Buying a home is a stressful and complex process. One which cannot be done without time and preparation. So, to give you a taster of what you can expect, here is a 14 step guide to buying a house.
Step One: Get Your Credit Score In Order
Although most people recognize that a good credit score is important, not everybody is aware that it is actually just as important as the size of the deposit you have for your home and your current annual income. In theory, you could have a 50% deposit, an income that allows you to easily afford your home and still be refused a loan if your credit score is too low.
Not only that but, your credit score can affect not only if you will be offered a mortgage, but for how much that loan will be and the interest rate you will be charged.
Consequently, the first thing you need to do after you decide to buy your home is to check your credit score with all three of the major credit reporting agencies; Equifax, Experian, and Transunion.
Why All Three?
Not all information is reported to all three agencies. As a result, each agency may hold slightly different information and may calculate your credit score differently. As you do not know which agency your lender will use, play it safe and check out all three.
What If I Already Know My Credit Score Is Good?
Even if you have never had a problem with credit, or if you believe your credit is good, it is still important to check your score. Mistakes can be made, incorrect reports could have been made to your report, or previous, outdated information may still be there. You do not want to discover there is a problem when you apply for a mortgage, so check it now and give yourself time to correct any mistakes.
Step Two: Calculate Your Budget
Once you decide to purchase a property it is important to work out how much you can afford to spend. This is not the same as working out how to afford the home you want!
Begin by researching the average costs of utilities, property taxes, any Homeowners Association fees, etc for the neighborhood in which you would like to live. Next take these costs out of your income, as well as any other current loan or credit card repayments, food, household goods, clothes, and anything else you have to pay out each month. What’s left is roughly how much you can afford to pay for a mortgage each month.
To discover how large a mortgage this will be, you can use an online mortgage calculator, input your monthly payment and it will tell you the amount you may be able to borrow.
In addition to your monthly payments, you also have to budget how to save for closing costs, your deposit, and any earnest money payment you plan to make.
Step Three: Work Out What Type Of Home You Will Buy
Now you have a good idea of the amount of mortgage you may qualify for and the size of your deposit you can begin to work out what it is you want in a property. This is a two-stage process. First, you need to list your “needs” which are things you absolutely must have in a home such as:
- The number of bedrooms.
- A location within X commuting distance of school or work.
- Garden for a pet.
- A location within a particular school district.
- And so on.
Then you can consider the things you want. This includes those items such as:
- The number of washrooms.
- A high-end kitchen.
- And so on.
Make a list of the “needs” and these will be your non-negotiables. Your wants will be those elements that you would prefer to have but if an otherwise suitable home, without that feature, was available you would consider buying it.
Step Four: Arrange Your Finances
The type of home you are looking for can affect the mortgages you may be offered so it is important to pin down the type of home before researching mortgages available to you. For example, only some condos will qualify for an FHA backed mortgage.
The same is true for your deposit. The amount you have to use as a deposit can affect who is willing to give you a mortgage, how much they are willing to lend you and even the terms of the loan such as the interest rate.
So, once you have an idea of the kind of home you’d like to buy, the size of the deposit you have available, checked you have everything you need to apply for a mortgage, and you know how soon you would like to buy, you can begin to visit lenders. For many people, their instinct is to go to the bank with which they already have a relationship. The logic being that the bank “knows” them and as a result will be easier to deal with and more likely to extend them a mortgage.
Apart from the occasional small-town bank where everyone knows all of the customers by name, and the lending decisions are made by the manager at that branch, you are no more likely to receive approval for your mortgage with your current bank than with any other bank. The reason is simple. Banks today have centralized lending processes and procedures that have little wriggle room for your local branch manager to influence a decision. So, no matter how much your bank staff likes you, they cannot give you a mortgage. Bank staff can only put in a positive word if the mortgage underwriters are on the fence and could go either way with their decision.
Interviewing Loan Officers
Once you know what type of mortgage may or may not be suitable for you, it’s time to start loan officer interviews. I know, I’ve already pointed out that your existing bank manager is unlikely to have any influence on your application so why should you bother interviewing loan officers?
Well, there’s a couple of reasons.
- A loan officer can only advise you on the mortgages they can provide through their own financial institutions. If you decide on your own which is the best mortgage for you and apply to that bank, you could be missing out on a much better deal somewhere else.
- You will be working with a loan officer to find, apply for, and secure your mortgage and this can be a stressful process. Finding someone with whom you can work can make this a lot more pleasant and a lot smoother than if you sign up with someone with whom you do not get along.
- A good relationship with a loan officer can save you time and headaches through the process. When supplemental questions arise and further information is needed and you have the right loan officer they may text you the question, receive your reply and pass the information back to the mortgage underwriters within minutes. This could be critical if a tight timeline is important to you. On the other hand, choose badly and that query may be dropped onto a to-do pile, shared with you via a letter, the reply dropped onto the same to-do pile and the information passed on by snail-mail, possibility adding weeks to your timeline. In extreme circumstances, a loan officer’s lack of urgency could even put your purchase at risk.
And remember, only embark on this step when you are ready to buy. Things change quickly in financial markets and if you make this move too early the mortgage you would like may no longer be available when you are ready to buy.
Finally, when you have chosen your loan officer and the most appropriate mortgage for your circumstances, ask for a pre-approval letter. This can be the deciding factor if you and another buyer present very similar offers to purchase.
Pre-Qualification vs. Pre-Approval
A pre-approval is not the same as a pre-qualification. The pre-qualification letters issued by a lender are basically “If everything is in order, this person might qualify for X amount.” This is no different from calculating the size of a mortgage with an online calculator because with a pre-qualification the lender has not verified any of your information.
A pre-approval letter confirms that the lender has verified the information you have given them and that they are, in principle, willing to give you a mortgage of X amount. The “in principle” is the bank’s get-out clause, just in case something changes between the letter and the full loan application, or if there is a problem with the property you wish to buy.
Look For A Home
Now you’ve carried out the first four steps, know what kind of property you are looking for, and have your finances in order it’s time for the fun part – looking at homes.
Step Five: Interview Your Team
To begin with, before you start booking yourself those viewings, you will need a real estate agent. Some people choose not to have a professional involved in their purchase but this decision is fraught with problems and has the potential to land you in a whole lot of trouble, leave you with a lemon of a home, or both. Consequently, my advice would be to always use a real estate agent.
Interviewing A Real Estate Agent
Knowing how to choose the right real estate agent for you, is critical to a successful house hunting experience.
- Identify real estate agents who are local to the area in which you want to buy a home.
- Check online reviews, ask neighbors, etc, and discount anyone who is obviously not well thought of or has a way of working that is not aligned to your own style.
- Set up some appointments with possible real estate agents and ask them all the same set of questions. Be sure to make it clear when you set up the appointment that this is an exploratory meeting and that you are not necessarily signing up as their client.
- Once you have chosen the most suitable real estate agent for you, contact the agent and arrange to sign up as their client.
- Meet with your agent and work through the buyer’s agent contract, making sure you understand every aspect before signing up. Especially important are any clauses governing ending your relationship and how the buyer’s agent is paid.
- Contact the remaining agents to politely let them know you will not be working with them.
Step Six: Schedule Your Time
This is an often overlooked, yet critical piece of your property buying journey. If you are serious about finding the home that is right for your needs, you need to approach it, almost as a second job.
Clear out as much of your schedule as you can so you are available for viewings without having them conflict with existing plans. Minimize your other commitments for the next three months so you will not be adding the stress of trying to juggle too much to the already stressful process of house hunting.
Ensure your calendar is flexible enough for you to:
- Schedule meetings with your real estate agent to discuss any issues should they arise.
- Go to your lender and renegotiate your mortgage should you need to.
- Re-visit your would-be home and walk around with builders should the need for repairs be highlighted in the inspection report.
- Renegotiate with the seller in response to any issues that may crop up.
- Attend the closing meeting which is not, as many people imagine, a “quick signature and you’re done” deal but a meeting that can take multiple hours. The closing meeting involves the in-depth checking and double-checking of documents and finances which can take up a great deal of time. Not only that, but I speak from personal experience when I say that the closing meeting can even throw up a nasty surprise that threatens to scupper the sale and must be dealt with there and then.
Step Seven: View Lots Of Homes
Once you have all of your ducks in a row, it’s finally time to begin looking at properties, but how do you decide which homes you should spend your time looking at and which homes you should pass on?
How To Choose Homes To view
Well, remember that list you made way back in step three? Now’s the time to take that list out and begin looking at propery listings.
But wait, there’s more.
You should only consider going to look at homes in your price range. Save yourself the pain of looking at listings you cannot afford, seeing your dream home and having your inability to afford it cloud your property search. Trust me, you don’t want to spend weeks looking at homes that fall short because you are measuring them up against the dream home you can’t have.
The only time you should even consider looking at a property that is above your price range is when your real estate agent can tell you with confidence that the sellers would consider an offer low enough for you to afford.
House Hunting Etiquette
There are a few unwritten rules of house hunting that you should be aware of.
- When you are working with a buyers agent, always book your viewings through your agent. This way you will benefit from any insider knowledge your agent may have about the property and you will avoid any issues over your agent earning their commission.
- Only view homes you might buy. Don’t take up everyone’s time, and possibly get a sellers hopes up, by going to view a home that you definitely have no intention of buying. Real estate agents spend a lot of time and money arranging viewings, driving to properties and following up on their viewings and it is unfair to expect them to spend time and money to do so for a home you won’t be buying.
