Home Buying Steps
It is not Impossible
Of course the steps you take to buy your home will vary depending on your experience in financing and purchasing very large ticket items. For must of us, purchasing a home will be the single largest investment that we ever make Even for the most skilled investor, purchasing a home requires careful planning and detailed strategies. For those of us purchasing our very first home, this task can seem insurmountable. It is not, however, impossible as evidenced by the thousands who buy their first home every year. If you have purchased a home before, you are very aware of the following steps, however, if you are new to the process, I strongly suggest you read everything on this page.
Establish a Monthly Budget
You probably would not go out and finance a new car if you did not feel you could make the payment. You would prepare a simple budget listing all your expenses and subtracting them from your take-home pay. The difference would be an indication of how much car payment you could afford. Of course your list of expenses has to be very detailed and include all of your spending including entertainment, emergency needs, new car insurance and maintenance, and hopefully even a little cushion (savings for a rainy day).
The budget we make for purchasing a home is basically the same. However, there are some things you need to know. The good news is there are usually tax savings you will get after purchasing your own home. A good loan officer can show you how this works and give you an estimate of what these savings are. They can be used as extra income to purchase a home. The bad news is that, just like a car, a home has inherent expenses as well. To list a few, they would include:
The point here is that until you have owned a home, you may not realize all the benefits or expenses you may have. A good real estate agent or loan officer can help you figure the estimated expenses you would have based on the area in which you are purchasing. This will make it much easier to prepare your budget.
Establish an Up front Budget as Well
Purchasing a home will almost always require some money up front. Even if we can find ways to lower these costs or even drop them to nothing, you will still have some cash outlay. Most sellers will require some money down as an Earnest Money Deposit, and some lenders and appraisers will require some money up front to cover some of their expenses. The typical up front. expenses you might find include:
The point here is that you need to get a good handle on just how much cash you have available, or how much you can beg, borrow, or steal (please, no stealing). We have worked with many prospective home buyers who have had NO MONEY, and we have been able to make that work. Of course, this is much more difficult, so even being able to come up with a thousand dollars or so is a big help. A good loan officer or real estate agent will help you get an idea of just how much money you may need.
Pre-Qualify for a Loan
Now that you have come up with an amount that you feel you can spend, lets make sure you can find a lender or bank to agree with you. This can be a very involved step, so please check out our page on Home Financing, but for now, just realize that you should have a bank or lender run your credit report and analyze your income and debts to determine how much of a home you can qualify to buy (as far as that lender is concerned). Our loan officers can help you with that, at no charge, over the phone or online.
Educate Yourself about the Real Estate Market
Now that you have a good feeling on how much you can afford to spend on a home, it is time to begin the process of educating yourself on the real estate market in your area. Of course, the easiest and fastest way of accomplishing this is to contact a real estate professional in you area. They can give you a good idea as to what areas may have homes in your price range as well as the social-economic makeup of those areas, the quality of the schools, the availability of parks, traffic congestion, air traffic noise, crime rate, shopping, etc. A good real estate agent will, at no charge, help you with this as well as give you some homes to go see.
If you want to take this on yourself, start searching the Internet. Look at our Home Searching page. These search engines will give you an idea of the price of homes in an area. Then you will need to do further investigating to establish the social-economic makeup of that area, and you should drive the area quite often to get a feel for the neighborhoods.
The more time you take in establishing the right area for you and your family, and matching those areas with your affordability, the happier you will be after spending all that money and finally moving in to your new home. Now that you have established an area that seems to have homes you would be happy with and can afford, you are ready to begin the home buying process.
Obtain a Formal Loan Approval
Yes, that’s right. Before you contact an agent to begin showing you the inside of homes, and before you make an offer on a home, you should have your financing package in place. A loan approval is different from a loan pre-qualification. The loan approval is a formal commitment to make you a loan subject to finding a home. For all intent and purposes, this is the same as having a line of credit ready and looking like an all cash buyer to a seller. This is important when it comes negotiating with sellers.
If you find a great home to buy and there are other buyers bidding on the same home, all other things being equal, the seller will always take the stronger buyer’s offer. If your loan is ready to go, you will be that stronger buyer. Whichever lender you choose, I strongly advise that you do not skip this step. Get your loan approved before you begin the detailed home search. It makes you stronger and takes away the biggest anxiety of the home purchasing process: the loan approval. Now you are finally ready to really start looking for that home.
Hire an Agent or Find a Home Yourself
A lot of home buyers feel that they can save money by going around the real estate agent and dealing direct with the home seller. This will usually save the seller some money, but rarely helps the home buyer. If the home seller has listed their home with an agent, they have already built in a commission to an agent to help you. If they are selling their home by owner, they are trying to save the commissions by forcing you to negotiate on your own. If you have never purchased real estate before, please don’t consider taking that risk. Even a seasoned home buyer should consider using an agent to represent them.
There are so many new laws, forms, and requirements that it is difficult for even the professional to stay informed. Trusting the seller, and hoping against hope may not be the wisest way to begin the largest investment or you lifetime. And do not forget, when you use an agent to represent you, the seller usually pays the commission for you, so it does not cost you any money anyway.
A brief note here about using the seller’s agent to represent you as well: Again, this may help save the seller some money or increase the agent’s commission, but it does not usually benefit you at all. When an agent represents both the home buyer. and the home seller they have to be very careful not to betray the agency they have created with the home seller. It may be very difficult for them to represent you with all the vigor your own agent would use. And don’t forget, you probably won’t save any money anyway. For this reason, selecting a Buyer’s Agent may be the smartest move you can make.
Whatever you decide, it’s now time to seriously start looking for your next home. You need to get a list from the Internet or from a real estate agent of all the homes in your price range and in your desired area. Then drive by each home and set an appointment to see the inside of the homes that interest you most. After finding the right home, begin the negotiations with the seller. When you reach an agreement, you are almost home. Of course, we have real estate agents who will do all this for you at no charge.
Complete the Transaction
This process can very from state to state. Basically, you need to complete the loan application by having the home appraised. The seller must complete a great deal of paperwork and give it to the closing agent or escrow officer. You will have your own paperwork to complete as well. The closing agent will collect the deed from the seller and the money from you and the lender. If something goes wrong before the closing, they will return the money to you and the deed to the seller. Otherwise, at the last minute, they will give you the deed, and the seller the money. This process could take 30 days if everything goes well! If you are using a real agent, they will be coordinating all this for you.
There, wasn't that easy. You just bought a home. Hopefully, you can see how nice it would be to have a good real estate agent and a good loan officer on your team. To learn more about the home buying process, please visit First Time Home Buying Mistakes.
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