Buying a house is quite exciting and whether you’re a first time home buyer or working on your 10th property, there are certain steps to take in order to make everything go smooth.
Let’s get into the basic 6 Steps to Buying a House…….
Put Together Your Team
Call it your “dream team” or “dream home team” but you’ll need a group of professionals that will take you from start to finish when you’re ready to buy a house. Here’s an idea of who you’re going to be working with:
- Loan Officer
- Home Inspector
- Pest Control Inspector
- Title/Closing Agent
It only makes sense to personally work with someone who’s involved in real estate every day if you’re buying a house, right? This is what they do for goodness sake. Now, Realtors of course work with both buyers and sellers and since you’re buying a house, you’ll need to work with a “buyer’s agent“. Simply put, a buyer’s agent does not represent the seller of the home that you want to purchase. You are able to have your own representation – someone who will negotiate on your behalf to get you the best price and terms. There are many articles on this topic but generally speaking, you have an expert who is working for you and your best interests and , by the way, you don’t have to pay them.
Your agent probably already has a pool of professionals to pull from to fill out the rest of your team but here they are…….
One of the very first tasks that you have is to get pre-approved. Get this done in the very beginning in order know exactly what to expect and what to look for when you buy. You may choose someone your Realtor uses or a loan officer from your bank. Whatever the case may be, it’s always a good idea to check out a couple of different options. Different lenders offer various different plans so you need to find out which loan option is best for you. Of course you’re also looking for the best rate.
Here’s a tip: Not only get the rate from the lender but also find out what the APR will be. The APR will include “everything” that’s involved in your loan, not just the rate (like loan origination fees). Like I said, mortgage lenders are different and offer different benefits and fees.
I’ve said it 10,000 times but always, always get a home inspection, no matter what property you want to buy. You never know what’s going on behind the walls or in the attic plus it doesn’t hurt to get an objective opinion who inspects homes for a living.
Doesn’t it make sense to get the opinion of someone who analyzes homes everyday? Many of these pros look at hundreds of properties every year and they can literally save you thousands of dollars and a lot of stress in the future.
Pest Control Inspector
Termites, moisture, and other creepy crawlies are the enemy of your house, which is why if you’re getting a mortgage loan, a pest inspection is required and not optional. If you are paying cash, don’t forego this inspection. Many times, termite damage is invisible until it’s too late. I’ve seen it over the years where the sellers had no idea that the studs of their living room wall had been overtaken by termites. Can you imagine the repair costs?
Most people don’t have a title clerk or real estate attorney in their I-Phone contact list, but your Realtor probably does. States across the country close real estate transactions either with an attorney or title company. If you’re in a state like mine where you can use a title company, you can choose either option.
They will finalize your purchase by doing a title search, itemize all of the figures that are going into the sale, and record the deed. You need them to buy a house. The best ways to find a good closing agent is to ask your Realtor or a friend who has recently bought a house.
If you’re like the 86% of people who financed their home purchase last year (yes, 14% paid cash), then you’ll need to get pre-approved for a mortgage loan. Don’t put this off either! After deciding that you actually do want to buy a home, this should be your next step.
The primary reason for getting pre-approved quickly is so have some idea of what to look at when searching for a new property. I’ve seen it so many times where buyers start looking online at homes, fall in love with “that perfect house”, and then realize that they can’t afford it.
Also, many of us are aware of the myriad of mortgage calculators online but they won’t give you the entire picture. These calculators are great for the principal and interest payment but they don’t give you taxes and insurance. While there are a number of expenses when you initially buy a house, this monthly payment is what’s going to be the most important, since it’s ongoing.
Go with someone you know or ask your Realtor for a good reference. With just a little amount of time, you’ll be ahead of the game and ready to go house hunting for the appropriate house.
Find Your Next Home
Now that you have the logistics out of the way, the fun part begins! You now know what price range you should be searching in and you probably have a general idea of which city you would like to live but consider these other factors:
- school system
- proximity to shopping & restaurants
- commute to work
- neighborhood amenities
- lots with trees or not
- walking distance to shops
- downstairs master
- open floor plan
- fenced in yard
House hunting is a lot of fun. I often tell my clients to write down a list of things that they “have to have” and things that they “want to have”. Basically this is a priority list and if you have to cave on anything on the list, you can probably guess which side of the list you choose to eliminate.
