10-Step Guide to Buying a House
1.
Are you Ready to Buy a Home
Whether you’re becoming a homeowner for the first time or you’re a repeat buyer, buying a home is a financial and emotional decision that requires the experience and support of a team of reliable professionals including a REALTOR®, a lender, a lawyer and a range of other individuals.
Are Your Finances Ready for Homeownership
While your dream home may not be within your reach right away, you can take steps to become a homeowner the moment you earn your first paycheck.
In order to qualify for a mortgage to buy a home, you’ll need good credit, a pattern of paying your bills on time while still saving money and a maximum debt-to-income ratio—your gross monthly income compared to the minimum payments on all recurring debts—of 43% or less. Some lenders have stricter guidelines, so the lower your debt-to-income ratio, the better your chances of a loan approval.
What Can You Afford to Buy
Remember, when you’re a homeowner, you also need to include
homeowner insurance, title insurance, property taxes and home
repair in your housing costs. You should calculate and decide
what you can pay for a home.
Are you Ready to Buy a Home
Whether you’re becoming a homeowner for the first time or you’re a repeat buyer, buying a home is a financial and emotional decision that requires the experience and support of a team of reliable professionals including a REALTOR®, a lender, a lawyer and a range of other individuals.
Are Your Finances Ready for Homeownership
While your dream home may not be within your reach right away, you can take steps to become a homeowner the moment you earn your first paycheck.
In order to qualify for a mortgage to buy a home, you’ll need good credit, a pattern of paying your bills on time while still saving money and a maximum debt-to-income ratio—your gross monthly income compared to the minimum payments on all recurring debts—of 43% or less. Some lenders have stricter guidelines, so the lower your debt-to-income ratio, the better your chances of a loan approval.
What Can You Afford to Buy
Remember, when you’re a homeowner, you also need to include
homeowner insurance, title insurance, property taxes and home
repair in your housing costs. You should calculate and decide
what you can pay for a home.
2.
Get a REALTOR® to Ensure Home Buying Success
Buying and selling real estate is a complex matter. At first it might seem that by checking local picture books or online sites you could quickly find the right home at the right price. But a basic rule in real estate is that all properties are unique. No two properties – even two identical models on the same street – are precisely and exactly alike. Homes differ and so do contract terms, financing options, inspection requirements and closing costs. Also, no two transactions are alike. In this maze of forms, financing, inspections, marketing, pricing and negotiating, it makes sense to work with professionals who know the community and much more. Those professionals are the local REALTORS® who serve your area.
In many cases buyers will interview several REALTORS® before selecting one professional to work with. These interviews represent a good opportunity to consider such issues as training, experience, representation and professional certifications.
Get a REALTOR® to Ensure Home Buying Success
Buying and selling real estate is a complex matter. At first it might seem that by checking local picture books or online sites you could quickly find the right home at the right price. But a basic rule in real estate is that all properties are unique. No two properties – even two identical models on the same street – are precisely and exactly alike. Homes differ and so do contract terms, financing options, inspection requirements and closing costs. Also, no two transactions are alike. In this maze of forms, financing, inspections, marketing, pricing and negotiating, it makes sense to work with professionals who know the community and much more. Those professionals are the local REALTORS® who serve your area.
In many cases buyers will interview several REALTORS® before selecting one professional to work with. These interviews represent a good opportunity to consider such issues as training, experience, representation and professional certifications.
3.
Get a Mortgage Pre-Approval
There’s nothing more frustrating than falling in love with a home and then discovering you can’t afford to buy it. Consulting with a mortgage lender is the first step you should undertake in the home buying process. Almost all first-time buyers need a mortgage to finance their home purchase, so get prepared before you look. When you’re armed with the knowledge of what you can afford, it focuses your search and allows you to make a move when you find a home you love.
Pre-Qualify Or Pre-Approval
Lenders offer borrowers either a pre-qualification letter or a pre-approval letter, but most REALTORS® recommend you get a pre-approval letter before you start home shopping.
A pre-qualification letter states the amount a lender thinks you’ll be able to borrow based on your income and credit profile without any actual documentation. However, mortgage lending standards have tightened since the housing crisis, and all mortgage loans now require full documentation and verification of income and assets—so most sellers will only accept an offer from a buyer with a full pre-approval letter based on verified information.
