Buying a house represents an expensive and life-changing undertaking. With the average cost of a home in the U.S. around $187,000, according to the Financial Post, it is more important than ever for home buyers to carefully compare the houses they have an interest in buying to determine the best deal.
This article walks you through the home-buying process, from initial research to signing the final paperwork.
A 10-step process to buying a house
Step 1: Research housing trends. Start by researching the housing trends in your area.
Compare current market values against house values from previous months.
You also need to look at how long houses in your area tend to stay on the market.
This will help you determine the atmosphere of the market when you decide to buy. Called a buyer’s market, lower-priced houses that tend to stay on the market longer indicate that conditions are right for buying, as you can usually get a lower price for houses during such market conditions.
The opposite of this, a seller’s market, means higher overall housing prices. You might also need to act quickly when buying the house you want during a seller’s market, as houses tend to sell quickly.
Step 2: Determine budget. Next, determine how much you want to spend on a home.
Lenders usually advise that you don’t buy a house that costs more than three to five times your annual household income, and that’s if you put down 20% as a down payment.
You also need to keep in mind any other debt you currently owe and determine if you can comfortably pay that debt in addition to a house payment.
Step 3: Apply for pre-approval. Many real estate companies require you to get pre-approved with a lender before they will show you houses to buy.
The pre-approval process involves a credit check, verification of your income, and determining whether you need to pay a down payment or not.
Income level determines whether you qualify for a no-down-payment loan. Loans, such as through the Federal Housing Administration (FHA), require at least a down payment of 3.5%.
Step 4: Find a real estate agent. Once you have pre-approval, you can start looking for a real estate agent.
A good real estate agent knows the area you want to buy in. In addition, a good real estate agent can give you tips on how to proceed when buying a house, such as how to negotiate the best price.
Step 5: Look for a home. Working with your chosen real estate agent, start looking at homes that interest you.
Take photos or video of each home you visit so you can look at what you liked and didn’t like with each home.
While touring a home, make sure to check such details as the plumbing, electric system, and windows and doors.
Check out the neighborhood around the home to make sure the neighbors keep their homes maintained, the parking situation (especially important for homes with on-street parking only), and other locations in the area, such as schools, shopping centers, restaurants, and healthcare.
Step 6: Make an offer. Once you decide on a house, make an offer.
This offer should be based on the going rate for other homes in the area and any repairs you have to make to the home right from the start.
Step 7: Get the home inspected. Once you have made an offer, set up a home inspection.
Your purchase of the home usually depends on the home passing this inspection. If it doesn’t pass, you do not have to buy the home.
Home inspectors look at the various structural components of a home to find the following:
- Signs of water damage
- Safe electrical connections
- Whether the heating and air conditioning works properly
- The proper working of ventilation
- Deterioration level of insulation
- Any improperly functioning doors, windows, or appliances
As an option to not buying, you can ask for a lower price or that the seller fix any of the items that the inspector found at fault.
If you decide to buy the home, you should have a final chance to perform a walk-through to make sure the seller has made all of the agreed-upon repairs.
Step 8: Select a loan. Following the inspection and agreeing to buy the home, you need to find the loan type that best fits your budget.
Depending on what you need, lenders have a wide selection of loan programs to choose from. Some determining factors on the loan type you choose include:
- How much you want to spend each month
- Whether the monthly amount can change over time
- How long you plan on staying in the home
Step 9: Get an appraisal. Getting a house appraisal represents the last step before signing the final paperwork.
The appraiser will look at the home and determine if you are paying a fair price for the house. Never associated with the lender, the appraiser works for a third-party company.
Many lenders might refuse to lend money to you if the appraisal is lower than the amount the seller is asking for. In a case such as this, you have one of two options as outlined below.
- Make up the difference in price yourself with a bigger down payment.
- Walk away from the deal.
Step 10: Sign the paperwork and close. Once everyone is satisfied, it is time to sign the paperwork and close on the property.
During the closing process, the seller transfers the title of the property to the buyer, the buyer signs all loan documentation, and the buyer receives the keys to the property. In some cases, the sellers, if still living in the home, have a certain amount of time to vacate the premises before the new homeowners take possession of the property.
While buying a home can seem daunting, by understanding the entire process you can ensure that everything goes smoothly. Keep in mind that any time you have a question, your realtor is there to give you the answers you need.