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An Abbreviated Guide to Home Buying

It’s time to buy a house. You’ve dreamed about it. You’ve talked to family and friends. You’re ready to settle down with homeownership. Whether you’re single or married, buying a house is a major financial step forward. Here’s an abbreviated guide to buying a home.

Step-by-Step Guide to Buy a House & Decide Whether You’re Ready to Buy a Home

Remember: buying a home is a substantial financial commitment.

If your finances aren’t in order, you will need to wait. Buying a home you can’t afford will do more damage to your financial well-being, your relationships, your mental health, and more than you can imagine.

Lenders will look at every aspect of your finances to decide if you qualify for a mortgage. Ask yourself the following questions:

  • Income and employment: Do you have a steady income and job? Do you expect that to change in the next year to 18 months?
  • Credit health: How is your overall credit snapshot? Do you have late payments? A bankruptcy? How can you improve your credit score six to 12 months before you apply for a mortgage?
  • Debt-to-income ratio: What is your debt-to-income ratio? Do you have more debt than income? How are you planning to pay off debt before applying for a mortgage?
  • Liquid assets: Will you put money down on your home or not? If so, how much? Do you have three to ten percent of a potential home’s value for closing costs?

Calculate How Much You Can Afford

Once you answer the above questions, you can consider how much house you can afford. Understand your debt-to-income ratio. After you factor in what debts you owe and your monthly expenses, what’s leftover is used for your mortgage payment. Keep in mind that you’ll have additional costs depending on your down payment, homeowner’s insurance, and other costs of upkeeping your own home vs. renting one.

Save for Closing Costs and Down Payment

While you don’t have to put a down payment on a house, it’s advised you do so if possible. By paying more upfront with a down payment, you reduce the monthly mortgage payment over its lifetime. This also opens you up to more flexible mortgage options as well as lower interest rates.

You will also need to save up for closing costs, which will vary depending on the property type, mortgage contract, and other factors.

Have money set aside for the random things that come up during the home buying process. For instance, you may need to perform a home inspection based on recommendations from your real estate agent or mortgage lender.

Preapproval for Your Mortgage

While many people wait until they find a home they love to apply for a mortgage, it’s possible to get pre-approved through your bank or other lenders. You can use this to help budget for your mortgage, down payment, and closing costs.

Once you are pre-approved, you can work with a real estate agent to find a home in your price range. This will narrow down your options and make it easier to find a home in certain markets.

What Type of Mortgages Can You Get?

  • Conventional: These come from your bank. Potential homeowners often look for these types of home loans first because they already have a relationship with the bank.
  • FHA: The government insures these loans, so they’re often considered less of a risk for lenders. These loans require you to make at least a 3.5% down payment.
  • Veteran’s Affairs (VA): The VA offers loans for veterans, active-duty military, and National Guard and Reserve members. These loans are either VA-backed or exclusively provided to eligible military personnel through private lenders.
  • US Department of Agriculture (USDA): These are also government-backed loans. You may not need to make a down payment depending on where you buy a home.

Find a Real Estate Agent

It’s recommended you buy a home with a real estate agent. A real estate agent goes through training, certification, and continuing education to help buyers and sellers get the best value in real estate transactions.

A real estate agent will act as your ally and representative in the transaction. They will keep your interests in mind, work with you to find the best home for your lifestyle, and ensure the transaction goes as smoothly as possible. They will find properties for you that fit your criteria and negotiate with the seller to get the best price. They’ll also handle any issues that come up and guide you through the entire buying process.

Finding the right real estate agent is key to a successful transaction. Always trust your gut and ask questions. If you’re feeling off about the relationship, find a new agent to work with. You’re trusting this person to help you make one of the most important decisions of your life – don’t waste time with someone you don’t think is working for you.

Start House Hunting

With the help of your real estate agent, start house hunting. This is the most exciting and frustrating part of the entire process. You’ll see how quickly properties get snapped up by buyers. You’ll find a house you love only to discover an issue that makes it undesirable. Eventually, you’ll find the house of your dreams, put a bid in, and become a homeowner.

Take time during this process to thoroughly research the houses that catch your eye. Ask the seller questions. If it’s in an HOA community or condo building, talk to your potential neighbors. Inspect the property yourself. Hire an inspector to do a walkthrough with you.

Leverage your real estate agent to find the best home for you and your family. Once you find it, it’s time to make an offer and move forward.

Make a Bid on the Home of Your Dreams

Your real estate agent will submit a bid on the home to the seller’s agent on your behalf. They’ll go over the offer and either accept it, reject it, or begin negotiating little details such as inspection costs, closing costs, and outstanding issues with the home. Your bid will give the seller a deadline to respond. This process can take a few hours to weeks, depending on what both sides bring to the table.

Get a Home Appraisal and Official Inspection

This is the point in the process where, as the buyer, you will want to get an independent appraisal and inspection. You will pay the costs of these services to ensure you’re getting an unbiased opinion. After all, the seller will want to get the most money they can, so get a second opinion.

Once you have the results, you may want to amend your offer. You can also ask the seller to cover specific repair costs discovered during the inspection. For instance, if you notice issues with the roof, the HVAC system, or electrical problems, asking them to cover these before you buy is appropriate since they’re pre-existing issues. If the seller doesn’t want to cover these costs, they may discount the home’s overall price for you to pay for the repairs yourself.

Perform a Final Walkthrough of the Home

Before closing, do a final walkthrough without the seller. You can have your real estate agent present or not. Take this time to look for any remaining issues that haven’t been taken care of or belongings left behind.

Perform the walkthrough as thoroughly as you would when you moved into a home or apartment in the past. You’ll want to ensure that there are no significant issues missed or caused by the seller when moving out of the home. Document anything you find for your records.

Close on Your New Home

Once you’ve signed the contract and everything is in place, you’ll have a closing date on the home. This will be the date you officially take possession of the home. This date can be fluid depending on any repairs that need to be done or how long the seller needs to move out of the home.

The closing date can be up to 30+ days after finalizing all the details with the buyer. Once this day comes, you’ve legally bought your home and can begin to move in.

Are You Ready to Buy a Home?

While this isn’t an exhaustive guide to all the ins and outs of buying a home, it’ll get you started in the right direction.

If you’re ready to buy a home, work with a real estate agent to learn as much about the process as possible. They’ll guide you through each step of the process, help you find the right home for your budget, and set you up for success during the entire home buying process.

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