11 Steps to Home Buying
11 Steps to Home Buying
The home buying process can be an intimidating one. Use this 11-step guide to build confidence and do it right!
We’ve all heard about buyer’s remorse, and it’s a real thing. For most people, buying a home is the most expensive investment they will ever make. When the stakes are that high, it’s probably a good thing to have a bit of anxiety over the decision.
Whether it’s your first or fifth home, an investment property, or a place you intend to raise a family, it’s important to follow this process. Here they are: the 11 Steps to Home Buying.
1. Get Serious About Your Finances
What you’re trying to establish is a monthly budget that fits your lifestyle. When it comes to buying a home, any home, you have to get an idea of what you can afford. As a hasty generalization, a mortgage loan officer is going to look for a monthly debt-to-income ratio of around 40% for loan approval.
The reason I say “get serious about your finances” is that in a lot of cases, what is not considered a debt is still an unavoidable monthly expense. For instance, while a mortgage loan officer may not look at your abnormally large cell phone bill in his or her determination of your debt-to-income ratio, you know that the unlimited data and hotspot package is vital to your profession and something that can’t be cut from your budget.
The second reason is a situation known as being house poor. A lot of times, you will be pre-approved for a purchase price well over what you intend to spend. If you’re not serious about your finances prior to purchasing a home, you may find yourself in the undesirable state of being house poor.
2. Determine Your Goals for the Purchase
This might seem like an obvious step, but you would be shocked by the number of times I’ve heard “I wish I’d thought of that when I bought the place.”
Let’s say you’re buying the home in which you intend to retire. Well, if it’s going to be your “forever home,” it’s probably important to have a downstairs master bedroom to accommodate you and your aging body. Do you intend to have family over for the holidays? If so, you might need a big dining room or additional bedrooms. Is the house close to public transportation in case that becomes important in the future?
As newlyweds, you may decide you want to be “closer to the action” for a few years while you start a family. Well if you do intend to have children in the house, it’s probably a good idea to make sure the home has a bathtub and that the floor plan allows for a nursery to be nearby the master. What may satisfy one goal of the purchase isn’t always conducive to your future plans.
For investors, you want to determine your goals as well. What’s important for your investment strategy? Is a high occupancy rate more important that a high cash flow? If this is a flip, is it going to be important to sell quickly after the renovation?
Of course, our best-laid plans often go awry, but the more time we spend on these plans, the more confident we can be in the decisions we make.
3. Create a List of Needs and Wants
Now that you have an idea of your plans for the purchase, it’s important to get together two lists.
Notice that I said two lists. You may not want a long commute to work, but that doesn’t mean you need to live in a certain neighborhood. On the other hand, a surgeon may legitimately need to be within 15 minutes of the hospital.
The same concept of need versus want applies to number of bedrooms, garage sizes, or whether there is space for a home office.
In today’s competitive market of low inventory, you don’t want to narrow your search so much that you miss out on the perfect home because of an illegitimate need and find yourself homeless. So make two lists, and keep your options open.
4. Select a Search Area
Alright, so in step 3 you decided that you need at least a one-acre lot in order to store the work truck and trailer you use for your landscaping company. Chances are good you’re probably not going to find that kind of space in the city. But, let’s not forget that you don’t want to be more than an hour away from your primary service area.
Whether it’s a housing need like this, or your desire for highly rated public schools, at this point you’re probably able to narrow down a few areas that fit your needs and wants, your goals, and your budget.
Let’s break out the iPad, pull up Zillow and check out some pics. This is actually starting be kind of fun!
5. Find a Real Estate Agent
You knew this one was coming. And in all honesty, it could just as easily be Step 1.
I put it here at step 5 because at this point in the process, a real estate agent becomes vitally important. All those houses you saw on the iPad are likely already under contract. At the very least, you’ll need a real estate agent to gain access to the MLS. A second advantage of working with an agent is that you’ll be able to take advantage of all the pocket listings from that agent’s office.
In addition, an agent is going to be able to tell you whether your budget and goals make sense for your target areas, or suggest other areas that fit your criteria. They should also be able to refer you to a mortgage lender whose products fit your needs.
I could truly talk for days about the advantages of using a buyer’s agent, but the most convincing, I’ve found, is that a buyer’s agent’s compensation is typically a seller expense - it doesn’t cost you anything!
