Purchasing a home doesn’t have to make you want to join a 12 step program. Here’s a 12 step program to help guide you through the home buying process. Before running around town looking at homes that may leave you disappointed follow these steps to a more seamless home buying process. Buying a home can be daunting whether its your first home or your fifth home. These steps can help you breeze through buying a home in today’s market. In most parts of the United States the housing market has rebounded and sellers are looking for buyers that are prepared and ready to buy when they receive an offer. At the moment, inventory is low and buyers are easy to come by leaving sellers with options. Here are the best steps to take to get you into a home more seamlessly and efficiently.
- Make a List of What You Want in a House
- Weigh your options: Renting vs. Owning
- Check your Credit Report, Debt, and Spending
- Figure Out Your Price Range
- Educate Yourself on Mortgages (Home Loans)
- Preapproval Letter
- Find a Local Realtor
- Time to Look at Houses
- Possibly Reassess Wants and Needs
- Make a Realistic Offer as a Serious Buyer
- Inspections, Repairs, Appraisal
- Closing 30-60 Days After Signed Contract
1.MAKE A LIST OF WHAT YOU WANT IN A HOUSE
Making a list of what you want in a house is an important step not to be skipped. This step will help you later in the process. This list should include the amount of bedrooms, bathrooms, yard space, etc. When making this list you should consider any life changes that may occur in the 5-7 years after your purchase. (Fact: 5-7 years is the average time a family spends in a home) Will your family grow? Maybe a puppy or children? These may factor into whether or not you need a yard or maybe another bedroom. Another aspect to consider if you have a significant other is what they may be looking for in a home. What if you are picturing a certain home and it doesn’t line up with your partner’s vision of a home? Compromise is better made earlier in the process especially if you and your significant other are complete opposites when it comes to homes. With that being said… MAKE A LIST!
2. RENTING VS. OWNING
Are you currently renting? Maybe you are saving up a little loot while living with a family member? Either way, you need to figure out if you want to rent or own. For most purchasing a home will in the end cost less. Think about it: Landlords invest to make a return while covering the cost of their investment. Also, with landlords requesting First, Last, & Security the initial ‘down payment’ to rent could be a hefty amount of money. With modern loan programs this money can be a significant chunk of money towards your down payment on a property you will own. We will discuss researching Loan Programs later.
3. CHECK YOUR CREDIT, DEBT, AND SPENDING
Next, you should check your credit score and debt. There are plenty of websites out there to do this and its super helpful to know before shopping around for a mortgage. Credit Score and Debt are 2 out of the 3 largest factors considered to purchase a home. The 3rd factor being income. Each loan program has different debt to income ratios, but most require the same when it comes to credit score. If you check your score and its not quite where you thought it was there are ways to repair your credit and pay down your debt. You can also find many guides on money and spending. My personal favorite that changed my view on money is ‘The Automatic Millionaire’ by David Bach.
4.FIGURE OUT YOUR PRICE RANGE & 5.EDUCATE YOURSELF ON MORTGAGES & 6.PREAPPROVAL
3 for 1 Here
Imagine going into a store looking around for the #1 thing you want. Searching and Searching, aha you find it! You admire it! You know its ‘the one’ so you take it to the cashier, but wait…you’re not sure if you can buy it, you haven’t checked your bank account, you don’t know if you have room on your credit card! Oh shoot! So, you ask the cashier to hold the item while you go check with the bank, or go find the means to purchase the item. The cashier cannot hold the item what if someone else wants it, its not a gamble they can take, so they place the item back on the shelf for others to search for and possibly purchase. After spending the time to check if you can afford the item, you find out you cannot afford it, or worse you can afford it, but IT’S SOLD!
The best way to figure out what you can afford is to get pre-approved by a Mortgage Broker. Local lenders are recommended by most agents due to their personalized service and ability to guide you in your market. Guessing your price range can lead to time wasted for you and your Realtor, and also lead to serious disappointment for you in the long run. Your Broker will use your income and debt to income ratio to establish your price range. They should also take this time to establish which loan program is best for you. Examples of loan programs include: Conventional, FHA (Federal Housing Administration), VA (US Department of Veterans Affairs), FHA 203k (Rehab Loan for a Primary Residence). Your Broker will also go over payments, including Homeowner’s Insurance, Mortgage Insurance Premium, and Taxes. Educating yourself on mortgages can be done with your lender, and also on your own. It’s recommended that a combination of your lender and research be used in order to know the requirements, rates, and estimated payments of each program.
