How To Buy A House In 8 Surprisingly Simple Steps
Buying a house is a huge step forward. Being a first-time home buyer is super exciting, and purchasing property one of the most terrifying decisions you can make in your adult life. But all it takes to make it the best investment for your future is a plan and a calculator – and a glass of wine doesn’t hurt.
Here’s a step-by-step guide on how to buy a house to get you from renting to a mortgage is no time.
1. It’s a good idea (read: necessary) to get all of your finances in order. Now that you’ve decided to take on the title of “home owner,” you need to be honest with yourself about the state of your finances. You need to know your credit score, how much you have in savings, the amount of debt you carry each month — school loans, car payment, insurance, credit cards, and other mandatory monthly payments. These three factors will contribute to how much you can afford as a first-time buyer.
2. Any potential buyer should set a (rough) budget. Once you have broken down how much your gross income is per month and the amount of debt you carry, you can start looking at how much of a monthly mortgage payment you can afford.
When buying real estate, keep in mind that your monthly mortgage payment includes the interest from your loan, the principle amount, homeowners insurance, and property taxes. There are mortgage calculators that can help you work out an estimate of what your monthly payment could be.
3. Find a lender or broker. Both a lender and broker are there to help you secure a loan. The difference is that a lender is a financial institution that will directly set the loan up with you, whereas a broker is someone that will find you a lender for your loan.
It can be a good idea to use a broker, especially as a first-time home buyer, because they may work with lots of lenders and could potentially secure you a better rate by shopping around. Another option is to find a real estate agent who you trust and have them recommend a broker or lender — typically a real estate agent works with a handful of lenders.
4. Get preapproved. After you’ve chosen who to work with, whether a real-estate agent, broker, lender, or some combination, the next step is getting preapproved. You will fill out an application — sometimes there is a fee involved — and the lender will take a hard long look at what you’ve got going on in your bank account. From there, he or she will give you a definitive amount of house that you can afford. Then comes the fun part.
*It is important to make sure you are preapproved and not prequalified. Prequalified just means you have met with a lender who has taken a look at your finances and given you a general estimate on how much you can afford – without a hard credit pull or close up view of your financial situation — whereas preapproved means you have been okayed to purchase a house for “X” amount of money.
5. Find your dream home. Once you have your preapproval, you can connect with a realtor and start finding homes that match your target mortgage and needs. It is possible to go it alone, but working with a realtor provides a lot of benefits, especially if you’re a first-time buyer — such as access to houses outside of open houses, someone who can guide you through the contract, and someone who has your back when it comes to negotiating and setting up the appraisals and inspections that are required once you have an offer that is accepted. And as a “buyer, realtor fees are free,” Keller Williams Realtor and Certified Investor Agent Specialist Gabrielle Lee says.
6. Put in an offer. Unlike with a rental property, when you’ve found the home you want to start your life in, you and your realtor will put in an offer. There may be some back and forth with the seller depending on the purchase price. And if your offer is a little too low or there are multiple offers, you may be asked to come back to the seller with your “highest and best.” But, for the most part, this stage is a little hands off until your offer is accepted.
7. Set up your inspection. “In California, you have 17 days to do all inspections,” Lee says. Other states may be different, but your realtor will let you know what you need to have done. Typically, you need to set up an appraisal and any inspections – like pest or roof – within a certain amount of time for the deal to go through. Also, during this time you’ll need to provide an earnest money deposit upfront. This goes to the title company to show that you are serious and that you have funds in the bank. It’s immediate and separate from your loan, which has 21 days to go through.
Depending on what the appraisal and inspections pull up about the house, it’s very important to keep a contingency fund for any repairs that may need to be done before you move in.
8. Move in. Pay your closing costs and hire the movers. Congratulations, you’re a home owner! No more landlords telling you what to paint your walls or noisy neighbors knocking on your door at four in the morning for cups of sugar.
But the most important of any of these is to start – “The best step is to do it,” Lee says. “There are so many programs – like down payment assistance or credit help – to help get you into a house of your dreams. I have been working with a couple with a year and a half and we just closed on a house for them. It might take a little time, but it’s so so worth it. You just have to start the process.”
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Alexandra Deabler is a writer and editor. She has published articles about California history, travel, lifestyle, personal essays, and short fiction. She lives in New York City and can be reached through her website: alexandradeabler.com.
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