How to Buy a House: Ultimate Guide on the Step by Step Process
For an individual, buying a house is probably one of the biggest investments he or she could ever have. It is also one of the most difficult decisions to make because of the big money it requires and all the requirements that need to be met to buy a home. It is a major milestone indeed in your life, but you got to be prepared to make it as such.
Aside from the actual activity of buying a home, being a homeowner afterwards makes the idea more critical and difficult to embrace. While it is going to be a fulfilling stage of one’s life, buying a home is just going to be a start of a longer list of responsibilities and challenges that a person must face and win over. And to do this, an individual must prepare himself by trying to learn everything that he needs to know about buying a home and being a homeowner. Since the process to buy a home can be very difficult and time-consuming, a person must be ready financially, psychologically, emotionally, and physically.
Buying a home does not have to become a nightmare or an event that one must regret in the future. With sufficient time spent on careful planning and looking for the best home to buy, one can certainly make his or her home-buying experience unforgettable and truly rewarding.
This is all the different things we will cover in this article
- What to Know when Buying a House
- What does it Take to Buy a House?
- General Steps to Buying a House
- What to Look for when Buying a House
- Should you Buy a House with No Down Payment?
- What Credit Score is Needed to Buy a House?
- How to Buy a House with Bad Credit
- Tips when Buying a House without a Realtor
- How to Buy a Foreclosure
- How to Buy a House at Auction
- Mistakes to Avoid when Buying a New Home
What to Know when Buying a House
Before deciding to buy a house, there are a few important things that you need to be aware of to come up with a decision that you will treasure for a long time.
- Deal with a reliable, trusted, and known realtor. It is already a common knowledge that real estate agents get commission from the sales that they make. This fact is making some homeowners hesitate to deal with real estate specialists thinking that they will only increase the overall price of a house.
This is not fair for all the hard-working real estate agents out there. Yes, real estate professionals get commission, but it is the seller that pays them the commission, not you, the buyer.
With that in mind, it is highly recommended, however, to assess the real estate agent you are dealing with. Some of them, mostly the listing agents, will not care about your interests and protect them. They are only after closing the sale to get their cut. These agents are risky to deal with as they may be making promises or agreeing to your conditions without taking into consideration if they are indeed accurate or feasible. This will end you up in a very frustrating situation if the realtor cannot deliver what has been promised to you before sales.
Hence, make sure that you are transacting with someone you can trust. If possible, get referrals from family members or friends who may have dealt with a real estate agent before. A good real estate specialist will understand what you need, your financial capacity, and your interests to give you a meaningful experience as you try to build your dreams.
- An investment as big as a house investment will involve a documented agreement or a contract. Keep in mind that buying a house would require a lot of paperwork that need to be signed by you and whoever is authorized on the part of the real estate company. Most contracts are already pre-written and will only require that some items or portions be changed to reflect your personal information, agreed payment terms, and the likes.
Most of the time, these contracts appear like they can no longer be changed. That is not correct. Be sure to discuss the details of the contract with the real estate representative and negotiate thoroughly.
Do not sign if you do not agree on all the statements indicated in the document. Spend time to review it at your own pace and do not feel like you are obligated to return it immediately. Keep in mind that you are the one investing your money. Hence, you have all the rights to understand what you are paying for.
Negotiate and ask for revisions if needed. A good real estate specialist should be able to assist you with what you need and explain to you the process clearly.
- Before deciding to buy a home, think of the long term and assess if it is what you need. As mentioned earlier, buying a house could be one of the biggest investments you could ever have. Hence, it is important to carefully assess if getting a house will work for you in the long term.
This is not a trial and error project as it involves a big amount of money and will require a lot of work on your part. Before deciding to get your dream home, ask yourself if you are financially ready to pay for it.
Do you have a stable job and do you have plans to stay there for many years? Are you not expecting any medical expenses from a family member in the next few years? Will you get married in the next five years? Do you have kids and will you be sending them to school soon? These are some of the questions you need to ask yourself to determine if buying a house is the best decision to make now.
If you are planning to build your family soon, then getting a bachelor pad may not work for you in the long run. Take these situations into consideration as you plan for your future including buying a home.
- Think about it twice if you are buying a house with your current partner. Buying a house with your partner, but you are not married yet, is a risky decision to make. Although the risk is the same if you get one when you are already married, this setup could be easier to fix than the former. But in both situations, just make sure that there is a documented agreement for your protection.
When you divorce your spouse, then it must be agreed on how to distribute the asset. If things do not go well with your partner, things could truly get ugly. Hence, it is ideal to have an agreement documented by having a contract. In these cases, getting some legal assistance from a lawyer will certainly help.
- Buying a house will involve designing it or having its interior designed. This is an activity that will result in additional expenses that you must account for. This could even be more expensive if you are buying a pre-owned house.
Renovating or repairing some areas may be necessary. The cost of this activity could be very expensive especially if the repair is needed in the kitchen or the bathroom. Make sure to prepare for these expenses as well to avoid having to live with the defects until you have the funds to get them corrected.