At this point, you would want to talk to your Broker about a preapproval letter. You do not need to get one in this moment, but you will want to make the Broker aware that you will be contacting them immediately for a Pre Approval letter as soon as you find a house. This letter is very important in today’s market, as sellers have the leverage with so little inventory and so many buyers. A preapproval letter shows the seller you are a serious buyer who has educated yourself on the process of home buying. This is a very important step that can make the difference between a signed contract or losing out on a home. This is true for homes with or without multiple offers!
7. FIND A LOCAL REALTOR & 8. TIME TO LOOK AT HOUSES
Do you know a Realtor? If so your search should be easy, but if not, you will want an agent you are comfortable working with throughout the purchase of your home. Your Realtor will guide you in the home buying process. A good Realtor can make a difficult sale go seamlessly, and will be able to give you insight into the market. Remember that list you were supposed to make at the beginning? This is where that comes into play. A Realtor will find you homes on the market that will specifically meet your requirements (or list). The list is not written in stone, but it will help to continue to guide you throughout the process.
9. POSSIBLY REASSESS WANTS AND NEEDS
Warning: This step may not apply to everyone! Reassessing is something we do everyday, maybe you put on the wrong shade of lipstick, maybe you make plans for the day and realize they wont work out, or maybe you second guess a car you purchased. All of these cause you to assess something you were originally had your mind set on. Reassessing is a natural process and may come by choice or may come out of necessity. Maybe the home market you are in just isn’t offering your original wants and needs in your price range, or maybe you don’t want to give up location for other wants and needs. Reviewing your list and making changes based on what is best for you and your lifestyle can make finding a home a little easier when what you are looking for isn’t quite out there.
10. MAKING A REALISTIC OFFER AS A SERIOUS BUYER
So, you’ve finely found it, the perfect house, in the perfect location that meets all your needs, you’re excited, you have your preapproval letter from the lender! It’s important to understand the ‘Market Value’ of a home. Your Real Estate Agent should be able to guide you on what a good offer would be by using comparable sales in the area. Who doesn’t want a good deal? Equity in a home is accrued over time and not always at the time of purchase. This isn’t to say you cannot have instant equity in a home when purchased, but most sellers are working with a Realtor and their Realtor has researched the value of their property. Market Value is not an exact science, but numbers don’t lie, homes in certain areas are selling for no less than 94% of the asking price, and multiple offers have made a comeback. Understanding the value of the property based on what has sold, and making a good strong offer is key at this point in the process.
11. INSPECTIONS, REPAIRS, APPRAISAL
You have an accepted offer and now it feels like the home stretch…not quite. Next up is home inspections. A home inspection can range in cost from $300-$500 and in most cases the payment will be made at the time of the inspection. This is a period at the beginning of your contract ranging from 7-15 days. During this period the house is checked for any issues through a ‘Whole Home Inspection’ and a ‘4-Point Inspection’. A home inspection should take 3-4 hours (varies based on home size) and within 48 hours your inspector will have a written report of what defects he has found with the home. These defects can range from a simple outlet needing replaced to a full system needing replaced. These inspections can be scary for buyers, and can make or break a deal, but with a simple assessment of the issues and a little research this can be avoided.
Next, the bank will order an appraisal to assess the value of the property. The cost of the appraisal will be included in your closing cost. The appraiser will use recent sales of comparables in the area to assess the value of the home. Remember when your Realtor was helping you with your offer? The Realtor used comparables to help guide you on what a good strong offer would be. The appraiser is using a similar method in his craft in order to determine if the purchasing price and/or amount being financed is a good investment for the bank since the bank will be holding the mortgage on the property.
12. CLOSING 30-60 DAYS AFTER SIGNED CONTRACT
Finally! After all the waiting and time invested you are ready for closing! yay! Closings can take anywhere from 30 days to 60 days after a signed contract. You should have a final walk through either the day before closing or the day of closing. You will spend about a half hour to an hour signing your name repeatedly and being inundated with information. In some states there is a waiting period to receive the keys, but in Florida you will receive the keys after you sign.
I am a visual learner so I have included two videos summarizing this information for others like me: