Buying a house is certainly a big part of the American Dream, and it is a dream that can come true with some careful planning. Is this a dream that you can realize? Here is a ten-step approach to successfully buying a house.
- Order a copy of all of your credit reports. Before you even begin to think about buying a home, you must review your credit history and take care of any and all outstanding debts or accounts past due. Even the smallest account can cause a lending institution to turn you down. After you review this information, the bank may still have issues, but at least you can get a start on the process.
- Be very clear as to your motivations for buying a house. Are you ready for the responsibilities of homeownership? Will you be able to handle unexpected repairs and emergencies?
- Investigate the local real estate market. Learn which areas are hot and which are not. Look at the real estate section of the paper and pick up publications offering local listings. Get a feel for where real estate prices fall in your area. This will help you narrow down the type of house you will look at and the area in which you will be looking. Consider all the options duplexes, single-family homes, condominiums, townhouses, etc. Take notes and highlight properties that interest you.
- Figure out exactly how much money you can afford to spend each month on a mortgage payment. This is critical. A bank may qualify you for a much higher figure than you can comfortably pay. You need to make the determination yourself as to your maximum payment and then stick with this figure. It makes no sense to commit to a payment that will strap you financially.
- Pre-Qualification. It doesn’t make sense to even begin to look for a house if you will be unable to qualify for financing. If you are serious about buying a house, first go to your bank or credit union and talk to a mortgage loan officer. He or she may be able to take a look at your credit history on the spot and tell whether or not you will have problems. If you have marginal credit, apply anyway. There is nothing to lose but your dream.
If you are denied a mortgage by a bank or credit union, consider working with a mortgage broker. Often, a broker will be able to find financing for people who have been denied money by a bank. There is a fee, of course, and interest rates may be higher initially, but it often is the only option some people have in obtaining a mortgage.
The benefit to pre-qualification is that, once you have your money guaranteed, you can look at properties within your price range and, once you decide, will not have to wait for financing to be approved before the closing date is arranged.
- Carefully Consider Additional Expenditures: Make sure you consider whether or not you will be able to cover your down payment and closing costs. If this is going to be a problem, consider properties where the buyer pays closing costs and/or there is no down payment required. There are programs available that can help with both of these considerations.
Watch out for points that are a percentage of the loan charged at closing. This is a means by which the lending institutions make additional monies when interest rates are low.
You may also be responsible for paying homeowners insurance, up-front taxes, and other fees. Make sure to get a list of all fees that will be expected at the closing.
- Begin looking for a property. Once you have established your maximum monthly payment and been approved for financing, you can begin looking at property. Attend open houses first to get a feel for what’s available in your price range. Ask for a list of other available properties in your price range and spend some time driving by these houses. Narrow down your field of choices yourself before going out with an agent.
Once you find a house that you really like, inspect that property from top to bottom. Before you hire a home inspector, first check for the obvious yourself. Ask to inspect the roof and look closely at the basement walls and outside the foundation. Check plumbing and electrical. Silly as it sounds, flush the toilets and run water in the sink and shower. There are many stories of people moving into homes only to find that the house has poor water pressure.
- Make a purchase offer. You found a house you love and are reasonably satisfied that there isn’t anything seriously wrong. You are ready to make a purchase offer to the seller. Be firm in your pricing convictions and do not allow a real estate agent to sway you from your position. Remember, they are working for the seller, not for you. Make sure to make the offer contingent on a professional home inspection.
- Home Inspection. A professional home inspector will go through the house and make a list of all problems. Usually, these problems are easily fixed and will cause no delays. Of course, there are occasions where inspectors find serious issues that require extensive work to be done. The contingency clause in the purchase offer will cover these instances. You can back out of the deal and ask the seller to fix the problem, or negotiate a lower price and agree to fix the problem yourself. In cases where structural problems are found, you will have no choice because the bank will most likely not lend you the money until the problem is rectified.
- Hire a Real Estate Attorney: Although this is an additional expense, no first-time buyer should attempt to buy a house without involving an attorney. It is foolhardy to think that you, as a novice, can adequately protect yourself in this process. Lawyers are trained to find problems and to ask the questions that can save you time, money, and aggravation in the long run. Beware of real estate agents who tell you that you don’t need an attorney or who suggest that you use the one provided by the bank. Remember, the bank’s attorney is protecting the interests of the bank, not the buyer. Ultimately, you could miss something critical, which will haunt you down the road.
Real estate attorneys review the terms and conditions of the loan, review the title search and other specifics regarding the property itself, and represent you in the closing. This process can be overwhelming enough without trying to go it alone.
The payoff for all of this planning is a beautiful house that you can call home for many years to come. It is certainly worth the effort and time spent doing the necessary footwork to ensure a smooth process.