Buying a house is an exciting time!
You dream of all the possibilities a new home holds. You think about how your life will be different when you move.
It’s easy to get caught up in the excitement. However, it’s important to remember that a house is likely the biggest purchase you will ever make. It’s one of the most emotional purchases too.
So while it can be fun to buy a house, it can also be stressful. But it doesn’t have to be. When you take steps to learn and prepare, you will make the smartest, best decision for you.
This guide is the perfect place to start. Check off the steps as you go through, take your time and, in the end, you will be satisfied you’ve made the right decision for you.
10 Step Guide to Buying Your New Home
1. Save a down payment
Saving money for a down payment is the most time-consuming step to buying a home, particularly your first home. It’s also one of the most important.
How much should you save?
The larger your down payment, the more options you have – and the lower your payments will be! When you save 20% of the purchase price, you reduce the amount you owe and get a better interest rate. You also avoid the cost of Private Mortgage Insurance (PMI)*.
That doesn’t mean you can’t buy a home if you don’t have 20% saved! If you have less, most lenders will work with you to find a loan program that suits your needs. With some loan programs, you can put as little as 3% down on the purchase of a home.
Don’t forget that in addition to your down payment, you should save enough to cover your closing costs and moving expenses too.
*PMI is insurance that protects the lender from loss in the case of a foreclosure. It can cost up to 1.5% of the loan amount.
2. Determine how much you can spend
It may not seem logical to have this step before talking to a mortgage lender, but it’s here for a reason. You know your financial situation best.
The lender gets a snapshot of your income, expenses and debt situation. The bank doesn’t see how much you spend on groceries and gas each month. They don’t know how much you spend on vet bills and car repairs and clothing.
Nothing creates financial stress more than buying more house than you can genuinely afford. It’s tempting to spend the maximum the bank allows. However, it’s best to take a step back to ensure you will still be able to pay for groceries, gas, and clothing in addition to the new mortgage payment.
Track your monthly spending, take a look at your bank and credit card statements, and come up with a monthly spending plan to see how a new mortgage payment will fit into it.
A common rule of thumb suggests not spending more than 25-28% of your take-home pay.
3. Get preapproved for a mortgage loan
Getting pre-approved for a mortgage loan is an important step in the home buying process. Pre-approval means a lender has determined you have an adequate down payment and the ability to make the monthly mortgage payment.
When you find a house you want to buy, the preapproval letter from the lender will give you a signifcant advantage over buyers that aren’t pre-approved.
Documentation needed for preapproval
The documentation necessary to get pre-approved for a mortgage loan varies among lenders. To help you prepare, below are some basic documents all lenders require:
- 30 days proof of income (your last few paystubs)
- Last year’s tax return
- 2 – 3 months (or quarterly) statements from savings, checking and investment accounts
- 2 years of W-2’s
- Copy of your driver’s license or ID
- Social security number
Any additional income or circumstances that impact your finances will also require documentation. For instance, if you’re recently divorced, have rental income, or were gifted money, the lender will ask for relevant paperwork.
If you have your documentation ready, along with your down payment information, the pre-approval process will go smoothly.
*Different lenders have different loan programs and rates. It’s a good idea to check out interest rates and loan programs before seeking pre-approval.
4. Talk to a real estate agent
You’ve already looked at houses for sale online. It’s a fun way to research and explore your local real estate market, as well as find neighborhoods you like (and can afford).
Doing this research on your own is a great first step, but when it comes to finding and buying your home, it’s best to seek out the expertise of a great real estate agent.
A great real estate agent has your back and is with you every step of the way.
What is a buyer’s agent?
A buyer’s agent only represents the buyer in a real estate transaction.
A buyer’s agent represents you, the buyer (not the seller). They keep your interests as their top priority and help you navigate the real estate market. Your agent will help you make offers and negotiate on your behalf. Once you have an offer accepted, they will handle most of the details for closing.
Keep in mind when you look at a house on your own and contact the listing agent for that specific house, you will be talking to the seller’s agent. That agent represents the seller. It’s essential to find an agent that represents you before your home search.
How is a buyer’s agent paid?
As the buyer in a real estate transaction, the services of your agent are free! The seller typically pays all of the real estate agent fees, even the buyer’s agent. As a buyer, you can’t go wrong by seeking out the expertise of a professional.
