When it comes to buying a house there are a lot of steps, and while we wish it was as simple as putting in an offer on your dream home, it’s just not. Here are the steps you can expect to take on your journey to homeownership.
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Budget
Before every major purchase you want to look at your budget. Evaluating your income and monthly debts will give you a picture of what you can afford when it comes to home prices. Often times lenders won’t look at the whole picture, they will tell you want you qualify for based on income and credit, not what your bank account can afford. As a general rule, your housing cost should not exceed 30% of your gross monthly income.
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Credit
Now is the time to take advantage of those free credit reports (or Credit Score powered by SavvyMoney if you’re already a 4Front member!). Look at what’s on your report. Are you paying everything on time? Are there any negative accounts that you need to work on? Is all information correct? It's important that you work on your credit if it isn’t the best because your score will have a direct effect on the offered interest rates, and whether or not you qualify for a mortgage. Credit repair can take time, so start working on it right away to be in the best shape possible when it comes time to talk to lenders.
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Save
Buying a home involves a fair amount of cash. You’re going to need to bring some amount of money to closing for things like a down payment, closing costs, or inspections. Additionally, you will want a little bit of savings for your new home. Whether it’s for paint or new furniture, planning ahead is important for starting off on the right foot.
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Look for a Mortgage
This step requires research. Start looking at local lending options. 4Front has option available and is as easy as visiting our website! Read articles, listen to podcasts, and fill up on information about the current rates. When you start applying you will want all applications to be processed within a tight time frame. When your credit is pulled it will cause your number to fall, but if three lenders pull in one week, it only counts once. Ask questions about early payoff penalties as well as rates. Some lenders may charge you for paying off your mortgage early!
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Pre-Approval
Once you select the lenders you think you want to work with you will complete an application for pre-approval. This is the number the bank is comfortable giving you for your new house. You will want this number in the next few steps. This is basically proof that you are serious about your house hunt and ready to commit.
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Find a Realtor
All realtors are not created equal. You could walk into an office and sit down with someone, tell them everything you want, and they will not produce a single house to meet your expectations. It’s ok to meet with a couple, or better yet, ask friends and family for a referral. If they had a good experience, chances are you will too. Ask about commissions and any agreements you may need before you start looking. Don’t get stuck with a realtor you don’t like because you didn’t read the fine print.
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Houses
Finally, we get to look at houses, though we suspect you’ve already been looking. There are various multiple listing services (MLS) where you can look at what is currently on the market. But, your realtor should have an in on the hot new properties. The way the housing market has been the last few years, you will need to watch listings and have a realtor that can call as soon as something you might like hits (or will hit) the market. At this point you should also be confident in your wants and concessions, but if you’re finding the houses you’re looking at aren’t speaking to you, re-evaluate because your priorities may have changed as you’ve seen what’s out there.
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Make an Offer
You have saved, you have budgeted, you’re pre-approved, and you have found THE house. This is an exciting moment! You will need to make an offer. Your realtor should be able to offer guidance in the amount you submit to the seller. After all, they are professionals who do this for a living. They know what similar houses are going for and what might be accepted or negotiated. This is where your realtor really earns their money.
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Inspection
Once the sellers accept your offer, the clock starts ticking. You will want to have an inspection done right away to ensure that the house is safe and there are no hidden problems you missed as an excited home buyer. In the last few years the market has become very competitive and buyers have waived inspections to win a home. Don’t do this! Inspectors are professionals trained to look for problems, and they will find them. You may not have thought to flush toilets, but they will and may find a water pressure issue. Or they may visit a hard to reach attic and find signs of termites. You can use this information to walk away from a bad investment, or negotiate a better price on the home. If you skip this step, you are stuck with the house as is, including the surprises it may hold.
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Finalize
Your inspection went off perfectly. What’s next? Finalize your plans. Finish any paperwork with your mortgage lender and determine how much money you will need for closing. All your ducks should be in a row and now you get to wait for the closing!
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Close!
The day of your closing you will likely go to the title company who will handle all the paperwork. Bring your favorite pen because you will sign a lot of documents but it will be worth it when you are handed the keys to your new home! Typically, home buyers will take possession of the house at closing so you can head right over to your new home.
Homebuying is a long journey, and sometimes a rollercoaster, but it’s worth it to pull into your driveway for the first time and say to yourself, “Welcome Home, you!”