Buying a house, especially if this is your first one, can sometimes be a little daunting at the beginning. Your friends have bought a house, your parents have done it, and even the idiot down the street managed to buy a house. So obviously you can buy a house too. “How do I buy a house? Where do I start? I know I can’t just pick a house and buy it.”
“How do I buy a house? Where do I start? I know I can’t just pick a house and buy it.”
Below are answers to some of these questions and an overview of the six stages of home buying. Fortunately, you won’t take this journey alone. You will have your Realtor to help you navigate the trails and avoid any quicksand. You will make it to your front steps together.
The very first step in the home-buying process is getting pre-approved. Most people either go to where they do their personal banking, or use references from their agent. Finding a good lender is as important as finding a good Realtor®. This decision can make the difference between a stressful transaction and a smoother one. You want a lender who is good at communication and has experience with the loan process. A lot of problems can arise, and you want someone who can work through them without getting you worked up at the same time! The pre-approval stage is also the most important one in the home-buying process. It will determine your purchase price and the type of loan you qualify for. The answers to these two questions are the basis for your entire home search.
#2 Home Search
If you haven’t already, you need to choose a Realtor®. The best source for this is through your friends and family. Were they happy with their agent? Was the agent helpful and knowledgable? Once you talk with him or her and feel comfortable with moving forward, your agent will ask you what you are looking for in a home. Some questions to consider are: How many bedrooms and baths are needed? Do you need a garage? Basement? A certain location? School district? Do you have any other requirements? As the buyer, you should make two lists. One should be what your needs are, and the other should be what your wants are. Realistically speaking, the higher your home buying budget, the better your chances are of getting more of what is on both lists. But to make sure your basic necessities are covered, your agent will probably set up your search based only on your “needs” list.
So now that the search perimeters are established, we begin looking for a house. Chances are, you are doing online searches and receiving listings from your agent. Once you see something of interest, do a drive-by on the house. This will either mark it off your list due to condition, location, or neighboring homes, or peak your interest enough to want to see the inside. You will probably look at a lot of homes before deciding on the one to move forward with. This isn’t a bad thing. It gives you the opportunity to comparison shop. It helps you see what your money can buy. And it also gives your agent a chance to understand your desires better.
#3 Bidding and Negotiating
So up to this point, everything has been fairly cut and dry. You know what you can spend and you know what you want. Now it gets a little trickier…it’s time to make an offer. If the house you are interested in is better than the others you’ve seen as far as condition, features, and/or location, then take that into account when placing your bid. Because honestly, the seller knows their competition, too, and already decided to put their house at a lower price point to get a quicker sale as opposed to competing with equal houses at a higher price point. So what we’re saying is this: If you actually want the house, make a fair offer. Please don’t low-ball the seller. It just makes them mad. It shuts down all future negotiations. So please, just don’t do that.
Before you place your bid, your agent will show you comparable houses that have recently sold. These are probably the same comps that an appraiser will use later on in the process to determine the value of the house. If you are dealing with multiple offers coming in on the house, and you’ve decided that you really want this house, you should offer the highest you are comfortable with spending. This way, if you don’t win the bid, you can at least walk away with no regrets. If you aren’t dealing with multiple offers, then you have a little space to negotiate. The best thing to do in this situation is trust your gut, and trust your agent’s experience.
Once you have an accepted offer- documents are signed, earnest money is paid, and you’ve asked your lender to start the loan, it is time for inspections. There are many inspections that are typically done. A well, water, septic, and pest inspection are the usual ones. But the one people should consider above all others is the home inspection. Yes, your agent has probably noted a few repairs that should be addressed, and your relative that came and looked at the house with you probably mentioned some things, too, but none of these people are home inspectors. You need someone to crawl through the hot attic and shimmy through the nasty crawl space. You need someone to test the electrical system, the plumbing, the mechanics in the house, check the roof, windows, doors, and basement foundation. You need someone with experience and knowledge to go through the house with a fine-tooth comb. It’s worth every penny. On the rare occasion that something major turns up during the inspection, you have the option to either pay for them yourself, negotiate the repairs with the seller or walk away. Your offer is subject to an acceptable inspection. Because of this, you are able to re-negotiate terms of the purchase if necessary.
#5 Loan Process
After the inspection, the appraisal is next on the list. The appraiser is hired by your lending institution to make sure the value matches the purchase price. But depending on the type of financing program you are using (FHA, VA, RD, Conventional, etc), the appraiser is also making sure the home’s condition meets the loan program’s standards. The appraiser may note repairs that need to be done in order to meet those standards, and again you will need to decide to have it done yourself, ask the seller to do them or walk away.
After the conditions of the appraisal have been met, the loan continues to work its way through the approval system. It is reviewed by processors and underwriters, your credit and employment are verified, and your documentation is evaluated. You will be asked to provide documentation for the documents you provided, and then be asked for more proof of that documentation that was the proof for the first set of documents. Whew. It’s not fun, but what makes the process smoother is providing everything that is asked of you as quickly as possible. The lender is asking for all of this because the underwriters are insisting on it. And by the time the lender has asked you for it, he or she has already fought with the underwriter and questioned their intelligence. So please don’t question your lender’s. Just get him or her what is needed so the process can keep going. It’s frustrating, but it’s the way things are in the lending world now.
Once we get the highly anticipated “Clear to Close” from the lender, we are just days away from closing on the house. The agent will schedule a final walk-through on the house and a closing time that works best for all parties involved. The title company will provide title work, tax prorations and settlement statements to the lender for approval, and your lender will be busy preparing the closing package and re-verifying your credit and employment one last time.
Read that last part again. The lender will re-verify your credit and employment again. Because of this, we beg you: Do not open or close credit cards, pay off your balances, buy furniture on credit, purchase a new car, change jobs or quit your job. Doing any of these things will delay or stop your loan from going through. When you walk out of closing, you can do whatever you want. But please, please, don’t do it before then.
So after all that, you finally make it to the closing table. Everything has been determined, dealt with or negotiated at this point. Your agent sits with you, supporting you and answering last minute questions. You sign your name over and over a few dozen times, and your muscles start to ache. But you know what? You made it through. You jumped over all the piles of quicksand, you stayed on the path, and you navigated your way through the jungle of the home buying process.
Congratulations! You are now a Homeowner.
Watch our video How to Buy a House – Three Steps to Homeownership.