You want to buy a house. Awesome, here are the 5 simple steps that will get you there. Let’s dive in!
1. Get a Real Estate Agent
Your first step is to get a real estate agent. Some people are afraid of getting an agent because they think it will cost them money, but the truth is it doesn’t cost anything more for you. What it does give you is someone you can trust to make sure you don’t get screwed in the home buying deal.
A real estate agent also is a great asset to help you figure out what you really want. If you’re not totally sure what town, city or suburb you want to move into, your agent has the best insight into what different areas provide for schools, taxes and home value.
A very accurate, if unconventional way to look at your real estate agent is to see them as a mentor through the home buying process. They’ve been through hundreds of home buying experiences and know all the ins and outs. Once you have a real estate agent, they can walk you through all steps to buying a house in a stress-free way.
A common misconception among future homebuyers is that contacting an agent or even choosing an agent is thrusting you into the homebuying process. As long as you are up front about your timetable with your agent, you can contact them even before you are ready to dive in. For more info on how to find a real estate agent, check out this article on ways to find a great agent.
2. Get Your Finances In Line
Don’t open new credit lines. This means don’t open a new credit card or buy a mattress on a 12 month 0% APR plan. Don’t take out a loan to buy that new sports car. If you have credit card debt, I recommend paying that off before you buy a house. Opening a new credit line will cause your credit score to drop a bit, and it will negatively affect your debt-to-income ratio. Both of these negatively affect your ability to get a loan.
You should start saving money for your down payment. The more money you can put down on a house, the better. The more money you put down, the better lending options you may get. Also, interest on a 30 year loan adds up, so the fewer dollars that are on the loan, the better.
3. Find a Lender and get Pre-Approved
The next step is to find a lender. Some people choose to use banks, some use private lenders. It is often a great option to choose a lender your real estate agent recommends. It’s also a great practice to call around to see what different lender options you have.
A lender is important, because they are the ones who will be able to pre-approve you for a loan. This will require a hard credit check, but will also get you in the door of houses. A real estate agent might not want to spend time showing you a $300,000 house if you only have enough money for a $150,000 one! Pre-approval just is a verification that you can get a loan for the amount you plan to spend on a house.
Besides getting you pre-approved for a loan, a lender is going to be the person who helps you figure out what type of loan is best for you. Maybe you only have enough money for a 5% down-payment and a FHA loan will give you the best interest rate. Maybe you are able to put down 25% and a conventional loan comes with a better rate. Or maybe you need down-payment assistance and only a government program with a FHA loan can provide that. Your lender will be invaluable in figuring out what is right for you. For more information on loans and minimum down payments, check out this article.
4. Figure Out What You Want In a Home
You may have a very good idea of what you want in a home from all the houses you’ve visited over the course of your life. Going to look at houses with your real estate agent will definitely solidify what is important to you. It’s important to figure out what is right for you, so you know what you’re looking for and so you can be more decisive when the right home becomes available.
Let’s go through some questions to think through.
What style of house?
Do you like single-floor homes? How about split-levels? Maybe you like to maximize floors with a tri-level or 4-level split. You might be in love with traditional 2-level homes like Colonials. Do you want 3000 sq feet of space or closer to 1600? It’s important to figure this out. Even if you think you already know what you want, it’s good to go on visits to other style houses just to make sure. You may like a style less than you think or like another style more than you think.
Other questions like this are “do I want a garage?” and, if so, is 1 car good enough or do you want a 2 car garage? Is a fixed up basement important to you? Do you even care about a basement, or are you happy with a house on a concrete slab? Are you alright with only 1 full bathroom, or do you need 2 or 3?
How much land?
This is another important question. Do you want 4 acres? Or are you happy in a suburban neighborhood where you will be lucky have enough room to plant a tree? Land is usually costly, so how much money you have may be relevant to this question. Maybe you want land someday, but aren’t ready to commit to mowing 4 acres. Maybe you can’t stand the thought of having a yard barely big enough for a pool. Either way, this is important to figure out.
This is an important one, and there are so many factors to this. Here are some questions to help you figure out the right area for you:
- What areas can I afford (for the style house I want)?
- What areas seem to be trending up in value?
- How far away from my job am I willing to be?
- How much are the property taxes?
- How are the schools in the area? (if you have children or plan to have them while living in this house)
- How developed is the area? (do you want to have to travel 5 minutes to the grocery store, or are you ok with 30?)
The Other Stuff
It’s also good to think through all the little things that may or may not matter. Do you really want a fireplace? How about a swimming pool? Do you want to be in a secluded neighborhood or are you ok with being on a main road? Do you want a kitchen with granite countertops? Do you hate carpet and want only hardwood floors?
