Every process in life comes with important steps that must be diligently followed from the start through to finish. In the same way, there are specific steps you have to follow when buying a house, your level of experience as a buyer in the market notwithstanding. Attempting to go through the process without a formidable plan often makes it difficult to achieve success.
The process has been demystified into 14 detailed steps that will serve as a guide. These steps will help you to navigate through the entire process with ease.
Prepare Well and Do a Lot of Research
Proper preparation is key to achieving success in any human endeavour; it is not enough to have a dream or desire to buy a house because of its importance to human existence. The hunger should push you to prepare and research so that you will have a better understanding of the process. Neglecting preparation and research before getting involved in the process is like putting the cart before the horse.
We now have every information we need at our fingertips as the Internet has made the world a global village. So, as a home buyer, you have to start by researching and preparing, bearing in mind the kind of house you want to buy and the type of financing you are considering. If you are looking to buy a foreclosure, for instance, make research before you start looking at foreclosures. You will get a handful of useful content on the Internet that will help you decide the foreclosure that is a good fit for you.
In the area of preparation, you need to review your finance. Buying a home costs money, hence, you must save money for a down payment and other expenses you will incur in the process. This must be done well before you get out in the market and start actively looking at homes.
When you understand the importance of saving for a down payment, you will not be caught unawares or scramble at a late hour to start running around for the money you need to buy your home. It also makes the process hitch-free for you.
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Check your Credit History and Scores
If you are considering a mortgage for home financing, you must understand that your credit scores and history determine your qualification and impact the terms your lender offers you. A higher credit score helps you to get better terms which can add up to substantial savings over time.
Though your mortgage lender will review your credit history and scores, it is rewarding and time-saving to have a solid understanding of it yourself before you even approach a local real estate agent or mortgage lender.
You have to work on improving your credit score as an excellent credit score will qualify you for the best mortgage. To achieve this, ensure you pay bills on time, pay down debt, aim for no more than 30% credit utilization, and review your credit report and dispute inaccuracies.
The Internet is replete with many resources that can help you monitor your credit history and score, number of recent credit inquiries, number of total credit accounts, and other important information related to your overall credit standing.
Your credit history and scores are essential because if you have credit below the mortgage guidelines, it will be difficult to secure a mortgage. Your credit history and scores can also impact the mortgage interest rate you can secure.
Hire a Top Local Real Estate Agent
The third crucial step to buying a house is to find and hire a professional and qualified local real estate agent. The role played by a realtor in real estate transactions cannot be over-emphasized, so it is recommended you have one to represent your interests when buying a home. Realtors absorb the stress and chaos so that their clients do not feel the pressure. They help you find a home and secure the property with an executed sales contract. They walk you through each step of the transaction – from the beginning on to closing, performing various responsibilities. Trying to buy a home without a realtor can make the process more tedious.
You must, however, be careful when choosing a real estate agent, and ensure you learn how to interview prospective realtors to differentiate between the real and the unreal.
Why the emphasis on ‘local’? A top local real estate agent understands the local market better, having completed several transactions in the same market. To get a professional and experienced buyer’s agent, you need to develop skills in how to interview real estate agents when buying a house. If you know the appropriate questions to ask real estate agents that you are interviewing, the challenge is half-solved.
The questions should bother on mortgage and financing, their real estate track record; their real estate experience; past clients satisfaction; agreements and requirements as well as the latest technological and communication tools they can work with.
The following questions are important:
- Do you require a pre-qualification or pre-approval before looking at homes? How many homes did you sell as a buyer’s agent last year?
- On average, how many buyers are you actively working with?
- On average, how many homes do you generally show your buyers?
- What experience do you have in selling homes in my target areas?
- How long have you been a licensed real estate agent?
- Is real estate your full-time career or a part-time job?
- Can you provide me with testimonials or past clients’ contact information?
- Do you require your buyers to sign any contracts or agreements?
- How do you determine which homes may match our wants and needs?
- Do you attend inspections?
- How do you negotiate our requests for inspections?
