Since I closed on my house last year it feels like all my friends are asking if they should buy a house. The more I listen to my friends and watch them navigate the process, the more I realize that most of us don't have any idea what buying a house entails. I'm not claiming to be a home buying expert but the following steps are a bit of what I've learned during my process.
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1) Get prequalified.
The first step I recommend to all my friends is to get prequalified by the bank you think you're going to use for your mortgage. Getting prequalified gives you a great idea of what you can afford and any requirements the bank will need to complete your loan. To get prequalified you can either go into the bank and speak with a lender, call a local lender, or apply online. I called a local lender at my bank and spent 30 minutes on the phone with him. Expect to be asked what your income is, where you're planning on looking, and if you consent to the bank pulling your credit score. From this info the bank should be able to give you the maximum amount they'll be willing to lend to you. I would ask the lender what documentation they will need for the loan to be completed, and if they think you'll need a co-signer. Once you have your prequalification letter you're ready to move onto the next step.
2) Find a realtor.
Ask friends for a recommendation, ask coworkers, or go through the phone book and call various realtors until you find someone you like. Your realtor should be someone you're comfortable with and is driven to work towards helping you purchase the home of your dreams. My realtor was absolutely amazing and actually ended up working with my parents to buy their property. He took the time to walk me through the whole home buying process, explain everything to me, and help me stay realistic about the houses we were looking at. Always remember that your realtor is working for you and not the seller.
3) Look at houses.
Drive through neighborhoods, search online, look through community newspapers, and make a list of all the houses you want to look at in person. Fall in love with the first house you see or fall in love with the twentieth house you see. Just get out there and look at houses. Once you find that house you love and is meant for you, you'll know it.
4) Put in an offer.
Let your realtor guide you but don't be afraid to speak up during the offer period. Put in an offer for a price you're comfortable with, provide your offer letter to your realtor, sign a bunch of pages for the offer letter, and submit your offer to the seller. But be sure to read the entire offer letter and speak up if there are any items you want to see changed.
5) Wait.
Wait for a response from the seller. It'll feel like it takes them forever and I can guarantee you'll be stressed by it.
6) Receive the sellers response.
Celebrate if they accept your initial offer!!! Congrats! You're buying a house!!!
If they counter or reject your offer then try again. Adjust your offer and return to step 4. Don't lose hope. Everything happens for a reason and if you've got a great realtor they'll be able to guide you.
7) Welcome to mortgage hell.
If you though waiting for the offer was bad just wait until you have to wait for closing. In between having your offer accepted and sitting at the closing table you'll have to jump through more hoops than an agility dog. You'll need to attend the home inspection, have an appraisal and flood determination completed, provide a ton of documentation to your lender, and locate a home insurance provider. Make sure to request copies of your inspection, survey, appraisal, and flood determination to keep for your records. All of these items will come in handy eventually, even if it's just to help you sell the home in the future. Request the names of the utility companies from your lender and use this time to arrange utilities. You should also research your HOA (if buying into an HOA community) to make sure you understand what the dues will include.
8) Closing.
Welcome to the closing table. Your title agent will sit with you, your realtor, and possibly your lender and the sellers realtor. Each document will be explained to you and you'll have to sign everything. Don't be afraid to read each document and ask questions. This is a huge purchase and you have to be sure that you understand what you're signing.
Congrats! Once you walk away from this table you're officially a home owner! Now go celebrate!
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It seems easy, eight simple steps and you've got a place of your own, but there are three items you need to consider.
1) Is this the best financial move for you?
If you're in an apartment and the payments become too much you can quickly move to another place, after paying the lease break fee. If you own a house you can't walk away or move away quickly. You have to take the time to properly sell the house all while continuing to make your mortgage payments. You should never put yourself in financial danger just because you want a house.
On the other hand, if you've got the resources to purchase a home and your mortgage payments will be equal to or less than rent then go purchase that house!
One important item to remember is to play below your means. Your prequalification shows the maximum you can receive for a loan. I would strongly caution everyone to purchase below that amount. It's better to stay safe than to fall into debt that you can't repay.
2) Do you have enough for the down payment?
Several of my friends have pursued 100% loans. I do not recommend this. Putting yourself in the position of a 100% loan means that you have no financial hold in the house and possibly purchased above your means. Take some time to save up and put a down payment on the home. There are programs such as the FHA loans that will allow you do a small down payment which is better than nothing.
3) Do you want a house or do you want a house because everyone else is buying?
Right after I closed on my house one of my friends started looking for their own. They later sat down with me and admitted that they weren't in a position to buy but they saw how much fun I was having with my home and wanted that for themselves. This friend ended up continuing their rental and is having a blast with it. Like he recently admitted, it's nice having a landlord take care of all the issues that arise with the property. (This was admitted as I was fixing my water heater because it was making the hot water smell like rotten eggs. Thanks buddy.)
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Buying a house is a huge decision that shouldn't be made lightly. Take the time to review your reasons for buying and if they add up to you buying because you're in a financial position to buy and because you want it for yourself then go buy that home! There's no shame in admitting you need to wait or want to wait. There will always be homes for sale and time to buy.
Leave a comment and let me know what your favorite part of the home buying process was! Mine was sitting around the closing table gossiping with my realtor and title agent about the issues that had occurred the week before closing.