How should you choose a buyer’s agent?
Ask for recommendations, talk to a few agents, and ask them questions. It’s important for your agent to:
- Have experience
- Communicate well
- Be available
- Know your local market
- Be interested in what you want
- Readily answer any questions you have
Trust your intuition. Work with an agent who is more than willing to answer your questions, listen to you and meet your real estate needs.
5. Shop for your home
Finally, the fun part! You’ve already done all the prep work, and now you can hunt for the perfect home for you.
Shopping for a home isn’t as simple as just walking through a few homes to see which ones you like. It requires patience, sticking to your budget, and not compromising on your needs (or spending more than you set out to).
Make a list of your wants and needs and stick to it! Here are some things to write down (if it’s in writing, you’re much more likely to stick with it!):
- Desired school district
- Location (How busy is the street? Is it close to work?)
- Layout (a bad or inconvenient layout is harder to fix than a pink bathroom!)
- The resale potential within a short time frame (though you may think you’ll never sell, it’s better to assume you will!)
Communicate all of your wants, needs and price range to your real estate agent. When your agent knows what you want and need, it will be easier for them to help you find the perfect fit (and not waste time on the homes that won’t work).
6. Make an offer
You finally found a house you love! Now it’s time to submit an offer to the seller(s).
Although this can seem overwhelming, your agent will assist you with the paperwork and guide you through the process.
What is an offer? An offer is a legal agreement to purchase a home for a certain price. It also includes specific terms and conditions.
The offer includes the amount you’re willing to pay for the house, what fees each party pays, whether or not you will have an inspection, and any other specific terms or conditions.
When you submit an offer on a house, you include an earnest money deposit. This deposit shows the seller you are serious about purchasing the home. Earnest money is 1-2% of the purchase price of the home and will apply toward your costs at the time of closing. It is not given to the seller but held by the title company or real estate brokerage until closing.
If the seller agrees to your offer and signs it, it becomes a legally binding contract or purchase agreement.
Sometimes the seller(s) will make a counteroffer. The counteroffer changes the price or other terms of the original offer. As the buyer, you have the option to accept these changes and sign the new agreement, counter the sellers’ counteroffer, or walk away.
If you (the buyer) and the seller do not both sign the offer, it does not become legally binding, and you will get your earnest money back.
When you make your offer, you will probably include a home inspection. The inspection protects you from any serious issues or repairs the house needs. Some major home repairs aren’t necessarily visible and can catch you by surprise.
If the home inspection reveals needed repairs or other issues, you have the option to ask the seller to fix the problem, reduce the price, or you can walk away from the contract at that time.
If you are getting a mortgage to pay for the house, your lender will require an appraisal. A professional appraiser examines the home and compares it to other similar properties in the area. The appraiser then submits a valuation of the home to the lender.
The appraisal tells you (the buyer) and the lender whether or not you are paying a fair market price for the house. If the home appraises for more than you are paying, that means you got a good deal! If it doesn’t, your agent will guide you through the next steps (request a price reduction or walk away).
Though the buyer typically pays for the cost of the appraisal, the lender and real estate agents generally arrange to have it completed.
9. Get homeowner’s insurance
You need to protect yourself in case fire, theft, or natural disaster causes damage to your house. Plus, your mortgage lender will require that you have proof of insurance before closing.
When looking for homeowner’s insurance:
- Shop around for the best rates and coverage (they can vary)
- Realize you insure your home for the cost to rebuild, not the purchase price
- Make sure you have enough in savings to cover the deductible
- Ask about discounts for various features of your property (security system, storm shutters, etc.)
- Consider bundling the policy with your auto policy to save money
10. Close on your new home
Closing is when you finally get the keys to your new home!
If you have a mortgage, your lender will provide you with final approval and the exact financial details right before the day of closing.
On closing day, you will sign a ton of paperwork! It can be a little intimidating, but the closing administrator (and your agent) will explain what you are signing. Take your time. If you need clarification on any of the documents, don’t hesitate to ask before you sign.
Congratulations! You’ve taken your time, done the work, and were patient. You are now the proud owner of a new home!
Whether you’re selling or buying a home, the process can feel intimidating and overwhelming. But it doesn’t have to. At Coluzzi Real Estate, we answer all your questions and simplify the process. We’re here for you every step of the way. Please don’t hesitate to contact us today!
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