Your home hunt will benefit with a pre-approval for two main reasons:
Get a Mortgage Pre-Approval
There’s nothing more frustrating than falling in love with a home and then discovering you can’t afford to buy it. Consulting with a mortgage lender is the first step you should undertake in the home buying process. Almost all first-time buyers need a mortgage to finance their home purchase, so get prepared before you look. When you’re armed with the knowledge of what you can afford, it focuses your search and allows you to make a move when you find a home you love.
Pre-Qualify Or Pre-Approval
Lenders offer borrowers either a pre-qualification letter or a pre-approval letter, but most REALTORS® recommend you get a pre-approval letter before you start home shopping.
A pre-qualification letter states the amount a lender thinks you’ll be able to borrow based on your income and credit profile without any actual documentation. However, mortgage lending standards have tightened since the housing crisis, and all mortgage loans now require full documentation and verification of income and assets—so most sellers will only accept an offer from a buyer with a full pre-approval letter based on verified information.
Your home hunt will benefit with a pre-approval for two main reasons:
- First, you’ll have completed the credit check and paperwork requirements for a mortgage, so you’ll know your ability to finalize a home purchase. If the lender finds a problem with your creditor an error on your credit report, you’ll have time to fix it before making an offer.
- Second, since your documentation will already be in place, a mortgage pre-approval will likely speed up the process once you make an offer.
5.
Neighborhood or Home Amenities
For some homebuyers, living in a particular neighborhood takes precedence over all other priorities, but for others, the home itself matters more. Ideally, you’ll find the perfect home in the neighborhood you love at a price that’s below your budget, but realistically, most people have to make some compromises.
You (and your spouse, partner or family) should make a list of what features you want in a home, such as the number of bedrooms, a fenced yard, granite counters in the kitchen, and then rank them in terms of priorities. Think about whether the house or the community matter more to you, and whether it’s worth it to you to make a longer commute in order to live in a home with a larger lot.
When to Compromise
Once you’ve determined whether the location or the house itself matters most, you may have to compromise on some of your priorities. If the location is the most important factor for your home choice but you find that homes are priced above your budget, you can compromise in several ways:
Look for a different home type within the community, such as a smaller single family home, a town home or condominium. Decide if you can live with one less bedroom or other features on your list.
Lower your expectations about the condition of the home. While everyone prefers a move-in ready home, you can often get a better deal on a home that needs some cosmetic repairs. Be careful, though, to have a home inspection and to evaluate the structure of the home to see that it meets your needs. Moving walls and adding a bathroom are costly renovations, while painting and replacing appliances are more reasonable.
An experienced Realtor can help you determine when and how to compromise and should take the time to show you a variety of alternatives so you can make an informed decision about when to make an offer.
Neighborhood or Home Amenities
For some homebuyers, living in a particular neighborhood takes precedence over all other priorities, but for others, the home itself matters more. Ideally, you’ll find the perfect home in the neighborhood you love at a price that’s below your budget, but realistically, most people have to make some compromises.
You (and your spouse, partner or family) should make a list of what features you want in a home, such as the number of bedrooms, a fenced yard, granite counters in the kitchen, and then rank them in terms of priorities. Think about whether the house or the community matter more to you, and whether it’s worth it to you to make a longer commute in order to live in a home with a larger lot.
When to Compromise
Once you’ve determined whether the location or the house itself matters most, you may have to compromise on some of your priorities. If the location is the most important factor for your home choice but you find that homes are priced above your budget, you can compromise in several ways:
Look for a different home type within the community, such as a smaller single family home, a town home or condominium. Decide if you can live with one less bedroom or other features on your list.
Lower your expectations about the condition of the home. While everyone prefers a move-in ready home, you can often get a better deal on a home that needs some cosmetic repairs. Be careful, though, to have a home inspection and to evaluate the structure of the home to see that it meets your needs. Moving walls and adding a bathroom are costly renovations, while painting and replacing appliances are more reasonable.
An experienced Realtor can help you determine when and how to compromise and should take the time to show you a variety of alternatives so you can make an informed decision about when to make an offer.
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6.
Mortgage Options and Costs The cost of real estate financing is often greater than the original purchase price of a home (after including interest and closing costs). Because financing is so important, buyers should have as much information as possible regarding mortgage options and costs. Home loans differ based on their type, such as fixed-rate or adjustable-rate, and their loan term. Loans also vary in insteret rate and annual precentage rate, and buying points can lower your interest rate. Mortgage financing can be obtained from mortgage bankers, mortgage brokers, savings and loan associations, mutual savings banks, commercial banks, credit unions, and insurance companies. |
7.