When you plan for your finances, make sure to include as well the cost to hire a professional contractor. Most of the time, this cost is overlooked by many homeowners so do not commit the same mistake.
- Consider buying a house that will not cause you any financial hardships. This can be done by getting a house that is within your financial capacity. It is very easy to get a super nice house, but the question is, can you afford to pay it until it is fully paid?
What you can afford should be based on what you earn minus any existing liabilities or responsibilities you have. What you think you can pay for is different from what a lending company will tell you. Most of the time, they will double or triple your approved loan amount as they do not see your financial situation in its entirety. They will only base it on what you submit to them, which most of the time, will look good only on papers.
Consider emergency expenses such as medical bills, recession and the likes. Make sure that you can save as well from what you earn monthly minus all the expenses that you need to pay. Bottom line, do not get a house just because it is your dream house without taking into consideration your finances.
Your finances should be the number one factor you need to consider before deciding to buy a house. Make sure to talk to your mortgage specialist as well to get a better understanding of your estimated income after several years and how it can support the mortgage that you will get, the inflation or interest rates, etc.
- In most cases, unless you are really rich, buying a house involves getting a loan. Before you even decide to get a house, check first how much loan you can be approved for. The amount of your approved loan will then determine the type of house you can get, the price, and other factors.
It is highly recommended that you get pre-qualified or pre-approved first for a loan before even entertaining the idea of getting a house. Checking out houses before knowing if you can get a loan can be a frustrating situation if you do not get approved or if you get a lower loan amount than you expected.
- Look beyond the value of the house. When you plan to buy a house, the amount that you need to pay for the down payment and the monthly amortization are just a portion of the other expenses that you must manage. The expenses after sales are the ones you need to be prepared for especially if you do not have enough savings to cover for them.
Buying a house includes other costs such as getting an insurance, paying for the association charges and real estate tax amounts, and many others. Both are directly dependent on the size of the unit and the location where you live. It could be more expensive or could be lesser depending on where your house is located.
- Also, aside from the expenses associated with taxes and insurance, other post-sales expenses must be taken into consideration. This includes the maintenance cost to keep your house organized and looking new. If you bought a house with a swimming pool, then maintaining it will require a lot of money. Be sure that you are financially prepared to face those expenses after the purchase.
- Do not buy a house out of pressure. Although getting a house is rewarding and defines someone’s maturity status in life, one should not get a house just because he promised himself to get one by the age of 30. Keep in mind that it is a serious endeavor. Hence, carefully assess yourself and everything around you and see if investing in a house is for you. Talk to your parents or your close friends if needed to get their views and see how they will decide if they were in your shoes. This coordination will help you see the entire picture clearer and help you remove any confusion or uncertainties.
Consider watching this video too
What does it Take to Buy a House?
Buying a house is not a joke. It takes a lot of courage and commitment to complete your obligations until the house is fully paid. When you decide to buy your own house, be sure that you are financially ready and that your savings are enough to cover for the monthly amortization and your daily expenses. You should also have enough funds to cover for unexpected expenses such as medical expenses to prevent you from missing your mortgage payment.
Aside from having enough savings, it is also important to know that most home acquisition is done by applying for a loan. Hence, it will help a lot if you have a good credit standing to be able to qualify and successfully get approved for a house loan.
Also, when you are planning to buy a home, it is important to think of the long term. If you are currently not married, take into consideration that you might get married in the future. When this happens, what is going to be your plan? Will you consider having kids immediately? If yes, then raising them and sending them to school should be in your plan as all these could happen within a 5-year period when your housing loan is not fully paid yet.
Bottom line, you must make it a point to carefully plan for your finances and the events in your life that could happen soon. While you do not have a control over these life events, it will be good to plan in terms of your finances. This will allow you to be in a good financial standing and fulfill your obligations accordingly.
General Steps to Buying a House
Let’s walk you through the different steps of buying a house.
Improve your credit score – improving your credit standing starts with understanding what your current credit score is. If you have not seen your credit report for a while, then get one as soon as possible. You need to know what it looks like and what the problems are before you can even improve it.
When we talk about finances, fixing a major issue or even a minor one could take a few months. There are several means to get your credit report and you can get it at no cost from some credit organizations. Getting the report online or from a website is also possible.
Once you have received your credit report, make sure to review it and identify any errors in it. Keep in mind that mistakes could be done in preparing your credit report and this could affect your financial status.
In case you do not know, about 25% of individuals who do not get approved for a house loan had their credit report incorrectly prepared or documented. Because of this, it is important to review the report carefully and ensure that any errors are fixed immediately. This can be done by filing a claim to any of the credit organizations available in your area. Also, the credit report you have should show a detailed instruction on how to make a claim or dispute. Responses are normally provided within 30 to 60 days or within a 2-month period.
Another way to get a good credit standing is to keep your finances or bills current. Make sure that your bills are paid on time. This is a very simple logic. If you want your credit status unblemished, then do not let your bills get unpaid beyond its due date.
However, if you cannot pay your bills in full on time, make sure to pay more than the minimum amount even for a little over it. This will not only look good on your credit report, but is a good way to pay your balance faster and save yourself from having to pay high interest rates. Also, it is recommended to keep your loan below the 50% credit limit.