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Get Pre-approved for a Mortgage by a Lender
The next step in the home buying process is to get pre-approval from a local mortgage lender. Local mortgage lenders like local real estate agents understand the local real estate market and the local buying process.
Getting a mortgage pre-approval is more desirable than a mortgage pre-qualification because if you get the former, you have an advantage over buyers who have obtained only the latter. Even though it takes extra effort and time to get a pre-approval, it is worth the stress because it could be very helpful in securing your dream home, especially if you encounter a multiple offer solution.
Your experienced buyer’s agent will help find a reputable local mortgage lender as they will have several recommendations to lenders they already have good experience with. So you do not need to bother or get worried about how to get a mortgage lender. This is another reason why it is highly critical to hire only a professional and experienced local buyer’s agent; they would work with you throughout the entire process of buying a house.
Learn about the Local Real Estate Market
Do not jump into a real estate market without taking time to learn about it. It is like learning about a product that will cost you a large chunk of your savings or going into an investment that requires a huge capital layout. Besides, home buying may turn out to be one of the most expensive purchases you will make in life, so it is worth being cautious and taking time to study.
Learn how the local market operates and how competitive it is. Study how many homes sell in the area, most importantly as regards recent successful sales. Real estate markets are different from each other no matter their nearness. It is good you learn about the local market you want to operate in.
The experienced buyer’s agent you hire will help you understand the local market and provide you with the information or places where you can get all the information you are looking for.
The information you gather from studying a local real estate market should answer the following questions:
- What is the current state of the market?
- Is it a buyer’s market or seller’s market?
- What is the absorption rate in the local market?
- What are the real estate property tax rates obtainable there?
Start Shopping Online for Houses
After completing the first five steps, the next thing is to start shopping for houses and visiting those that are for sale. The Internet is a great place to shop for houses. However, ensure you use the right resources and visit the right websites because there is misleading information online as there are useful ones.
Utilize the service of the experienced buyer’s agent you have hired. They should have an accurate house search on their website. Also, keep in mind what you need in a home and what you like your home to have as you decide which homes to visit. For instance, if what you want is a 4-bedroom duplex, visiting homes that do not meet such requirements is time-wasting. You cannot visit every home you see.
Go Find the Perfect House
When hunting for a house, you want a house that is a perfect fit. Even if you do not find a house that is perfect in every sense of the word, it should be very close to what you want. You should sit down to come up with what you will consider a perfect fit because perfection can be a nebulous and relative concept. Using the list of what you need and crave in a home in ‘Step 6’, it will be easy to identify what you are looking for.
Use the list to create a checklist that you can take to every home you decide to visit, and check off those necessary on the list. If most of the items are missing in a home, it is a sign that you have not found the home you are looking for yet.
Also, learn some of the red flags to look out for when buying a house. The red flags include but are not limited to:
- Structural problems;
- Defective electrical wiring;
- Bad plumbing system;
- Water problems;
- Roofing problems;
- Bad neighbourhood;
- Insects and pests;
- Random fresh paint patches;
- Exterior cracks or tilts; and
- Agent shutting you out from asking questions.
Hiring an experienced local buyer’s agent makes this step too easy for you. They will be able to call your attention to potential issues that portend danger or loss of any kind in the future.
Make an Offer
Having done all due diligence during the searching stage, you have found a house you are sure is perfect for you. What is next then? Make an offer on the house. That is the next thing. But making an offer is not as simple as it seems because it involves making many decisions, especially if it seems the home is overpriced.
You have to decide on how much to offer for the house as you want to be cautious when determining the price so as not to pay more than you have for the house. And you do not want to make an insulting purchase offer also.
When determining the price you are going to offer, you should rely on the expertise of a professional local real estate agent. Let them do a comparative market analysis (CMA), comparing recent sales of houses in the area.
Apart from the decision on how much to offer, you need to include the following terms and deadlines in your purchase offer.
- What is the target closing date?
- How much should you make as a deposit?
