecting the long-term value of your investment!
How Much House Can I Afford?
When you meet with your lender, consider your lifestyle and spending patterns and leave a little room for the unexpected (repairs, landscaping, furnishings, etc.). The lender’s decisions are based on formulas- historically, banks use a ratio called 28/36 to decide how much you can borrow. An approved housing payment couldn’t be more than 28% of the buyer’s gross monthly income, and his or her total debt load couldn’t be more than 36%. As home prices have risen, some lenders have stretched ratios as high as 50%. No matter how expensive your market, we urge you to think carefully before stretching your budget so much.
Deciding on how much you can afford should involve careful consideration of your financial profile and lifestyle. In the long run, your own peace of mind will matter most.
Your “Home Wishlist”
As you begin searching for the “perfect home”, your agent will ask you about your needs and wants. To prepare you, look over this list and analyze what you value in a home.
- Age: Do you prefer historic properties, or newer ones?
- Style: Do you have a special preference for ranches, bungalows, or another style of construction?
- Bedrooms: How many?
- Bathrooms: How many? Are they updated?
- Living and Dining Areas: A traditional, formal layout, or a more open, contemporary plan?
- Stories: How many?
- Square feet: How much space?
- Ceilings: How high?
- Kitchen: How big? Recently updated? Open to other living areas?
- Storage: Big closets, a shed, an extra-large garage?
- Parking: A garage or carport? Room for how many cars?
- Extras: Attic or basement?
- Play/exercise room
- Security system
- Sprinkler system
- In-law suite
- Hot tub
- Wooded lot
- Patio, deck, or porch
- Laundry room
- Urban, suburban, or rural
- Commute time
- School district
- Airport proximity
- Restaurant & retail proximity
- Access to major highways and thoroughfares
- Access to public transportation
- Health care facilities
- Parks & recreation
- Length of time you plan to live in the home (your agent can discuss growth trends and projections with you)
Opting for New Home Construction
If you decide to build a home rather than purchase an existing one, start by identifying what type of architectural styles appeal to you. Ask friends for referrals. Verify the builder’s state license status if applicable, and check to see if they are certified by the National Association of Home Builders.
Even if you are building, a real estate agent can be a powerful advocate to help you identify market readiness, understand legal jargon, determine pros and cons of each building decision, and negotiate upgrades, move-in dates, and other terms with the builder. Something to keep in mind: most builders require a deposit when a purchase agreement is signed, and if you back out early, you may owe them money. Make sure you understand the “ins and outs” of each contract you sign!
8 Questions to Ask Your Agent
The right real estate agent can help educate you about your market and analyze your preferences to guide you to homes that meet your criteria. They also coordinate the work of other professionals, negotiate on your behalf, maintain paperwork deadlines, and solve problems that arise. Ultimately, they are there to ensure that your home-buying process goes as smoothly as possible! In addition to being licensed and professional, make sure your agent is qualified by asking them the following questions.
- Why did you become a real estate agent?
- Why should I work with you?
- What do you do better than other real estate agents?
- What process will you use to help me find the right home for my particular wants and needs?
- What are the most common things that go wrong in a transaction and how would you handle them?
- What are some mistakes that you think people make when buying their first home?
- What other professionals do you suggest we work with and what are their credentials?
- Can you provide me with references or testimonials from past clients?