Buying a house is exciting, but if you’re not sure what to expect, you could get hit with a few unpleasant surprises that might potentially cripple your transaction.
Before you hit the internet or the pavement for potential houses to buy, educate yourself about the home buying process to keep the house hunt fun.
Here are six steps to buying your first house.
Step One: Money
Many people start their home buying journey by finding a house first and then discovering the process of what buying a house entails. By that time, the buyer has “fallen in love” with a specific home that they may not be qualified to buy.
First, you’ll need a significant down payment, to the tune of about 20 percent, unless you qualify for a particular loan that reduces that amount or rolls in into your mortgage.
You’ll also need an earnest money deposit when you make your offer, which is usually between one and three percent of the purchase price of the property.
And, the fact that not many homebuyers are aware of going in is that you’ll also pay closing costs. “Closing costs” is a phrase used to envelop all of the fees for your transaction.
Closing costs, which are not part of your mortgage loan and are paid cash out of pocket, can equate to as little as one percent and as high as eight percent of the value of the property. Closing costs add up in the thousands.
Step Two: Apply for Your Home Mortgage Loan
If you find the house first and then apply for your home mortgage loan, you’re doing it backward. It’s essential to get your funding before you search for homes, and this is true for several reasons.
- First, you’ll know what your budget is and arm yourself with purchasing power. You’ll see what you can afford to buy and can shop within that price point.
- Second, you’ll expedite the process once you do find a house because you’ll have already done the legwork, which takes time.
- Third, you’re giving your offer an edge over other offers that don’t have pre-approval.
To qualify for a home mortgage loan, you should have a credit score of no less than 620 and a debt-to-income ratio of no higher than 43 percent.
Don’t finance any major purchases leading up to your home application and throughout the purchase, as this can affect your credit score and your debt-to-income ratio.
Step Three: Find an Amazing Real Estate Agent to Work With
Your real estate agent is your partner, your ally, and your teammate when it comes to leading you through the real estate market and home buying steps.
Find an agent who is not only qualified but also experienced in the neighborhoods you’d like to look at, as well as the type of property you’d like to buy.
Ask family, friends, and associates if they know of a real estate agent they’d be willing to recommend. You can also search agents online, checking their ratings, reviews, and certifications.
Your agent should make you feel comfortable, communicate clearly, answer questions clearly, and be a pleasure to work with — you’ll be working with them for a semi-long period.
Choose an agent who makes you feel confident that you’ll find the house of your dreams at a price point you can afford.
Talk with your agent about your visions for your house, your wish list, deal-breakers, and what your budget can buy in the current real estate market.
Step Four: Let the House Hunt Begin!
Now that you’ve got your money and numbers in order, pre-approval for your home loan, the right real estate agent on your side, and a realistic idea of what your budget will buy, it’s time to go house hunting.
When you’re shopping for houses, don’t get emotionally attached to any one house. Just because you make an offer doesn’t mean your offer will be accepted, especially if there are competing offers.
And even if your offer is accepted, there are still other phases through the transaction, like appraisals and inspections, that could put the contract at risk.
Remember to look at the condition of the houses – such as cracks in the walls or ceilings, leaks under the sinks, running toilets, dripping faucets, etc.
Step Five: Appraisals, Inspections, Surveys, and Title Check
Your lender requires that the house you’re buying is appraised, inspected, and possibly surveyed. There will also need to be a title check to make sure the house is free and clear of any liens or tax penalties.
An appraiser assesses the current market value of the house you’re purchasing. He or she accomplishes this task by relying on a comprehensive market analysis, as well as evaluating the age and condition of the house and grounds.
The appraisal confirms for the bank that your home is worth the price you’re borrowing.
An inspection checks the home’s structure, foundation, roof, major systems like heating and air, electrical, plumbing, and looks for pests that may cause damage. The inspection assures you and the bank that the house you’re buying is structurally sound.
If problems arise with the appraiser, you can negotiate the price with the seller, or terminate the agreement.
When there are faulty items discovered during an inspection, you can either ask the seller to fix the problems before you take ownership, to agree to a lower price to allow you to make repairs, or, in the worst-case scenario, cancel the contract.
Step Six: The Closing Table
After what may have seemed like an eternity, you’re now ready to close on the house and get your new keys. But first, there’s a mountain of paperwork to sign.
The closing meeting is also when you’ll pay your closing costs, and when the title is transferred from the seller to the buyer.
At the closing meeting, both real estate agents will be present, along with the escrow agent, and, if applicable, a real estate attorney. The seller’s attendance is optional.
When you jump in head first to the search for the perfect home, you might find yourself facing daunting obstacles you didn’t expect. By educating yourself in advance and taking the proper steps, you can alleviate stress, expedite the process, and enjoy the journey to homeownership.
Make sure you’ve got enough savings to pay your down payment, earnest money deposit, and closing costs. See to it that your credit score and debt-to-income ratio are strong enough to support a home mortgage loan application.
Get pre-approved for your home mortgage loan, and then team up with a real estate agent with whom you feel comfortable and confident. Be realistic about what your budget can buy, and don’t emotionally attach to a property until you have the keys in your hand.
Be patient with the appraisal and inspection process, and know that this is the last chance to ask for negotiations or terminate the contract. When you’ve got the keys to your new home, take the time to rate and review the agent who aided you in your journey, and keep them in mind when friends or family ask for real estate agent recommendations
Have Questions? Ask Us!
Keller Williams Realty – Milwaukee Southwest is the best source of information about the local community and real estate topics. Give us a call today at (262) 599-8980 to learn more about local areas, discuss selling a house, or tour available homes for sale.