Moreover, make sure to pay off your debt on your existing credit card. Some would just transfer it to a new card. Be aware that credit card companies have a way to see clients who only reduce their credit balances by transferring them to another credit card. While this is allowed, it comes with a high interest rate so this is not a practical way to clear your credit. Once you have fully paid your card, it is not advisable to close them before applying for a house loan.
Also, you need to be aware that getting a car will not do good on your credit report. Buying a car requires a big loan so it is expected to change your finances significantly if you get one. Avoid buying huge purchases as it will change your financial capacity.
With all the items mentioned above, what is important here is to plan carefully. Like what was mentioned above, buying a house is a long-term responsibility so it needs proper planning to prevent messing up your finances.
Pick the right real estate agent – another important factor to consider when planning to buy a house is to have a good real estate specialist. There are several real estate personnel out there so be sure to assess those who will come to you and offer a housing loan.
It is better to get a referral as the possibility of getting a good agent is higher in this method. Ask a relative, neighbor, or a friend who may have worked with a real estate specialist before. Deal with someone who is knowledgeable, polite, and who can give you the best offer based on your financial needs. Be careful of someone who is out there just to meet their sales quota without truly understanding what you need. This type of real estate agent will not be able to give you a loan that fits your financial requirements.
Figure out how much house you can afford to buy – how much house you can afford depends on your income, your existing credit, and any financial risks in the future. A financial advisor can help you assess your financial capacity based on your current financial standing.
Save money for the down payment and associated costs – although you can get a loan to buy a house, remember that a down payment is required to get started. Because of this, a potential home buyer must have enough savings to satisfy the minimum down payment requirement when buying a house. Read our extensive guide on saving money.
- Costs associated with buying a home – buying your dream home must be well planned especially when it comes to your financial readiness as it requires a huge amount of money. Your financial obligation when you decide to get house is not limited to the down payment and the monthly amortization. There are associated costs that a potential home buyer needs to be aware of before officially deciding to buy a house. Below are the additional costs linked to buying a home.
- Property or house valuation fee – this cost may range between $150 and $200. This is the fee that one needs to pay to a property expert for assessing the market value of your property. This is required before you can take a loan. Keep in mind, however, that the valuation result may not be the same as the actual purchase value of the property in the end.
- Property or house inspection fee – this is normally applicable if a consumer is planning to buy a pre-owned house. This fee is paid to a professional inspector who will inspect the entire house for any structural damages that need to be addressed. After the inspection activity is done, expect a report to be given to you showing their findings during the inspection process. This will cost around $500.
- Land or property transfer tax – the cost of this one varies depending on the location or state you are in. A home in a province, for example, will be charged a provincial transfer tax rate versus when the land is in a city.
- Legal fee and associated expenses – when you buy a house, this involves some documents such as land title, which needs to be notarized by a legal professional. A lawyer is needed for this requirement and for other legal guidance that you may need, which is very important when dealing with a contract. The cost to work with a lawyer in this situation will cost between $1,300 and $2,500.
- Insurance cost – most banks, if not all, would normally require an insurance as a pre-requirement to get approved for a housing loan. This fee varies depending on the value of the property, its location, and many others.
- What are the closing costs when buying a house? – as mentioned above, getting a house involves more than just paying a down payment and the monthly amortization fee. There are associated costs that a potential client needs to know so he or she can prepare for the purchase financially.
One of the associated costs when you buy a house is the closing cost. This cost refers to the other costs or miscellaneous costs a homeowner needs to pay to complete the sale of a house. Closing is defined here as the phase in the sale where the title of the house in formally transferred to the buyer. On average, a closing cost may range between 2% and 5% of the purchase value of a property.
So what exactly are these fees? Below are some of the closing costs that an individual may expect to pay when he or she is looking to purchase a house.
- Application fees – this is a cost associated with the lender or a bank for processing your loan application. The components of this fee may vary per company or lending institution so it may be good to clarify what the application fees are before proceeding and deciding to get a house.
- Appraisal fee – this is paid to a professional individual who will assess the market value of your house. This is important when you are planning to get a housing loan.
- Get preapproved for a mortgage – before even deciding to get a house, it is recommended to get a mortgage loan in advance. It will be a disappointing experience to be happy and ready to own a house, but you will later not pursue it as your mortgage loan has been disapproved.
- How to get preapproved for a mortgage? – one of the best ways to make getting your dream house a reality is to have your mortgage loan pre-approved. This pre-approved loan only means that a lender or a bank has confirmed that you are qualified to get a housing loan based on your current financial capacity, existing interest rate and loan guidelines, and other requirements.
In giving you a pre-approved loan, a lender or a bank reviews your capacity to pay off the loan based on your income. This is not being done for loan pre-qualification process, wherein an applicant’s information is not validated. When you get a pre-approved loan, you can expect a lender to provide a pre-approval notification to you stating that you can get a mortgage loan as soon as you decide to purchase a house and submit the loan requirements. Keep in mind, however, that a pre-approved loan has a validity period of only 60 to 90 days. This period varies per bank or lender so make sure to clarify this piece of information.
