Buying a home is not something that all of us go around doing every single day, and for most people it is the biggest investment they will make in their life. It often involves saving up for several years before finally going out and finding out in the market what there is available and what you can afford too. Since it's such a significant purchase, an expensive one, and one you will probably be living in for years to come, we put together this step by step guide to give you a better understanding of how to buy a house, and hopefully not make any crucial mistakes along the way. Buying a house is an investment and a big milestone in your life, and it's important that you treat it as such because of it. You also need to know what it entails to be a homeowner, since there are things you will need to do once it's the case, that you may not have been used to doing before. To buy a house, what you'll start out by needing is to actually have a down payment that you can put down for the house. It will be a fulfilling moment once you bid is approved and you start to realize that you just purchased the most expensive thing in your life ever. With it comes a list of responsibilities and a real feeling of having become an adult. Buying a home is not just time consuming, but it can be emotionally draining too, so you better be prepared. If you are prepared, however, it does not need to be a nightmare, so do your research and you'll get out well on the other side. Careful planning goes a long way, especially with a decision this big.
What to Know when Buying a HouseTake the necessary actions and a deep breath. This article might be long, but it's packed with knowledge that will prepare you for what is ahead. The first thing you need to know is that you should a good real estate agent who can guide you through this whole process. They're there to help you and make sure nothing goes wrong. It is also in their interest that the process goes through smoothly, as they want to close the sale too. This is how to find the right person to work with. You should of course take the necessary time to review the different agents and go with the one who seems like he or she is not the most considerate and helpful one, but also someone who has your best interest in mind. You can always ask friends if they know someone and then maybe choose to work with that person. They understand the local real estate market and know how to match that with your wishes. When you're buying a house, it obviously involves a lot of documents and a contract that in the end makes you the legal owner of the place you just bought. You shouldn't just sign anything, and make sure that these provisions have been included in the document. It includes such things as closing costs and home inspections, and who pays for them. A lot of the contracts are pretty standard, and then additional conditions will be added as needed. This is a sample contract if you're buying a home. Take a look and see what you think. Discuss the different aspects with your real estate agents, and remember that you can negotiate almost anything. If you're a good negotiator, you can get a lot more done and put into ink. If you don't agree with some of the conditions, it's important that you do not sign the contract. You should not feel rushed into this decision. Considering your long term needs before buying is also important, so that you end up with the house you both want and need. This is not just a project you can wing. You also should not pay more than you are willing to and make sure that you can comfortably pay for the mortgage with the budget you've created. If you have plans of expanding your family, it's important that the house you buy has the space for that addition to your family. The last thing you want to do is make a home addition as soon as you buy the property. You also need to account for the fact that there will be more costs when you move into the house. If you are planning on getting a moving company to help you, that costs money, and if you're missing furniture because you're suddenly getting more space, this is also something the budget should take into account. If you're buying a fixer-upper, you will need to make sure you have enough money saved up for the remodeling and repairs that need to take place. If you wish to install a new kitchen, that's a major cost, and it's always best to budget a little extra than you think it will cost. It is generally a better idea to buy a house that you can comfortably afford rather than one that is a stretch. You don't want to be feeling like you need to save any penny you can, just so you can live in this new fancy house. If all of a sudden your financial situation changes, you don't want to be in a position where you can barely afford your mortgage. A lending company will often approve you for more than you should in fact be borrowing, and consider a more modest home that still leaves some space in your budget. Too many people don't leave money in the budget for an emergency fund. Most real estate agents also prefer that you have been pre-approved for a loan before you start looking. If not, they will very quickly start encouraging you to get it done. Getting pre-approved for a loan will also give you an understanding of how much house you're able to afford. You should know that the mortgage you pay is not the only expense you'll be needing to pay. Read this article on the true cost of owning a home to get a better understanding of what your budget needs to look like. There will be insurance, association charges, maintenance and more that you need to be aware of. Even if the thought of buying a house is one that you've had for a long time, it's still a process that needs to be done properly. Consider watching this video too
What does it Take to Buy a House?By now you should know the seriousness of buying a home. It not only takes courage and is a huge commitment, you're tying yourself in a way you probably didn't do before. You should be in a good spot in your life, and be ready for what it includes. Your financial situation should be enough to cover your daily expenses and all the housing expenses you may face. A big part of buying the home is to get a loan. If you didn't know it, the rate you'll be offered is vastly influenced by the credit score you have, so making sure it's good will put you in a better situation. If you're one or two years away from wanting to take on this mission, you should be spending time figuring out how you can improve your credit score. Try to not just plan for what seems immediate, but also all other things that could change your preferences such as a new job in a different city, or maybe perhaps getting married. We can't control everything, but we can try including these things into our considerations.
General Steps to Buying a HouseLet's walk you through the different steps of buying a house.
