Understanding what you need to buy a house can be stressful, and while it’s something most people do in their lifetime, not many are taught how the process works. But armed with the correct information, you can feel confident you have everything you need to buy a house with confidence. This guide discusses the details of what you need to know about buying a house.
Review Your Finances
Before you spend hours searching listings in your area, it’s important to get familiar with your current financial situation.
Check your Credit Score
Securing a mortgage requires a good credit score, typically buyers with credit scores 740 and higher are able to secure the best interest rates. You can improve your credit by paying down credit card balances and waiting to apply for new credit cards until after you’ve closed on your new home.
Lenders will also consider your debt-to-income ratio, and will not approve your loan if it is above 43 percent. Typically, a good rule of thumb is to limit your housing expenses to around 30 percent of your monthly gross income.
Save for a Downpayment
In order to avoid paying personal mortgage insurance (PMI) you need to pay 20 percent of the home’s purchase price as your down payment. If twenty percent is not feasible for you, consider a FHA loan. This loan requires putting just 3.5 percent down, while USDA and VA loans don’t require a down payment at all.
However, it’s important to remember that the larger your down payment, the lower your monthly mortgage payment will be. Research your local or state homebuyer assistance programs to understand what options may be available to help with your down payment or closing costs when buying a house.
Consider What Type of Home You’re Looking For
There are a number of options to choose from when looking for your new home: a condo, townhouse, duplex, single family home etc. Think about your goals as a homeowner and weigh the pros and cons of each property type. Do you want to save some money and tackle a fixer-upper, or is move-in ready your top priority?
Make a list of must-have features
Buying a house could be the biggest purchase you ever make, and you deserve the best so be sure that purchase fits your needs. It’s important to ask yourself what specific features your ideal home will have. Consider the factors below when making your decision:
- Location: neighborhood, commute time, local attractions, noise levels, etc
- Amenities: parking, updated appliances, energy efficient features etc
- Age: Fixer-upper, new build, older or historic home
- Size: square footage, lot size
Before you make an offer on your dream home, be sure to get pre approved. A pre approval tells you as the buyer how much you can borrow and shows sellers that you’re serious about purchasing. This requires submitting the specific paperwork to a lender for consideration, you can speed up the process by having your documentation ready to go. Be sure to shop around and compare interest rates, we recommend comparing at least three lenders before making your decision.
It’s possible a lender will loan you more for a home than you want to pay, be sure to set a budget that works for your finances. When deciding to buy a house, consider the cost of homeowners insurance, property taxes and any costs associated with upkeep of your new home.
Once you’ve been pre approved for a mortgage, do not make any large purchases as this could jeopardize your approval.
Choose a Real Estate Agent
As with any big purchase, it is important to shop around, this applies to choosing a real estate agent as well. Your mom’s friend’s cousin might be the perfect agent for you, but before committing to work with someone be sure to ask the right questions about their experience.
A real estate agent should be a great communicator who is knowledgeable about the market and your desired neighborhood and can make the somewhat complicated process of buying a home feel simple and transparent.
When you’re ready to commit, you’ll be expected to sign a buyer broker agreement giving your real estate agent the right to represent you.
Make an Offer
Your real estate agent will locate homes that fit your needs and fall within your budget. Once you’ve found your perfect home, your agent can help you determine how much you want to write your offer for, and if there are any conditions you’d like to include. This is a good time to consider your estimated closing costs and budget needed for any immediate repairs needed before you move in.
Your agent will present the offer to the seller’s agent for consideration, it will either be accepted, or the seller will provide a counteroffer. You can choose to accept this, or submit a counteroffer of your own.
Ultimately, if you cannot come to an agreement with the seller, you will have to continue your search.
Schedule an Inspection
Once your offer to buy a house is accepted, schedule a home inspection as soon as possible. Your agent can refer you to home inspectors, contractors and appraisers, but as always it is good to compare options.
Your desired home may appear flawless, but an inspection is essential to identify any defects or issues that may lie below the surface. If the home inspection shows serious defects, such structural damage, your lender may not approve your loan, or you may not have the budget for the required repairs. If these defects were not disclosed by the seller, you can choose to rescind your offer and be refunded your deposit or earnest money. However, you can also choose to renegotiate with the seller based on this new information.
Final Walk Through
This is your chance to view the property for the last time before it becomes yours; ask questions, and tackle any outstanding issues before taking over responsibility for the property. It is helpful to bring any repair invoices to ensure that the agreed upon work was completed by the seller. This is your last chance to view the home and address any outstanding issues before the home becomes your responsibility.
Close on Your New Home
Closing is the final step when you buy a home. Three days prior to closing, the lender will issue a closing disclosure outlining the details of your loan, including the monthly payment, interest rate and loan type. Review this information and ask any questions about your loan before your closing meeting.
When you buy a home, your closing costs include a number of fees. As the buyer, the expenses within your closing costs will be paid by the title company processing your closing. Some fees you can expect to see include property taxes and private home insurance. These expenses are added to your downpayment to make up your total closing costs. You can ask your lender for an updated closing estimate which should include the “cash to close” amount you’re responsible for at closing.
You will attend the closing meeting with your real estate agent and possibly the seller’s agent or a representative from the escrow or title company. As the buyer, you will authorize the wiring of closing costs and downpayment for the purchase of your new property.
All the signing is worth the hand cramp, because you’re a homeowner now! Now you know how to buy a house, next comes the fun part, moving into your new home and making it your own.