Getting a pre-approved loan requires a few documents, which need to be submitted to a lending organization or a bank. This includes your credit report so make sure that your credit standing is good. A lender will also consider your financial capacity or your income. Be ready to give a lending unit a copy of your pay stubs including tax return forms and w2s for the past 2 years. A certificate of employment showing your monthly income may also be used. If you have other jobs, then other financial documents to show your additional income will help you get a pre-approved loan.
Apart from these documents, a lender will also be interested to see your asset details. This will include your bank statements, car ownership or insurance, personal insurance, and the likes. If you get a monthly allowance from a family member, then having this documented and submitted to the lending organization will help your loan get pre-approved.
And lastly, apart from all these documents, a lending institution will certainly require documentation to confirm your identity such as a company ID, driver’s license, passport, and the likes. They will also use this in getting your credit standing validated.
Get a home inspection – this is an important part of the house buying process especially if you are buying a pre-owned house. This is done to look for defects or any areas that need to be renovated or repaired. A potential home buyer would be interested to know the condition of a house before even deciding to purchase it. If there are pre-existing defects, then a negotiation with the seller can be made to either lower the selling price of the property or have the defects repaired before agreeing to buy the house.
Because of this, it is important to work with a trusted home inspector. Do not rely on the home inspection report provided by the seller as this may not be 100% reliable. It is recommended for a buyer to get his or her own professional inspector to conduct the activity.
What to expect during a home inspection? – when you get a property or a house inspected before you purchase it, expect a professional property or house inspector to conduct a full inspection of the house to locate any structural defects, plumbing or electrical issues, chipped off floor tiles, poor quality paint, and many others. An inspection of the area outside the house should also be done to see any problems affecting the drainage, driveway and landscape issues, and many others.
Aside from the normal house inspection, a buyer may also choose to have the property inspected for any pest infestation. A licensed pest control specialist must be hired for this activity. At the end of the inspection activities, the inspector you hired should provide you with an inspection report showing the findings or problems they noted during the activity. You can then present this to the seller and agree on the next steps before closing the deal.
What do home inspectors look for? – a professional inspector is hired to conduct a complete inspection of a house to ensure that it is in good condition before it is sold or bought. Their inspection should cover all the areas of the house to locate structural defects including those affecting the kitchen or bathroom’s plumbing structure, defective electrical setup, deteriorating paint quality, damaged flooring or roofing materials, and many others. The idea is to search for these problems so they can be repaired prior to the purchase of the house. In the minds of a buyer, it should be good as new when they purchase it.
Determine your housing needs – as you were getting older, you were probably starting to envision what your dream house would look like and what you want to have someday. And as this dream starts to become a reality or as you start planning to get your own home, you need to be more aware of what your needs or requirements so your house buying experience will become truly memorable.Buying a house is critical as it is a long-term investment. Hence, you need to get one that will satisfy your lifestyle and needs for a long-term basis and will meet your financial capacity. To help you understand your housing needs before purchasing a house, below are some of the questions you can ask yourself.
- If you are single, do you plan to get married and have a baby soon? If yes or if you already have a family when you start planning to get a house, consider the location of the house. Should it be close to schools or a church?
- Do you want your house close to where you work? If not, is there a public transportation near your area?
- Does your house need to be near a hospital, a market, a police station, and the likes?
- How big is your family going to be? If you want to have more children, then getting a big house is what you need so it will fit the life that you will have in the long term.
- What is an acceptable community for you? Do you want your house along a main road or you want it inside an exclusive subdivision?
- What amenities you want your house to have? Do you want a basketball court or swimming pool within the village?
There are other considerations every homeowner should have before deciding to buy a home, but the items above are good factors to start with.
To get more inspiration for determining your housing needs, watch this video.
Finding the right home – finding the right home for you and your family could be very challenging considering the many factors you must consider before officially purchasing one. Aside from how much you can allocate in buying your dream house, it is very important to know what exactly your requirements are before deciding to buy a home.
A house hunting checklist can be an actual form, normally a 2-page Word file that will help you document or clearly indicate how you want your house to look like. It literally contains options, which you can select to specify your preference in terms of the materials or specifications that your dream house should have.
For example, a house hunting checklist would have a portion for the flooring. In this portion, you will need to choose what material your house flooring should be made of – hardwood floor, tiles, carpet, etc. To summarize, the other items that you must consider when buying a house are the stated below:
- telecom signal
- flowing, ceiling, and window materials
- bathroom and kitchen specification/materials
- number and size of rooms
- driveway / landscape
- house siding
- garage, yard, patio
Make an offer on the home – how to make an offer on a house? Buying a house requires formality. Verbal agreement or stating your desire to get a house verbally does not count. Until everything has been formally documented and signed, it is not a done deal. This is where having everything documented or entering a contract agreement is certainly important. It does not matter how urgent you need a house or how you want it so bad. You need to go through the long process of acquiring a property as it requires a lot of paper works and legal requirements. These serve as protection both seller and the buyer.When you want to buy a house, you need to be ready to negotiate with the seller and even back out if needed or if you feel like something is not right. Do not get pressured and feel that you must say yes and close the deal. Keep in mind that your decision requires a huge investment so you need to feel 100% right about it.