- If you attend an open house, always give the agent your agent’s details. If you look at an open house and later buy that propery, without sharing the details of your own buyer’s agent, you may run into issues around who has earned what real estate agent commissions.
- Always ensure you follow-up after a viewing. It costs nothing to share a quick “Thanks but no thanks” with the seller’s agent and this prevents the seller from being left waiting for that possible offer which never comes.
Listen To Your Agent
Your real estate agent will know what you have on your must-have list but they also have plenty of experience. There are plenty of homeowners out there convinced they want an old home with lots of character, in the suburbs, with a big garden and have fallen in love with a gardenless, modern condo in the city.
When your agent suggests something that doesn’t tick your boxes it may well be worth going and taking a look unless you know for a fact that it’s a definite no-go of course.
Have A “Pre-Viewing Preview”
Before you physically go to view a home there are lots of things you can do to prepare that will add to your decision-making process.
- Look at the property on Google Maps. Take a long view so you can see if there are any potential issues in the neighborhood such as a nearby industrial area, a sports filed that may cause intermittent noise and parking problems, vacant lots which could have lots of building work in the near future – the list is almost endless!
- Next switch to Street View and take a virtual walk around the neighborhood. You might want to ensure there are sidewalks for your kids on the journey to school, evaluate how green or otherwise the neighborhood is, whether or not a nearby neighbor has a hoarding problem – again the list is endless. Basically, these two checks give you a feel for the area and will give you the chance to cancel the viewing if it’s clear the property is a definite no for you.
- You can check local news sites and this is especially important if you are moving to an area you are unfamiliar with. In addition review crime reports, school rankings, walkability ratings, the sex offenders register, FEMA Flood Plain records, in fact, anything that could impact your enjoyment of a potential home should be reviewed before you even leave the house.
Create A Checklist
A checklist will help you remember to take note of all of the important details which can be easily missed when you are viewing a home. I’m talking details such as:
- Have any walls in the laundry room been repainted? If the answer is yes, this could indicate a cover-up of damp or mold and is worth further investigation.
- What material is the roofing and when was it last replaced? The material used on a roof has a huge impact on the cost of repairs and replacement. In addition, it is allowable to put a second layer of roofing over the first. If this has happened at the home you are viewing, and the roof will likely need replacing or repair, you will bear the cost of the removal of two layers of roofing, as well as its replacement.
- Are there enough electrical outlets in the home? An outlet or two short is not a deal-breaker but if there is only one in each room and you are likely to want at least three or four, the cost of this work should be factored into your offer.
Even though you may believe you have perfect recall, it’s important to keep clear records of the homes you view, what you liked, what you disliked and whether you would consider looking at another similar home. This is especially important if there are lots of prospective homes on the market or if you are likely to be looking for a long time.
Step Eight: Choose Your Home
Bring all of the information you have and choose your home using the entirety of information you have and not just one or two pieces or the rose-tinted glasses view of a single viewing. Before you make the step of making an offer on a home try if at all possible, to have a second viewing, one you can make with your head more than your heart!
Buy Your Home
Now you are at the exciting stage of buying a home!
Step Nine: Write An Offer
Always write your offer in partnership with your real estate agent. It is your agent’s job to assist you in making an offer you will be happy with and which will not cause you problems later on in the process.
The reason for this is simple.
When you make an offer on a property you are entering into a contract. If the seller accepts your offer, as soon as they sign it, your offer is legally binding and will form the basis of the sale contract.
If you happen to miss something important, accidentally write an amount more than you want to, or make any other mistakes in your offer to purchase, once the seller has signed they are under no obligation to change a thing and can hold you to every word of that contract.
So, for example, it is important to include a clause, usually referred to as “contingencies” that says if your mortgage application is turned down, you do not have to buy the home. Likewise “contingent on inspection” and “contingent on an appraisal” are two common contingencies that give you a get out of the contract if the inspection throws up any major issues or the appraisal comes in at less than your offered price.
Step Ten: Negotiate With The Seller
Once you have the results of the inspection or inspections, you may wish to renegotiate with the seller, depending on any issues that are or are not highlighted.
Step Eleven: Apply For Your Mortgage
Congratulations, your offer has been accepted. Only now are you ready to apply for your mortgage!
If you have already obtained a pre-approval and nothing has changed then this should be relatively pain-free. This is the reason why you should sort your finances well before you begin looking for a home. To do so now could take months and possibly lose you the dream home you’ve just found.
Step Twelve: Respond To The Appraisal And Inspections
Be ready for the possibility that your inspection may throw up issues and your appraisal may say the home is worth less than you are offering.