Focus on your credit scoreWe mentioned the importance of thinking about this, but it cannot be taken sufficiently seriously. You will want to get a better understanding of how you can positively improve your credit score. It is a process that takes time, and if there are things on your credit report that cause your score to be lowered, you will need to set aside a good amount of time to have it fixed, since it will take longer than you think. There could also be errors on there that you need to have corrected. However, it all starts off with paying your bills on time. You also may not wish to get a car right before you decide to apply for pre-approval of a mortgage. Buying a car is also a big purchase, and most people finance it. If you really need to get a car within 2 years, try seeing if it's possible to do it after you buy the house. It's better that your interest rate is increased on a loan of a smaller size than your mortgage will be.
Work with the right agentwe mentioned the importance of a good agent, but will mention it again. They are professionals that help many families every single year, and now they'll help you. Do not skimp on choosing an agent. It's an important screening process to find the one you feel comfortable with.
What is your budget?The amount of money you can afford will depend on all your different life decisions, your lifestyle, which car you drive and more. It's not an easy equation, and if you want a bigger house, you will want to cut down on other things too. Your income is a big factor in the equation, so another way to afford more house is by increasing your income.
Save upThis is not just for the down payment but all the different costs you will experience. You will also need to pay to have the house inspected, a home appraisal, property taxes, legal fees, insurance and a buffer. These are all important aspects you can't avoid. A home inspection will make sure there's nothing wrong with the place, and find all the things that need to be repaired. You should also look at, and start collecting the documents you will need to get pre-approved for a mortgage. You should also see how long the pre-approval is valid for as they often expire after 60 to 90 days but will depend on who is giving it.
Get it inspectedWe mentioned that this is a cost you need to remember, and not just the cost of getting the inspection, but also the cost of doing the needed repairs. The inspector is trained in finding out what is wrong with a property and as a person hired by you, it's their job to be thorough. This information may also be used to lower the price of the house. Not getting a home inspection could be a massive problem, since the inspection could find things that you wouldn't be noticing as a person without the necessary training. You need to research and find a good inspector. If you see problems with the roof, you should even go ahead and get a roofing inspector to come out and do a thorough analysis of its condition.
What are your needs?Think not only about what you need right now but what you might need in 10 years too. Do you envision yourself getting another kid who will need their own room? If you are single there might be a necessity for your home to be ready for an additional person to move in at some point. Do you want a house where you won't need to drive far to get to work, and what are the good areas in that specific area? What are the different criteria for good communities, that you are looking for? Do you want to be next to a bigger road for easy access, or is privacy and peace a bigger concern of yours? Which amenities should your home have access to? Should there be a communal pool near it, or maybe a gym that you can go to after a day at work? To get more inspiration for determining your housing needs, watch this video.
Finding the needle in a hay stackThe steps before are important, but this is the most important one. It is not easy to find a home that matches all the different requirements you have. This article from Forbes could help you determine if you actually found the place that is right for you. Make a checklist like this one of all the things your ideal home needs to include. You can keep it with you as you walk through the home in order to make mental notes about the different points and seeing if it fits with what you had in mind. It will in fact list out all your different wishes and requirements. You can even include the things that are not deal-breakers but would make nice additions. It could even be as specific as saying that you want the house to have hardwood floors. If it doesn't, you might want to install it, but that'd require room in your budget for the upgrade. Here are some of the other things that your checklist will probably include notes on.
- bathroom and kitchen details
- driveway / landscape
- ceiling, and window materials
- garage, yard, patio
- house siding
- number and size of rooms
- walls and their colors
Make an offerWhen you get around to making an offer on the home, it is when things will start to feel very serious. Nerd Wallet made some good notes about the process of making an offer. An offer is a formal thing, in writing, that will legally force you to do things on the basis of the actions on the other side. A bad offer could therefore be very bad for you. Even if you're in a hurry, it's best not to show it. It could not only get the seller to increase the price but could also mean the offer you end up making does not end up taking into account the things that needed to be taken into account. Realtor wrote an article on making an offer on a house. It includes the price you're offering, the amount of inspections, deal-breakers and other things that your offer needs to include. After it has been sent, it will be then be at the discretion of the seller whether they will want to sell given the conditions you included. If your offer is declined, you can either enter into a negotiation with the seller, or you can just revise your offer and resubmit it.
Meet in the middleIt is not unlikely that the seller says no to your initial offer if it is lower than the listing price, and then you will need to negotiate. When that happens, these are some of the things that are often discussed and negotiated to find better compromises.
- The price
- The size of the earnest money payment
- Who will pay for which fees
- The turn over date, meaning when you can move in
- Necessary repairs included in the offer
- Advance payments of deposits
- Error, things that aren't clear or misstatements in the offer you put forward.