Share Your Needs and Wants with Your Realtor
Your agent needs to know as much detail as possible in order to help you find the perfect house. If you think about it, part of the agent’s job is to save you time. The more they know about your wish list, the better they can keep you from wasting time on properties that you won’t want.
Setting Up a Saved Search
From your price range and your list of specifics, your agent will likely set you up on a “Saved Search” within their MLS system. I’ve been licensed in 3 states and this was available so I’m guessing it’s available in most of the country. The saved search is great because it’s going to save you a ton of time and frustration from having to sift through a bunch of listings that you don’t need. You’ll get notified when a home comes on the market that meets your specifications exactly. How efficient is that?
Eventually you’ll narrow down the listings to the properties that you actually want to see in person and this is where your Realtor comes into the picture again. Your agent will line up all of the appointments according to a time that’s convenient with you, show you the properties, and give their “take” on the property based on their experience and historical data.
Write Your Offer
The purchase agreement is a legal document which makes writing an offer with your agent crucial. This is what makes buying or selling a home through FSBO (for sale by owner) so sketchy. Again, wouldn’t you want to work with someone who brings the experience of working real estate contracts to the table? There are so many disclosures, disclaimers, contingencies, and time lines in a real estate transaction that unless you’re familiar with the language, it would be very easy to miss something.
It really doesn’t make any sense to go about this on your own, especially when you don’t have to pay for this representation.
Coming Up with the Right Price
Your agent knows the local real estate market conditions so they will quickly be able to detect if the home that you want is priced low, just right, or too high. They also know if you’re in a market that favors the buyer or seller.
Your initial offer is the beginning of the negotiating process. Now, this doesn’t mean that you “low ball” the seller and work up from there. Folks, all you’re doing is ticking off the seller to the point where they’re not going to take you serious. Chances are, they won’t even spend the time to counter your offer. Your offer should flow right along with the current market conditions with a slight nod going your way.
There are usually 3 prices of a home:
- the price you want
- the price the seller wants
- the price you both agree on
In our area, the purchase agreement is 12 pages long. I’ve heard over the years that for every new clause added to the contract – someone was sued. The bulk of the contract has to do with the rights of the buyer and the seller. Both are protected and are given opportunity to come to an agreement on everything regarding the purchase of the property. But, in order for this to happen the buyer needs to do their due diligence and that is usually in the form of contingencies.
In laymen’s terms, contingency is when something happens in order for something else to happen. Well, that’s a little too elementary so let’s use an example. A home inspection contingency states that you and the seller have to agree on repairs (if any) based on the findings of the inspection in order for you to close. If the seller disagrees and refuses to make a repair, the buyer has the right to terminate the contract.
The home inspection is just one example but other typical contingencies include financing, appraisal, pest inspection, and a home sale contingency. Every contingency comes with a deadline, so if the buyer misses a deadline, they lose their right to leave the deal based on that contingency. This is another benefit of working with a Realtor because they will help you stay on track for all of the deadlines of your purchase agreement.
Everyone must perform under the terms of the agreement but as an added protection for the seller, every real estate contract will what’s called an Earnest Money Deposit.
The buyer must pay some sort of consideration or Earnest Money. This money is put in place for the seller if the buyer defaults on the agreement. However, when the sale goes forward and closes, the buyer is credited with that money at the closing table. There is no set amount for this earnest money but the more you put down, the more the seller knows you’re serious.
Most buyers aren’t spending this much time to go through the process only to default on the agreement. On the other hand, the many contingencies of the contract are in place to protect them. If the terms of the contingency allow the buyer to terminate the transaction under certain circumstances, they will not lose their earnest money deposit.
Close on Your Home
Well, the day that you’ve been waiting on is now here. At this point, all of the terms of the purchase agreement have been met and agreed on by both parties. You should have also received the Closing Disclosure 3 days for closing day from the title company.
All of the questions have been asked of you, documents received, and everyone is in agreement, so closing day usually goes on without a hitch. This should be a stress free day for you. All you need to bring with you to closing is your driver’s license and any funds that you agreed to pay.
Buying your first house is exciting but there are a lot of spokes in the wheel so when you’re ready, get with your Realtor and get the ball rolling.