Remember a home inspection report is not a guarantee that anything wrong with the home has been identified. It is, instead, a snap-shot that tells you“the house appears to be like this right now. There seem to be these issues. This may be an indication that there are other problems or cause X issues n the future”
It may be that the report recommends further, expert inspections, or it might tell you straight away that there is X problem that you were unaware of. In this case, you may want to speak with the seller about either a price reduction, the seller making repairs, or the seller making another concession to off-set this unexpected cost.
This is another ideal time to discuss another piece of home buying etiquette.
When you view a home you make an offer on the home that you see. So, if there is a cabinet door missing in the kitchen, a cracked sink in the washroom and the wooden floor throughout need refinishing, The cost of these pieces of work should be factored into your offer. It is considered “bad form” to attempt to renegotiate the sales price because an item that was clearly visible at the viewing is mentioned in passing in the inspection.
So, using the cracked sink example you should consider the cost of replacing the sink when you make an offer. If the crack is mentioned in the inspection, and it is merely cosmetic, it is not reasonable to renegotiate for the price of a new sink.
If that crack in the sink had leaked and caused damage in the cabinet below it then you would have good reason to renegotiate to take into consideration the repairs to the cabinet and the replacement of the sink that you did not know was leaking.
A Lower Than Offer Appraisal
If your appraisal comes in lower than the amount you have offered for the home, there is little you can do, unless you can show there is a fundamental error in the appraisal report. The lender will not extend the requested loan so your only option would be to attempt a renegotiation with the seller.
Step Thirteen: Double Check And Check Again
At this stage, while paperwork is chugging away in the background, there is very little you can do.
You can take the time to ensure you have dotted all the i’s and crossed all of the t’s in your paperwork. You should also double-check your finances are ready to go.
Step Fourteen: Close The Sale
Finally, there is a closing meeting. Usually, it works like this:
- The seller closes at a meeting earlier in the day. The home is signed over and the seller is no longer the owner.
- The buyer attends their meeting with their real estate agent. The buyer will hand over their deposit money, sign the mortgage papers, sign the purchase paperwork.
- Once the agent in charge of overseeing the sale has confirmed the money from the lender has also been received, the home is yours!
This is, believe it or not, just an overview of the 14 steps in the home buying process. You can, of course, find all of the details you need about each step in other areas of the site.
If you were looking for an overview with just enough detail then congratulations, you came to the right place!
When You Have The Right Strategies, Buying A House Is EASY
They never teach you how to buy a home in high school, or even in college. It’s not your fault you never learned the ins-and-outs of this exciting process.
As a successful real estate investor, Geoff Southworth buys houses for a living. If you want to maximize your opportunity and buy the best home for the best price, there’s no one better to teach you. By the time you’re done reading his book you’ll be an expert, too.
Imagine being able to:
- Find out the REAL credit score the banks are using to judge you (and how to change it)
- Know with absolute certainty when you’ve found the right house
- Make an offer the seller CAN’T refuse, without overpaying (or even while underpaying!)
- Handling the process like a pro, quick and easy!
You’ll learn all of this and more in Geoff Southworth’s The Ultimate Homebuyer’s Handbook!
Helpful Information From Other Real Estate Professionals
Being informed is important when you are making big financial decisions, and there are few financial decisions bigger than buying a home. Take the time to educate yourself about what you are getting into before you commit to buying any property. The following tips are here to help you get started.
Everyone involved, including the loan officer, the underwriter, the appraiser and even the closing attorney can make an error. Normally, those errors can be easily fixed. However, in the case of the home buyer, a mistake can result in disaster. Here are some common first time home buyer mistakes and how you can avoid them.
If you’re an experienced buyer and you’ll be purchasing your fourth or fifth home this 14 step guide to buying a house will act as a great refresher. If you’re buying your first home, this guide may end up being a great resources as your navigate through the process of buying a house.
Buying your first home can be an overwhelming experience. It is the largest purchase of your life and there is an opportunity to make costly mistakes or even buyer’s remorse if you are not prepared. In an effort to help with your quest to buy your first home, we put together the best first time home buyer tips from top real estate professionals in the industry.
The preparation period prior to purchasing a home is not short. Instead the preparation time can be many months or more in order to ensure that homebuyers are in the best situation possible to apply for a mortgage to buy a home. The tips in this article will help homebuyers navigate through the preparation phase so that they can get the best possible mortgage.
About The Author
Geoff Southworth is the creator of RealEstateInfoGuide.com, the site that helps new homeowners, investors, and homeowners-to-be successfully navigate the complex world of property ownership. Geoff is a real estate investor of 8 years has had experience as a manager of a debt-free, private real estate equity fund, as well as a Registered Nurse in Emergency Trauma and Cardiac Cath Lab Care. As a result, he has developed a unique “people first, business second” approach to real estate.
This article has been reviewed by our editorial board and has been approved for publication in accordance with our editorial policy.