How to buy a house is probably the most intimidating question new homebuyers face every day. There is no single word that can describe the process of buying a house. Whether you are buying a house now or in the future, there is a checklist you will need to complete. This checklist will guide you through the whole buying process.
In this article, we will walk you through the process of buying a house step by step.
Table of Contents
- Be on the same page with your partner about house requirements
- Make sure your credit score is on point
- Put your budget together
- Prepare a down payment
- Come up with a closing cost
- Shop for mortgage options and get pre-approved
- Start looking for houses
- Find a real estate agent
- Make an offer on a house
- Get an official inspection of the house
- Buy the house if you like inspection results
1. Be on the same page with your partner about house requirements
For those who have partners, you need to be on the same page about a house that will work for both of you. Talk about your needs and wants. Things that you must have in the new house. Each one of you can come up with 20 elements in a house such as the number of bedrooms, bathrooms, kitchen design, yard size, location, patio, etc. You
You can then talk to each other about your lists. Analyze each element and make a final list that you both agree on. Have this information ready before you move on.
2. Make sure your credit score is on point
Your credit score is one of the main pieces of the puzzle to work on before you start looking for houses. It will be used by your moneylenders/ banks to determine your interest rate. The better the credit score, the lower your interest rate will be.
If your credit score is not good, you will get a high-interest rate on your mortgage. Some lenders will refuse to give you a mortgage because of a bad credit score. Build your credit score before you start looking for houses. Otherwise, you are bound to fail on your mortgage hunting. You can learn how to improve your score by reading the 8 tips you can use to improve your credit score.
If your credit score is bad, you probably have a lot of debts on it or fell behind on your payments. To learn more about how you can fix this problem, read about the list of 10 strategies I used to pay off my credit card debts, and improved my credit score. This is a personal and real-life experience. I hope they will help.
For those who are interested in learning more about credit cards and credit scores, read the following article. List of top 6 factors that improve or hurt your credit score. This article will help you protect credit your score from further damage in the future.
3. Put your budget together
Now it is the time you look into your pockets and see how much money you have. You need to calculate how much you can safely spend on a house without putting you and your family in financial crises. Your budget will be the amount you are willing to spend on the house. You will finalize the budget after your mortgage approval. You may have to add or downsize your budget based on the preapproval letter from your lender.
Even if you may get approved for a higher amount, you must not spend more than you have too. Having a budget will protect you from temptations in case you get approved for a higher amount. For this reason, your house hunting will depend on how much money you are willing to spend.
4. Prepare a down payment
After you have decided what your budget will be, you will need to work on your down payment. Moneylenders and banks expect you to put down at least 20% of your total house cost for a conventional mortgage. Of course the more you put down the better. Some lenders may take a lesser than 20% downpayment if you have a good credit history. If you don’t have enough down payment and your credit score is bad, you can get an FHA Loan.
It is possible to do a rough estimation of your down payment from your budget. For example, if you decided to spend at most $300,000; your 20% will be $60,000. It is not going to be exactly this value since we don’t know the correct amount you will spend on the house. However, you need to have at least this amount in case you end up spending $300,000 or more.
You could also choose to go with an FHA mortgage. In this case, you will not need all 20% for your down payment. Keep in mind that the FHA comes with mortgage insurance which will increase your monthly payment.
5. Come up with closing costs
Sellers usually pay the closing costs. This is not always the case depending on the agreement between the buyer and the seller. For example, the seller may agree to renovate the kitchen for you, if you cover the closing costs.
You must be prepared. Putting closing costs together will help you when you are buying a house. The closing costs are estimated to be between 2%-5% of the total cost of the house, according to Zillow. For example, if are buying a $300,000, expect to pay between $6,000 and $15,000 in closing costs.
6. Shop for mortgage options and get pre-approved
You are probably one of many people out there who cannot afford to pay all in cash. If this is the case, you will need a mortgage. There are a ton of banks and money lenders out there. However, you don’t need all of them to help you. You need to find the cheapest among them. I mean the best quote possible.
