Buying a house requires significant investments of time and money. If you think you’re ready to become a homeowner, review the steps required as part of the typical home buying process.
Unless you have the cash to purchase a house outright, your credit history and credit scores are critical in the home buying process. Your credit scores, which are calculated based on various elements of your credit reports, affect the mortgages you qualify for and the interest rates. You have many credit scores, since each of the reporting agencies calculates a score based on the information reported to them. Many financial institutions use a FICO score, which uses its own scoring model and information from all three agencies.
Check your credit scores for free, and obtain copies of your credit report from each of the three credit reporting bureaus, Experian, Equifax, and TransUnion, for free from annualcreditreport.com. Correct any errors, and identify problem areas to address. Make all payments on time, pay down balances, and avoid getting any new credit inquiries to increase your scores several points.
Have a better understanding of your financial position and be better prepared for the mortgage application process by getting your finances in order and organizing your paperwork (or digital files). Gather all information on your revenue from all sources, expenses, and assets, including retirement accounts. Documentation to assemble includes pay stubs and earnings statements, tax return filings, account statements, loan paperwork, credit card statements, leases, and receipts.
If you will be buying a house with the help of mortgage financing, then you will need a down payment, which typically ranges from three to 20 percent of the cost of the house. The amount of the down payment will vary according to the price of the house and whether you qualify for down payment assistance from local or federal assistance programs. The amount also will vary according to your resources. Evaluate your current savings, and figure out how much you can save in the near future. Consider your options for funding a down payment, such as borrowing from a 401(k) account. Commit to reaching a certain down payment goal in a certain time frame.
Shop around different mortgage companies, such as SD Capital Funding, and get quotes from at least three lenders so you can compare terms and rates. Once you select your preferred lender, get pre-approved for a mortgage. This means you provide all of your documentation to the lender and your financing is approved. You will then be able to make an offer more quickly and confidently once you find a house you want.
Total all after-tax income, and identify all of your monthly expenses to calculate your monthly budget. When figuring out how much you can afford in a monthly housing payment, aim for paying a third or less of your monthly income for mortgage and insurance. Most mortgage calculators allow for a maximum monthly housing payment of no more than 36 percent of your monthly net income, after other debt payments, such as student loans, car loans, or credit card payments. You can use your monthly housing payment and mortgage interest rate to figure out the purchase price maximum that your mortgage can afford.
Before you begin your search, prioritize different aspects of home, property, and neighborhood that matter to you. Make a list of features that you must have to help narrow your options and prevent you from wasting your time viewing houses that you won’t want. Knowing in advance what features are important also helps prevent emotion-based decisions.
Some features and factors to consider include:
- Price: The price of the home, any renovation costs, and property taxes should be within your price range.
- Location: Where geographically do you want to live? Consider commutes to work or school, the proximity of services and shops, school systems, noise level, crime statistics, and other aspects of location that will impact your quality of life in the neighborhood.
- Size: How many bedrooms and bathrooms does your household need, both currently and in the future? Are the spaces large enough? Do you want smaller spaces?
- Type of house: What type of home best fits your household needs and preferences? For example, if you have large dogs, you probably don’t want a condo without a yard. If you have mobility issues, then you might prefer a one-story ranch-style home over a townhouse.
- Energy efficiency: Homes with energy-efficient elements, such as insulation, quality windows, solar powers, and efficient appliances, save on your monthly utility expenses.
While you can buy a house without the services of a real estate agent, working with a good buyer’s agent can provide many benefits. A good real estate agent should be knowledgeable about the areas you’re interested in and can locate properties in your price range that meet your preferences. Your agent can help in negotiations, handling paperwork, and completing inspections and other steps.
When you’re looking for an agent, you can ask friends and family for recommendations or use online tools to assist in your search. LemonBrew specializes in using technology to match home buyers and sellers with experienced, skilled real estate agents. Visit LemonBrew to learn more about how to find the best real estate agent for you. Talk to at least three agents, and confirm their credentials before choosing one to work with.
Your real estate agent will identify homes for you to visit. You also can browse property listings or explore neighborhoods for sale signs. Attend open houses of properties that interest you. Keep your prioritized list of features handy to make sure critical needs are met. You might want to take notes about the property, so you can better recollect and more easily compare with other properties.
When you find the house you want to buy, you (or your agent, if working with one) will make an offer. First, depending on your budget, market conditions, the condition of the house, and other factors, you must decide on a starting price to offer. Your real estate agent can help select a competitive price. Your offer should include an earnest money deposit, which demonstrates your intentions to buy are serious. You also must decide what contingencies to include. Contingencies for things like home appraisals and inspections allow you to back out of the offer if certain conditions are not met.
The seller can accept, decline, or counter your offer. If the seller counter-offers, you can accept, refuse, or counter. This exchange will repeat until terms are agreed upon or one of you decides to move on.
Though you have a pre-approval, you need to actually secure the mortgage. Once you have an accepted offer, submit your final mortgage application with updated income and expense information. Once your mortgage application is accepted, your financing will be secure, with contingencies.
A home inspection can prevent you from purchasing a home with serious structural or system issues such as damaged sewer lines or a mold problem. A contingency in your purchase agreement for a home inspection allows you to demand the seller make certain improvements prior to the sale or to request an adjustment to the sales price.
A home inspection is a thorough review of major systems and structures, such as the foundation, electrical systems, and HVAC. The inspection should be performed by a reputable, licensed home inspector who will provide a written report of findings.
Most mortgage companies will require your home be appraised before purchase. A qualified appraiser determines an appraised home value based on a visual inspection, recent sales of similar properties, current market trends, and features of the home like square footage and amenities. If the appraised value is much lower than expected, the buying process can be delayed or canceled.
Even if your lender didn’t require you to obtain homeowner’s insurance, you should. Homeowner’s insurance will protect your investment from future damage. Depending on the location, you might need to get additional coverage for flooding or earthquakes. Premiums and coverage will vary, so shop around and compare at least three quotes.
Closing refers to the finalization of the property sale, where the buyer and seller sign the final documents and the buyer makes the down payment and pays closing costs. Closing costs, which typically total about two to five percent of the purchase price after the down payment, include title insurance, taxes, and loan processing costs, for example.
Let LemonBrew connect you with a highly-vetted, quality real estate agent in your area who can help you through the home buying process.