6. Drive and Walk the Areas
This is a piece of advice I got when I bought my first home. Most people are going to drive around the neighborhood(s) they’ve identified as potential landing spots. After all, you want to get a sense of how far away the grocery store is, how long it might take to get to the town’s major thoroughfares, and just take a look at what the rest of the houses look like.
However, I was encouraged by a really wise real estate agent to take that a step further. She told me to park the car and just walk around the neighborhoods I was excited about. Only then did I get a real sense of the community and a good feel for the people I would call my neighbors.
It was great advice, and I’m glad I got it.
7. Secure Financing
Now that you’re getting excited about a few neighborhoods and maybe attending a few open houses your realtor has put on your radar, it’s time to make sure you’re able to afford the homes you want to buy.
I put this step here in the sequence for a number of reasons. To start, your realtor will likely have a few mortgage brokers you should speak with in order to find one with whom you feel comfortable. Plus, your realtor should be able to tell you the right questions to ask in order to get you more comfortable with your financing options.
At this point also, you’ve narrowed down your area well-enough that each mortgage broker should be able to give you a fairly accurate estimate of your monthly payment, being that taxes differ from each community, thus affecting your monthly escrow payment. In fact, a good mortgage broker can work up a reliable monthly payment figure while you’re standing in the house you want to offer on.
Finally, in today’s competitive market, you’re going to find it very difficult to have a purchase offer accepted without a loan pre-approval letter. By securing financing before the offer, you’ll be able to choose a lender you trust, analyze your options, and confidently make an offer the moment you find the house you want.
8. See Some Houses
You mean it’s finally time for some fun to start?!
This stage of the process is going to be different for everyone, depending on the urgency of the move, their current location, and personality. Sometimes you’re being relocated and only have one weekend to see 15 homes and decide which one to buy. Other times you’re looking for an investment property and aren’t going to pull the trigger until you can “buy it right.”
I think in any case, though, you’ll know right away when it’s time to make an offer. For the romantics reading, we’ll call it love at first sight.
9. Write a Strong Offer
Yay! You’ve found the house you want to buy!
Just for a moment, let’s look back at how far you’ve come. You took a real hard look at your budget, deciding you could eat out less and drop the NFL Sunday Ticket if it means buying a bigger home. You’ve come to terms with the fact that you don’t need a workshop for all the woodworking you don’t do. You’ve shopped loans and found out that “no loan origination fee” doesn’t exactly mean they’ll loan you the money for free.
All that learning, all that hard work - let’s not throw that away by making a laughable purchase offer.
There are multiple points of negotiation in any standardized purchase contract, and your agent will help you make informed decisions about what each item is, who typically pays for what, and where your opportunities lie. The sales price alone doesn’t determine the value of a purchase offer.
Listen to your agent. Make a strong offer, and be able to your friends “We got the house!”
10. Get the House Inspected
I don’t care who you are, you need to get the house inspected.
We helped a buyer purchase a remodeled home from a general contractor who didn’t know there were problems in the crawl space underneath the house because they didn’t inspect it. Apparently, when the contractor bought the home, they assumed their termite inspector would let them know if any problems existed down there. Since it wasn’t a termite issue, the termite inspector didn’t say anything, assuming the home inspector would catch it. Well, the contractor inspected the house himself and didn’t bother crawling under there, so the issue was never reported. Thankfully, our inspector (and termite inspector, for that matter) caught it, and we were able to have the issue remedied prior to closing.
The moral of the story is simple: get the house inspected by someone whose job it is to inspect houses. Your real estate agent, your termite inspector, your brother-in-law who does construction is not a home inspector, and they are not a replacement.
11. Closing Day!
It may feel like I’m leaving out a few steps here. Between the appraisal, repair negotiations and title work, there will be a lot more paperwork to sign, people to schedule and so-forth, but a good real estate agent should be coordinating all that for you so that all you have to do is show up and sign.
And just like that, you’re a homeowner!
At least, that’s how it works for our clients. We have people in highly specialized roles who make sure our clients are served to the highest standards. Our Buyers Agents each have over 15 years experience representing clients of all price points, experience levels and backgrounds. Our Transaction Coordinator saw over 200 closings last year. With this experience, we’re able to refine our systems to ensure our clients are satisfied with their experience.
It’s a life event, and you want to make sure you work with someone who can take care of you. Call us today.