You will need a lender/bank that will give you all the money you need at the lowest possible interest rate. Start from your bank, if you use one. Sit down with their mortgage agents. Ask them a quote. Move to the next bank and so on. Also, check with other mortgage providers that are in the area besides banks. See how much they are giving you and their rates.
After getting all these quotes, it is time to sit down and compares them. Cross off the ones that look like there is a string attached to them. The best way to do it is to rank them in order from the best to the worst.
The lenders may run hard inquiries on your score. Keep in mind that this hard pull will decrease your credit score. If you don’t want them to do it, you can tell them the score or login into your account and show them the score. They might accept the idea. Otherwise, you will have to go with what they want. According to Experian, you can lose between 5 to 10 points from a hard inquiry.
Now that you are pre-approved, it is a time to move to the next step.
7. Start looking for houses
This step is not required but it is important. Looking for houses helps you understand what to expect on the market. Go online and see how many properties are selling in your neighborhood. Zillow, Realtor, Trulia, and many more websites could be your starting point. You will have a rough idea of what to get with your budget.
You can also drive around in your favorite neighborhood to see listings available. They will sometimes have a for sale sign. If you are planning to use a realtor, it might not be a good idea to start inspection inside of houses by yourself. You just need to check the exterior while driving by and see if you like them.
8. Find a real estate agent (realtor)
This is another crucial step to make. Real estate agents are bridges between buyers and sellers in real estate. They will help you find a house by connecting you with a seller. You can find realtors from friends’ referrals, lender referrals, online, etc. Make sure you interview many agents to know who is the best for you.
Check out a ton of properties with your realtor. You must be open-minded about options you have. Based on your budget, there are properties you will never be able to afford. You will need to look at as many properties as possible before you make your decision.
Never make a decision after seeing only a few houses even if they look perfect. This is a mistake many home buyers make. Learn about other mistakes you should avoid when you are buying a house. Your realtor could advise you when you are making a mistake. However, he will not stop you. His job is to make sure that you buy a property at a good price and get a commission. This is how he/she makes money. It is up to you to look at many houses.
Is your realtor not willing to show you dozens of houses? He is not the right realtor you should go with. The average realtor makes 6% of the total sale price in commission, according to Realtor. If there are two agents (seller’s agent and buyer’s agent), they will split the commission. The question is: Why would your agent take home 3% without working for it?
9. Make an offer on the house
This is the moment you have been waiting for. Making an offer on the house you fell in love with. You will work with your realtor to decide your initial offer price. Unless it is a competitive market, do not offer the asking price. You need to bargain for your dollar.
Always sellers post their houses above the actual value of their houses. It is your job to make sure that you don’t get ripped off. Make sure you don’t pay more than what the house is worth even if it is below the asking price.
To know the proper value of the house you are pursuing, compare its price with similar houses recently sold on Zillow, realtor, or Trulia in the same area.
Your real estate agent can also find out the true value of the house for your buy doing the comparative market analysis (CMA).
10. Get an official inspection of the house
This is a step that you should never skip no matter how much you like the house. When you are looking for a house, you do not check the electrical systems, plumbing systems, leaky roofs, etc.
The inspector will find these problems for you. It is like taking a used car to a mechanic. The mechanic tells you if the car has engine or transmission problems, etc. The same concept applies when you are buying a house. You can not tell if the house has hidden structural problems or outdated electrical systems. Learn more about the benefits of house inspections.
Should your inspector find major problems with the property that you did not know about? You can use them to renegotiate the price. Hence, getting a bigger discount on the property. Or you can have the seller fix them if he doesn’t want to go down on the price. If these problems are big and the seller does not want to do anything about them, you can legally walk away from the deal Make sure that they are included in your contingencies. The inspector can cost as little as $300 to thousands of dollars depending on the size of the property.
11. Buy the house if you like inspection results
Assuming that everything went well and no one is complaining, you will move on to the closing phase. This is the time you do paperwork (lots of them), pay all the money you need to pay, and wait for the key. The house will be yours when you have the key in your hands.
Final Words
Buying a house is not an easy process. Everyone wonders how to buy a house before they start the process. However, once you start the process, buying a house is not hard after all.
Make sure that you follow all steps and many details we did not put in this article. The more detailed you get the better