- What common real estate contingencies will you include?
- Will you request the seller to provide permits?
- Do you need to ask for seller concessions?
- When will you receive a written mortgage commitment?
Setting the perfect terms and deadlines can help. Set an offer that you completely comprehend what each section means. Have a professional local buyer’s agent represent you in this regard as well.
Complete Inspections
After your offer is accepted, the next step is to complete the necessary inspections stated as one of the contingencies in the purchase offer. If one of the contingencies is a home inspection, you will have a certain number of days to complete the inspection after the offer is accepted. A home inspection is an important part of the home-buying process even if the house is new.
Not completing the home inspection within the stipulated number of days could cause you to lose out on your perfect house. Ensure you also carry out the following inspections:
- chimney inspection;
- radon test;
- pest inspection; and
- structural inspection.
Complete the Formal Mortgage Application and Work Closely with your Lender
Once you have completed the inspection and other essential negotiations, know that it is time to complete the formal application with your lender. At the initial stage of the application, the documents you will provide for verification include your tax returns from the last two years, recent pay stubs, recent bank statements, and details of your employer. However, during the formal stage, you will pay for the bank appraisal and lock in your interest rate.
Skipping the mortgage rate lock could prove to be a costly mistake, so ask your lender about the rate locks and ensure you understand what it means as the borrower. After completing the formal mortgage application, understand that you have to continue to interact with your lender as you will still be required to provide specific documents such as updated bank statements, letters of explanation on items that may appear on a credit report or large deposits into a bank, etc. until you satisfy all the conditions that your mortgage commitment is contingent upon.
You must ensure you are in constant touch with your lender and provide all the documentation required timely. Not doing this will result in a delay in the closing.
Bank Appraisal is Completed
Bank appraisal is carried out when you are applying formally for a mortgage. The appraisal is performed by a third party (an appraiser) that the lender hires but is paid for by you (the borrower).
The appraiser evaluates the subject property and determines that the sale price agreed by the buyer and the seller is fair enough for the current market. The appraiser will also make sure there are no safety issues with the house. The appraiser determines the value of the property by comparing the property to about three recent sales in the area within the past 12 months and makes adjustments where required. This helps to get the current market value of the house.
The safety issues that the appraiser will look out for include peeling paint, broken windows, missing handrails, roofs in poor condition, and a handful of other potential safety problems. If there are repairs arising from the appraisal, it must be completed and re-inspected before the lender approves the funding.
It is common to discover that most houses appraise for less than the sale prices.
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Final Walk-Through
After the bank appraisal is completed and the closing date and time are set, another crucial step you have to take is to perform the final walk-through. It is your right to walk through the house one last time to make sure the house and all its components are still as they were when you submitted the purchase offer, and that all the repairs discovered during the inspection stage have been fixed.
During the final walk-through, your buyer’s agent is expected to check the HVAC systems, plumbing, lighting, and all other utilities. If the condition of the house is not satisfactory to you at this stage, you should inform your lawyer so that you can resolve it with the seller before the closing.
Close the Deal and Get Keys
The closing day has finally arrived after the cumbersome process. The two actions you have to take next would be to sign some vital documents, get the keys to your home and move in. If you understand what to expect at this stage and the documentation and identification you will be required to provide, things will be a lot easier for you.
After you have signed all the required, you will receive the keys to the house if your purchase offer says you will receive possession at closing.
Move-In
Now that you have completed the process and gotten the keys to your home, you can now move in. It is not easy to move but if you are well prepared for it and know the steps to take, it will be much easier. Adequate preparation is needed if you are moving with kids, and probably friends, too.
After moving and settling in, you can quickly change the locks, change address with the necessary agencies and bodies, inform your employers, schools, and other establishments of your new address, meet and get familiar with your neighbours, and enjoy your new home.
Closing
Buying a house involves a process that is not as simple as it seems. You have to be adequately prepared, plan, work through each stage, and execute your plans with dexterity.
If you follow the 14 steps explained above, the process will be much easier than you expect.