When you have finally decided to buy a house, putting everything in writing will get the process started. Below are the steps for your reference:
- Come up with a documented offer and send it to your real estate agent or the seller of the house.
- After getting your letter, the seller will review it and will either accept, decline, or negotiate with you further.
- If your offer is accepted, both you and the seller will proceed to the next stages of the house buying process.
- On the other hand, if your offer is declined, you can either revise it and send it back or look for another house.
- In case a seller wants to further negotiate by sending a counteroffer, you need to review it and either accept and go back to the 2nd step or propose another letter.
Your real estate agent will be able to help you with all these activities or even perform them on your behalf.
Negotiate counter offer on the home – how to negotiate a counter offer real estate? A counter offer in real estate is made when a buyer has offered to purchase a house, but the seller did fully agree to the terms presented by the buyer. In this case, the seller must provide a counter offer, which basically means that he or she is accepting the offer, but subject to a few changes. The changes could include adjustments to the following:
- Purchase price
- Increasing the amount of the earnest money payment
- Not agreeing to pay for some fees
- Change of service contractors
- Change of transfer or turn over date
- Adding or removing personal properties from the offer
- Advance payments of deposits
- Fixing any error or misstatements in the contract
After the seller’s counter offer, a buyer may not also find the new offer acceptable. In this situation, a buyer may also counter the counter offer given by the seller. This counter offers could be done many times as there is no limit to it. It can extend as both the seller and buyer are willing to negotiate until both parties have agreed to the terms of the offer.
Below are the ways to reject a counter offer.
- Purchase contracts normally have a section at the bottom where the select can indicate whether the offer has been rejected or not.
- An offer can also be rejected by the seller by writing “rejected” on the contract with the seller’s initials or name and the date it was signed.
- Also, most offers show a data as to when an offer will expire in case a response is not received from the seller.
- Lastly, a broker or real estate agent may notify the buyer or its agent that a response will not be provided by the seller as he or she did not agree to the offer.
We’ve extensively covered how to negotiate the price of the house in another article.
Work with a mortgage broker to select your loan – getting a mortgage requires that you meet a few qualifications and submit several requirements. A mortgage specialist can help you with the process you need to go through and get a loan that is right for you to address your needs.
What to look for when getting a mortgage? When you need to get a mortgage to buy a home, careful planning is required as it is a life-changing decision. It involves various planning activities that involve assessing one’s financial capacity, looking for the best property, getting the best loan with the lowest rate, and the likes. Failing to do it may cause a home buyer some financial problems along the way or could end up not wanting the house that he or she bought after a few years.
Because of this, getting a mortgage must be carefully thought of before deciding to get one. Below are some of the reminders for your reference:
- Keep in mind that a mortgage is not a commodity. If you are only after the rates, then you may end up getting frustrated from the onset. Getting a mortgage is about finding the right lender or bank that will understand your situation and offer the best financial assistance to you. Make sure to work with a license mortgage agent to get started.
- The online world is not where you would go to look for a loan. Like what was mentioned earlier, getting a mortgage is requires a lot of work. Hence, working with a professional mortgage agent is what most experts recommend if you need to get a housing loan.
- Understand what the loan rates are before getting one. Work with various lending institutions or banks. Each one will give you a loan proposal showing their interest rate, loan period, monthly amortization, and other loan information. Go with the one that best fits your financial capacity.
- When it comes to the loan rate, the general recommendation is to prevent an adjustable rate. Remember that an adjustable rate could be more appealing to most consumers as the published rate is below the fixed rate.
- When making a payment for your mortgage, make sure not to pay only the minimum amount due. This will not only let you pay off your debt quicker, but will also save you from having to pay high interest rates.
Have the home appraised – this calls for a home appraisal process. A home appraisal is done to get the fair market value of a house. This is one of the requirements by a lender or bank when someone is applying for a mortgage. Getting a house appraised will determine if the amount being loaned is reasonable based on the existing value of the asset
A licensed property assessor is normally tasked to perform the appraisal. They are high trained and certified to determine, without any bias or favor to anyone, the fair and estimated value of a property. During the appraisal, an appraiser will look at the status of a property based on the permanent features or qualities, not the décor, appliances or furniture you have. The assessment will be based on when the house was built, number of rooms, number of toilets or bathrooms, size of the property, location or neighborhood, view, and the likes.
If your house needs to be appraised, be sure to try to make it look new. It will not matter how old the house is. The more you can make it look new and modern, the higher value it will get. If there are minor defects in the house such as a damaged tile or chipped wall paints, get them fixed before the place is appraised.
Make sure that the appraiser is aware of why your property deserves to get a higher value. For example, if a new school or supermarket has been built near your subdivision, then make sure that the appraiser is aware of it. If your house has recently been renovated, then it will help if you can list down the areas in the house that have been repaired especially the ones that an appraiser may not notice. This may include a kitchen sink or bath tub that has been replaced just a few months ago.
