How to buy a house? I hear this question every day! At the end of this step by step guide, you will know everything you need to know about buying your home! Especially if you are a first-time homebuyer, the process may seem daunting. But fear not, I am here to help you, and by the end of this post, you will master all the tips and tricks for a successful purchase!
You can also watch my video “How To Buy A House Step by Step | First Time Home Buyers Tips and Advice” on my YouTube’s channel. Check it out!
#1: Talk to a lender
Do you know what is the first step to buy a house?
It is not to see an agent! What you have to do first is to see a lender! Why, because the lender will tell you how much you can borrow given your down payment, your earnings, and your credit score.
I would suggest you talk to a mortgage broker since he talks to many underwriters, and he will be able to find if not the best loan available, at least a very competitive one.
What can be slightly intimidating is that the lender will ask you for a lot of personal information and documents. You will have to show him one to two years of tax returns, bank statements, pay stubs, and any other paper he requests. He will also run a credit check. Using a mortgage broker is a good idea because you deal with all that stuff once. If you go see ten different banks, you do the same steps ten times, and you get ten hard inquiries on your credit. All those inquiries will impact your credit score!
If you have never bought a home before, maybe you are wondering, why cannot I first find a house I love, and only then I go through all these hassles?
Because even if you have a good idea about how much you can borrow, maybe you used an online calculator, you are missing the point. The lender may pre-approve you for the loan!
A pre-approval means not only that you are serious about buying, but it shows a seller that you have a conditional commitment from a lender to finance your purchase. You have to understand that the seller wants to sell his house, and not to put it back on the market because you failed to secure a mortgage. So with a pre-approval, you are in a stronger position to get the house you want.
By the way, no skilled agent would work with you without it. I wouldn’t. It is pointless visiting and putting offers on houses you can’t afford. It is terrible for everybody, and you the first! I wouldn’t want my clients to pay inspection costs, from 500 to $1,000, if they cannot buy the house.
#2: List what you want
The second step is to list all the essential features you want in your new home. Not what would be nice to have, but without your necessary features, there is no deal. Questions like how many rooms, how big the yard has to be, or where do you want to live?
Also, list the non-essential features you would like to have, but that are not deal-breakers if they are missing, like a swimming pool, for example. It depends on your preferences.
If you do that, you will have a sharper view of what you are looking to have in your home. You need to keep your expectations in check. Does the perfect house exist? No, it does not exist. And even if it existed, it would be priced accordingly, and in most cases over your budget. Having a clear view of what are your essential features will help you not to be overwhelmed by minor issues, and focus on the big picture. And it will help your agent to serve you better.
#3: Get an agent
Step three is to contact an agent that will help you to find the house that matches your criteria, help you to negotiate the deal, and assist you throughout the whole process until the closing.
Do you need to select an agent to buy a house? Since I am an agent, I think you should get a good agent working for you. The agent you work with has a fiduciary duty to work with your best interest in mind. He has to deal fairly with the seller and seller’s agent, but his loyalty is to you. And how do you find the right agent? Talk to your friends and family. You can also check online reviews, but you should take them with a grain of salt.
By the way, it is the seller who pays the commissions, so your agent’s commission is not something that should stop you from getting a real estate professional in your corner!
One big mistake homebuyers do, and not only first-time homebuyers, is to go to an open house, like the house, and they take the listing agent. First, the listing agent represents the seller. His loyalty is to the seller, not you. So if you talk too much, and say that you love the house, and are ready to offer even $25,000 more because you love it so much, guess who will know that information? The seller! You are not in a strong position to negotiate anymore! So avoid sharing any information with the seller’s agent!
By the way, buying a house is the biggest investment you make, at least for most of you! Do you really want to do it without a professional helping you? A 1% mistake can cost you thousands of dollars! A good negotiator working for you may help you save thousands instead!
A good agent will not tell you: this is the kitchen, and this is the bathroom. You are not stupid, and you know what a kitchen is! Or worst, a useless agent will only tell you how each house you visit is fantastic. An excellent agent will tell you what he or she sees in the house that is good and what is wrong, what is essential, and what is not.
Let me tell you a story, from before I was myself an agent. When I was looking to buy a home, I worked with an agent, and after a few visits, I decided to stop working with him. Why, because with him every house was perfect, even if it was not. So I terminated my relationship with him, and found another agent. And she was amazing! It was the smartest move I did! I ended up saving tens of thousands of dollars! She earned every penny of her commission, and it was the seller who paid it!
Share your own stories in the comments below!
#4: Visit houses
Step four: Visit everything that matches your essential criteria. You can go slightly over your maximum price because sometimes you can negotiate the price down, especially if the property is on the market for an extended period. Or if the market is cooling down.
Do you know who sets the prices, in any market? The buyers! If a seller wants too much for a product, a house, or a service, and no buyer buys it, then the seller has to reduce the asked price if he wants to sell. It is a fundamental rule of the economy.
By visiting everything, you will get a clear view of what to expect. However, if you find the perfect house early in the process, make an offer if you feel you might regret it if the house goes under contract while you are visiting other properties. Still, you should not feel being rushed!
And always try to focus on what is important to you, not meaningless stuff. It is often hard because buying your home is an emotional process.
#5: Make an offer
Step five: Make an offer! Depending on many conditions, how long the property is sitting on the market or is it a buyer’s market or a seller’s market, you can make an offer lower than the asked price, or not. Let your agent help you. Still, do not make an offer that could be perceived as insulting by the seller if you want to buy the house. The seller may not even reply to any other offer from you afterward.
You have to consider what price you are willing to pay and not regret the house if your offer is rejected.
Now you are negotiating, and you and the seller agree on the price, and what is included in the sale! Get a real estate attorney! The same argument as with why you want to get an agent, it is the biggest purchase of your life, you want to have professionals helping you! And frankly, a real estate attorney is not expensive at all in comparison to the money you are going to spend.
In New Jersey, you have the attorney review period that starts when you sign the contract. And during the attorney review, the agreement can be amended or rejected by both parties. It is only at the end of the attorney review that the house is really under contract, and you are now going to the closing. Ask your agent how it is done in your state.
#6: The inspections
Now you have a few days to conduct inspections. And you should do it! Even if it costs money, you are better off knowing what is going on with the property you are buying. When you discover issues during the inspection, you have now new options as a buyer. You may walk-out of the deal if there are deal-breaker problems found. And for other issues, you can ask the seller to take care of them, negotiate a lower price, a get a seller credit at the closing, which means the seller gives you back money at the closing, or a combination of them.
Each dollar spent on inspections is a dollar well spent! Even if you should stay reasonable, with the inspection results, you are in a strong position to negotiate more.
#7: The closing
Step seven, you go to the closing. Your lender has to provide you the five-page Closing Disclosure at least three days before the closing. You will then know exactly the cost to close. It is usually between 2% to 5% of the purchase price. You sign a bunch of papers, and voilà you are the owner of your home.
Enjoy your new home!
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Questions of the day:
Do you want to buy a house? Or if you bought a house, how did all the process go for you?