Make An Offer
You sometimes hear that the amount of your offer should be a certain percent below the seller’s asking price or an amount less than you’re really willing to pay. In practice, the offer depends on the basic laws of supply and demand: If many buyers are competing for homes, then sellers will likely get full-price offers and sometimes more. If demand is weak, then offers below the asking price may be in order.
The process of making offers varies around the country. In a typical situation, you will complete an offer sheet that the REALTOR® will present to the owner and the owner’s representative. The owner, in turn, may accept the offer, reject it or make a counter-offer.
Inspections
A number of inspections are common in residential realty transactions. They include checks for termites, surveys to determine boundaries, appraisals to determine value for lenders, title reviews and structural inspections.
Structural inspections are particularly important. During these examinations, an inspector comes to the property to determine if there are material physical defects and whether expensive repairs and replacements are likely to be required in the next few years. Such inspections for a single-family home often require two or three hours, and buyers should attend. This is an opportunity to examine the property’s mechanics and structure, ask questions and learn far more about the property than is possible with an informal walk-through.
Make An Offer
You sometimes hear that the amount of your offer should be a certain percent below the seller’s asking price or an amount less than you’re really willing to pay. In practice, the offer depends on the basic laws of supply and demand: If many buyers are competing for homes, then sellers will likely get full-price offers and sometimes more. If demand is weak, then offers below the asking price may be in order.
The process of making offers varies around the country. In a typical situation, you will complete an offer sheet that the REALTOR® will present to the owner and the owner’s representative. The owner, in turn, may accept the offer, reject it or make a counter-offer.
Inspections
A number of inspections are common in residential realty transactions. They include checks for termites, surveys to determine boundaries, appraisals to determine value for lenders, title reviews and structural inspections.
Structural inspections are particularly important. During these examinations, an inspector comes to the property to determine if there are material physical defects and whether expensive repairs and replacements are likely to be required in the next few years. Such inspections for a single-family home often require two or three hours, and buyers should attend. This is an opportunity to examine the property’s mechanics and structure, ask questions and learn far more about the property than is possible with an informal walk-through.
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8.
Get Insurance No sensible car owner would drive without insurance, so it figures that no homeowner should be without insurance either.There are various forms of insurance associated with homeownership, including these major types. Title Insurance Purchased with a one-time fee at closing, title insurance protects owners in the event the title to the property is found to be invalid. Coverage includes “lenders” policies, which protect buyers up to the mortgage value of the property, and “owners” coverage, which protects owners up to the purchase price. In other words, owners coverage protects both the mortgage amount and the value of the down payment. Homeowners Insurance This insurance provides fire, theft and liability coverage. Homeowners policies are required by lenders and often cover a surprising number of items, including in some cases such property as wedding rings, furniture and home office equipment. Flood Insurance Generally required in high-risk, flood-prone areas, this insurance is issued by the federal government and provides as much as $250,000 in coverage for a single-family home, plus $100,000 for contents. |
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9.
Closing In practice, closings bring together a variety of parties who are part of the transaction. For example, while the history of property ownership has been checked, it’s possible that the records contain errors, unrecorded claims or flaws in the review itself, thus title insurance is necessary. At closing, transfer taxes must be paid and other claims must also be settled (including closing costs, legal fees and adjustments). Closing is a brief process where all of the necessary paperwork needed to complete the transaction is signed. Closing is typically held in an office setting, usually with both buyer and seller at the same table, sometimes with each party completing their papers separately. Whatever the case, the result is that title to the property is transferred from seller to buyer. The buyer receives the keys and the seller receives payment for the home. From the amount credited to the seller, the attorney subtracts money to pay off the existing mortgage and other transaction costs. Deeds, loan papers, and other documents are prepared, signed and filed with local property record offices. |
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10.
After Closing Those papers you received at closing are extremely valuable, so hold on to them! In the short-term they can help establish tax deductions for the year in which the property was purchased. In the future such papers will be important for tax purposes when the property is sold, and in some cases, for calculating estate taxes. About two weeks after closing, contact your local property records office and confirm that your deed has been officially recorded. Such records are public notices that show your interest in the property. Lastly, enjoy your home. Owning real estate involves contracts, loans, and taxes, but ultimately what’s most important is that home ownership should be a wonderful experience. Enjoy! |
Resouce From www.realtor.com