Regardless of what is important or not important to you, it’s a good idea to figure that out. Maybe a pool is a negative to you because it takes work to maintain. Maybe a fence is important because you want to be able to let your dog out the back door. Maybe you don’t cook much, so kitchen size is irrelevant to you. Maybe you don’t have people over for dinner often, so a dining room is a waste of space. There are countless other little things to think through so you can be confident in what you want when it becomes available.
5. Make an Offer on the Right Home
This is one of those times your real estate agent is invaluable. They can help you figure out what your offer should look like. Maybe you actually offer more than the asking price, because the market is extremely competitive in the area. Maybe you offer less because the house has been on the market for 4 months. You might ask the seller to pay closing costs, or you may offer to cover half or all of them.
There are so many details to an offer, and that’s why an agent is so important! They know the market, the area, and how to get you the best deal. I recommend heeding the advice of your agent, but also making sure you feel great about the offer too. It is your money after all!
Luckily for you, you listened to me and got an agent, so you don’t need to worry about drawing up an offer. Your agent will talk to you to figure out the offer and they will do all the paperwork. You just need to sign!
6. Closing on a Home
Awesome, your offer on a home got accepted! What’s next?
The first important thing to take care of is finalizing your loan with your lender. This is when you can start the final process of actually getting the loan you need to purchase the home. You already have you loan pre-approval, but now you know you’re buying a home for $x with x% down and can officially apply for a loan.
The other important task to take care of is a home inspection. You can opt out of this, but don’t be a fool. It’s important to make sure you know what you are getting into. A home inspection provides details on the true condition of the house. You may learn the furnace is about to die or the roof needs to be replaced. Maybe the seller didn’t disclose a black mold issue or that the house has a termite issue. Getting a home inspection and any other inspections your real estate agent recommends is incredibly important to make sure this house is for you.
For me, I had a normal house inspection as well as a radon inspection, as that is a common issue in the Columbus area. The findings by the home inspector verified that the home was in great condition, but also gave a list of things for me to ask the seller to fix. I had a railing put in for the stairs, holes in the garage plugged, new self-closing hinges for the garage door, a radon mitigation system and much more from their findings.
Next you will need to get the home appraised. Your lender will send someone to the house to determine how much the home is worth. If it’s determined that the home is worth less than you offered, the lending company will not likely approve the loan. There is a solution to this- you can use this appraisal as leverage to ask for a price reduction. Another solution is to pay the difference out of pocket.
Before you scoff at the idea of a price reduction being accepted, I originally offered $170k for a house on sale for $164k in a highly competitive market. After my original offer was accepted, the appraiser determined the home was only worth $161k. This resulted in me asking for an amendment to the offer with the price reduction and it was accepted. So, I ended up getting a home on the market for $9k less than I offered and $3k less than the asking price. Speaking of amending your offer….
Amend Your Offer
After the inspections, you have time to amend your offer. This allows you to ask the seller to fix some issues that were found by your inspectors or re-negotiate the price. For example, if the inspector finds that the furnace is about to die, you can request for the seller to replace the furnace or reduce the selling price. The seller may accept or reject your amended offer, but you can keep offering and counter-offering back and forth until you come to an agreement. If not, you can change your mind about the house and go back to the searching stage.
If all of the above steps went well, you just have to wait for move in day! You’ll likely have a final walk-through about 48 hours before the house is officially yours to make sure the seller didn’t wreck the place or steal the refrigerator they agreed to leave.
Assuming they didn’t decide to steal the Central Air unit before your final walk through, you’re just 1 hour of boring paperwork away from being a homeowner. Congratulations!
Are you looking for a house or starting to think about becoming a homeowner? Let us know in the comments or tweet at us @EscapeTheBoxLab. If you found this helpful or know someone who would, please share! As always, we appreciate you taking the time to check out our content! Let us know if there’s something else you’d like us to cover or if you have any questions on the home-buying process!
P.S. If you live in the Columbus area, here is the info on the great people that helped me out in my home buying process (not a sponsor).
Real Estate Agent – Dara and the rest of the Barker team are fantastic. I liked them so much, I chose her to be my agent in my rental property search as well. Dara and the rest of the team were patient, helpful and overall a pleasure to work with. I took several months and many housing visits to decide on a house and they came to every visit with a smile and super helpful pointers (they’ll point out faults you may not notice too!)
Lender – I went through (as recommended by Dara) Gayle Penix for my lending needs. I was only 23 and only able to put 10% down when I bought my home and yet my lender got me an awesome interest rate. She was also great to talk to over the phone and was another genuinely enjoyable and informative person to get to work with.
For the record, I was not paid or encouraged to promote them. I genuinely believe in their services, and they won’t even know I’m recommending them or that this blog exists until after it’s already posted.
Happy home buying!