After the appraisal, you will get an appraisal form or report for your review. If you do not agree with the report, you can dispute it and highlight the items that the appraiser may have not seen or considered when the house was appraised.
Get homeowner’s insurance – how to choose homeowners insurance? A homeowner’s insurance is an insurance coverage that will protect your property against theft, fire, and other liabilities. Getting one, especially for new home buyers, can be challenging. Below are some tips to get the best home insurance coverage for you:
- Know how much the value of the insurance is. This insurance is not equivalent to the purchase price of the house, but the amount it will cost you to repair it in case it gets damaged.
- It is also recommended to ask the seller to present a homeowner’s claim history report on the insurance. This report will show you what incidents or problems the house went through that made its owner claim for its insurance such as flooding, fire, and the likes. Seeing this report will let you look beyond what you can see just by seeing the house itself.
- When getting an insurance, it is important to know what it will cover. Most homeowner’s insurance covers home structure, personal items such as clothing, and the likes. It will also cover liability protection for any lawsuits due to injuries or damages on your property. Most insurance policies will also cover losses due to theft or quality deterioration caused by vandalism. Damages due to earthquake and flooding are normally not covered, but you can buy a separate insurance for them separately. Review and understand the coverage carefully before deciding which one to get.
Deal with the paperwork – as mentioned earlier, getting a house requires a lot of paper works. Documents such as your income statement, credit report, other income certification, certificate of employment, and the likes need to be submitted when getting a loan from a lender or a bank. You would need to have these paper works prepared and submitted to support your loan request.
What are the paper works needed to buy a house? Below are some of the documents you need to prepare if you have any plans to buy a home:
- Pay stubs for a few months – normally, a bank or a lender will require your last 2 pay stubs. You can only give them a photocopy so make sure not to give out the original copy.
- W2 forms – for those in the United States, this would refer to an employee’s tax and wage statement. This is provided by the employer annually for tax filing purposes. Submitting the copies of your w2 for the last 2 years is what most lenders would require.
- Bank statement – the requirement for this form will vary per lender. Some require the last 2 months although some lenders will get your bank statements for the last 3 months. If you are coordinating with various lending organizations, just get multiple copies of this form and provide them with a copy as required.
- Asset or other income statements – this form refers to any other document that can help position your financial status or your capacity to pay. If you buy stocks, mutual funds or if you have a retirement savings, then get a copy of these documents as well so you can present them to the lender.
- Personal identification – any document to show your personal identification such as your driver’s license, passport, etc. are also needed.
Close the sale – what to expect at closing on a house? After you have submitted all the required documents and met all the requirements set by the lender and the real estate company, then the closing part is going to happen. This is expected to run with no issues and the transfer can be done quickly.
During the closing stage, you, the buyer, are expected to sign the remaining legal forms such as the contract between the seller and yourself and the agreement between you and the lender. This is also the stage where you need to pay any remaining fees that you have yet to settle such as utilities, miscellaneous fees, admin fees, and the likes.
These costs may vary per lender and real estate company or seller. In this activity, a closing specialist representing the lender or the seller, lawyers representing you and the seller, the seller, the real estate specialist, and the lender are the parties who should be present in the closing activity.
Here are some mistakes to avoid when closing the home sale:
What to do after buying a house? – after going through the long process of buying a house, the next activities are both exciting and challenging especially the moving in part. It will be an exciting feeling to finally move in and decorate the house as you have envisioned it to be.
But you should keep in mind that this activity comes with a cost as you must pay for resources to help you carry and transfer your stuff from your old house to the new one. You may also need to rent a truck to bring all those to the new location. The unpacking part is also tedious and will surely eat a lot of your time. But with patience and the excitement that you may be feeling, you can accomplish all these just fine.
Aside from the moving in part, below are the other activities or tasks that you need to perform after you have purchased your house.
- Make sure to keep copies of the documents you submitted and signed related to the purchase of your house. Keep the original copies in a safe storage place like a locked cabinet in your room and put the other copies in an easily accessible area in the house.
- Change locks or put additional locks. Whether you are getting a new or old house, keep in mind to change the locks of the doors for your safety. Putting additional locks from the inside is also an option. If the house you bought has an electronic garage, then ensure that its code is also updated for your ultimate safety. The same thing should be done for the other electronic-operated doors or locks in the house.
- Personalize the name or address on the mailbox or the front door as needed. If the address number shown outside has already faded, make sure to get it fixed so your visitors in the coming days or weeks can easily locate your house.
- Update your employee record, cable company record, and other companies you have subscribed to with your new mailing address.
- Get your window treated immediately. For your privacy, it is recommended to have either blinds or curtains installed on your window. Ideally, a homeowner can get the measurements of the windows when the sale was already confirmed but was still being finalized. This will allow a home buyer to have a window treatment installed before move in.
- Know your neighborhood. Although ideally this should have been done by a home buyer at the early part of the home buying process, it would be good to know what is around you if you have not done this part yet. Know where the nearest police stations and hospitals are as these are important places you need to be aware of. Get familiar as well with the nearest market, school, church, restaurants, and the likes.
- Schedule a general cleaning. While ideally this should have been done before moving in, just in case it has not been done, make sure to have the entire area cleaned one weekend after you have moved in and organized all your stuff in your new home.
- Know your neighbors and start to socialize. As soon as you have settled in, spend some time outside your garden or your driveway and get a chance to meet your neighbors. This is important as they are the ones who will come to your rescue in case you need it.
What to Look for when Buying a House
Buying a house can be challenging especially for a first-time home buyer. It is a big investment so a careful planning must be done. There are a few considerations a home buyer must include in his or her checklist when buying a home. Below are some of them for reference:
- Check if there are any structural defects. This will include the roof, the flooring, and the likes. Check what materials they are made of and ensure that they are sturdy enough. The electrical and plumbing setup must also be checked by a professional to ensure that everything is in good condition.
- When buying a house, do not focus too much on what you see externally such as the paint, wallpaper, and the likes. Instead, put higher priority on the structural quality of the house as it will stay longer than the paint, flooring, etc. that you see.
- Consider also the temperature. Without air conditiong, does it get too hot during noon time? Also, if the house has a furnace, is it working properly? Keep in mind that it is expensive to maintain or operate a cooling and heating solution.
- Look at the items that you require the most. For example, if you need enough storage, then a house that has pre-installed cabinets will appeal more to you. If you like hosting weekend parties, then a house with a big yard where you can have an outdoor barbeque session during the weekend will surely get your interest.
- Apart from checking the house itself, make sure to also inspect the land area. Is the area prone to getting flooded? Is the community decent or is it prone to theft or crimes? Does it have its own driveway and parking? How is the landscaping in the area? These are the important factors you need to consider.
- Consider also the smell in the area. Does the sewerage smell? Is it along the road where pollution from vehicles is present? If there are family members who have asthma or any respiratory problem, then this type of house is not the one for you.
- Proper insulation could also be a priority for some homeowners. In this situation, check what the ceilings or walls are made off. This is recommended as it makes this house an energy efficient house. It will not get too hot during the summer and not too cold during the winter. Aside from the energy-efficiency it provides, proper insulation help in soundproofing your house and making it a comfortable place to stay.
Should you Buy a House with No Down Payment?
Buying a house without any down payment may sound like a great idea. Having a down payment requires an individual to save and some homeowners find it difficult to let go of this savings. Hence, they find it helpful to get a house without any down payment. While it may work for some homeowners, many experts recommend not getting one with that setup.
Getting a house without any down payment is very rare nowadays because of the risks involved and most lenders are not willing to take the said risks. But there could be some lending institutions that may still offer it. It is not advisable though because a house that has no down payment is usually more expensive, and the interest rate is likely higher. Availing of it is not entirely bad, but if you can pay a down payment, then it should be your preferred option.
This post can help you save the money you need for the down payment.
What Credit Score is Needed to Buy a House?
There is no definite answer as to what is the recommended credit score to buy a house. The simple rule is, if you have a good credit score, then you may qualify to buy a house. This, of course, will depend on the amount of the house that you are buying and with the assumption that it is within your financial capacity. To provide a specific example, a 660 credit score is good enough, but the higher your credit score, the better. Anything that is below 660 will be difficult to qualify for a house loan.
Read this post to find out how to increase your credit score and lower your interest rate.
How to Buy a House with Bad Credit
Buying a house would normally require an individual to get a mortgage unless that person has big savings to spend on getting one. In getting a mortgage, lenders would prefer giving it to someone who has a good history of paying his or her debts. This is the reason lenders or banks would check your credit standing, which will give them an idea whether you are a good debtor or not.
Credit scores range between 300 and 850. If you have a score of 740 or above, then you are on the top and are considered for having an excellent credit rating. An acceptable credit score is between 700 and 759. It is important to maintain a good credit rating as having one normally makes you eligible to get the lowest rates or the best offers in the market.
If you have a failing credit score, the first step we recommend a homeowner do is to validate the accuracy of the credit report. If there are errors, then those may be disputed and asked to be removed from your credit profile. Also, be aware that a credit score that is below the acceptable range may not be an outright disqualification. However, be ready to pay more both in terms of the down payment and the interest.
Getting a private loan is also an option for those who have a low credit score. Ideally, this loan should come from a family member, a friend, or anyone close to you who may have enough cash to lend you to pay the house in full. The idea here is for you to pay that person instead of going to a bank or any lending institution.
Tips when Buying a House without a Realtor
Buying a house is a tedious process. It requires a lot of paper works and demands full attention to accomplish it properly. Most home buyers work with a real estate agent to get some help in executing the tasks and completing them as soon as possible. However, there are some buyers who would prefer to deal with the work themselves than getting a real estate specialist. Below are some tips for those who want to buy a house without getting an agent:
- Get a mortgage pre-approval. If you plan to get a loan to buy a house, then make sure to get a pre-approved mortgage loan from a bank or your lending institution.
- Working with a real estate professional is beneficial as that person will help you look for different houses that you need. Hence, if you decide not to get a real estate expert, then you will be looking for the right house yourself.
- Once you have visited several houses, contact the person who is in-charge for the house that you liked. Ask the contact person for an appointment so you guys can meet and you can see the house and inspect it better.
- While it may be acceptable to not work with a real estate agent, it is always recommended to get a lawyer especially when it is time to sign the papers or compactor.
- As soon as you have found the house that you want, write an offer letter with the help of the lawyer that you hired. If both parties are okay with the sale of the property, the lawyer you hired will then be responsible in preparing the sales contract.
How to Buy a Foreclosure
Buying a foreclosed property may sound appealing for some home buyers as they are normally more affordable than the brand new properties out there. While this is totally allowed, buying a foreclosed asset must be well thought of before deciding to get one. Not all foreclosed assets are good to purchase so be careful and learn from the tips shown below:
- Know where the foreclosed properties are published. There are sites where you can see this, but going to a bank and working with bank personnel directly could be more safe and engaging.
- Inspect the house or the property before deciding. Foreclosed properties are pre-owned properties so it means that the quality of the house may not be as good as brand new. Because of this, get a professional contractor who may inspect the house for you properly.
- Consider the place or the location of the foreclosed property. You would want to be in a good neighborhood or area that is near the market, public transport, and the likes.
- Carefully validate if the value of a foreclosed house you are planning to buy is not higher than its market value.
- Understand what fees and taxes you are still required to pay before deciding to buy it.
- Get ready to pay for a down payment as well. If you are getting a loan, having a pre-approved loan will help a lot.
- Negotiate with the seller about the value of the property, repair requirements, and the likes.
How to Buy a House at Auction
An auction can happen live or can be done online. Live auctions are normally free and are exposed to the public. In this activity, any person can attend, but those who are interested to place a bid should register. In the registration, a person wanting to bid must be able to show that he or she has sufficient funds or cash and can certainly participate in a live auction. Below are some guidelines if you want to participate in an auction.
- Know how the auction works. Consult a friend or anyone you know who may have participated in one before. Read all the available documents to you as well. Do your research and do it well before joining an auction.
- Visit or drop by the house, if possible. Doing this will at least allow you to see the house from the outside. Keep in mind that some auctioned properties may still be occupied by its current owner. Do not go down and attempt entry as you may be charged with trespassing.
When buying an auctioned house, you accept the fact that you are buying the house as you see it. Defects or damages must be repaired and this could cost you a lot. Make sure to take this into account before deciding to bid.
- Make sure that you have a readily available means to pay. Most of the time, a property must be paid in full immediately after the auction. Cash, a cashier’s check, and a money order can be used to pay for an auctioned property.
- Before the items above, make sure to also check the schedule of the auction as it normally gets cancelled or rescheduled. Cancelling an auction may be caused by several reasons and one of them could be related to property documents that are not yet complete.
- Make sure to join the auction and place your bid accordingly. Experts recommend being in the auction venue at least an hour before the activity. Also, get a bidder card or an auction card. You need to raise it whenever the emcee states a price that you are willing to pay for.
- If you win, you will get a certificate of title right away. The actual copy of the certificate though will be given within 10 days after the auction. Within that period, the original owner of the house, may object the auction and pay the debt in full to keep the title of the property within his or her possession or rights. Because of this, it is recommended not to spend anything yet on the property until the actual copy of the certificate has been provided.
Mistakes to Avoid when Buying a New Home
As mentioned several times in the article above, buying a house is no joke. It is a very serious decision to make as it will involve a huge amount of money. Careful planning is recommended to make sure that an individual will not regret his home buying experience.
Below are some of the mistakes a home buyer should avoid when planning to buy a house:
- Buying your own home is a huge investment. It will require a big down payment and a certain amount of money for the monthly amortization. When buying a house, it is important to know the value of the property and get only what you know you can afford. Mistakes happen when a home buyer decides to get a house because of its size and qualities without taking into consideration the financial burden it may have on him or her.
- Not understanding your credit score. This information will play an important role whether you will be approved for a loan or not. You should be familiar with this so you can plan and take actions to improve your credit rating immediately or look for other options.
- Not getting a pre-approved loan. In relation to the item above, it is recommended to get a pre-approved loan if you are planning to get a house. A pre-approved loan means that a lender or a bank has approved your loan application and they are only waiting for you to submit your loan requirements. Getting this satisfied will give you a nice home buying experience for sure.
- Overstretching or forcing your financial capacity. This is related to item # 1. Make sure not to overstretch your finances. Consider your income and existing payables and future expenses. If you do not have enough to buy a big house, then think again if this is already the time to get one or if you can delay for a few years to save first.
- Not knowing what he or she wants. If you want to buy a house, you should already have a checklist of how you want your house to look like. This includes the size of the house, number of bedrooms or bathroom, location, distance to public transport or schools, and the likes. Knowing all these in mind beforehand will make your home buying experience more memorable.
- Not doing inspections. Regardless if your house is new or pre-owned, it must be inspected so you will know in advance if there are damages in the house.
If you avoid these mistakes and follow the tips above, you will be able to buy a home to satisfy your lifelong dreams. Here’s a more extensive list of mistakes to avoid: