How To Buy a House

Buying your first house is a significant milestone, but it can be a daunting process filled with complexities and potential pitfalls. This no-nonsense guide will help you navigate the journey with confidence and clarity.

Preparing to Buy

Get pre-approved for a mortgage before starting your home search. This will help you know your budget and make you a more competitive buyer.
Don't forget to budget for closing costs, which can be 2-5% of the purchase price. These include things like loan origination fees, appraisal fees, title insurance, etc.
Look into first-time homebuyer assistance programs in your area. Many states, cities and counties offer down payment assistance, lower interest rates, tax credits and more.
Have an emergency fund in place in addition to your down payment and closing costs. Unexpected repairs and maintenance are inevitable as a homeowner.
Check your credit score and address any issues before applying for a mortgage. A higher credit score can help you secure a lower interest rate.
Make a list of your must-haves and nice-to-haves in a home. This will help you stay focused in your search and make trade-offs when necessary.

Finding a House

Personal Connections

If you have a personal relationship with someone who wants to sell, pitch them on selling directly to you to save on broker fees. (Sellers typically pay both buyer and seller broker fees in residential real estate.)

Using a Realtor

If you don't have a personal connection, you'll need a realtor. Here's a quick overview:

Brokers vs. Agents

Brokers: A broker runs a brokerage and has agents working under them. Different brokers offer varying levels of support and commission splits. A broker spends their day building the business through recruitment and marketing, while agents are out in the field representing buyers and sellers.
Agents: Agents are typically more hands-on, dealing directly with buyers and sellers. While they may not have the same level of experience as brokers, they often have more recent and direct market knowledge.

Licensing

Brokers usually have more experience since obtaining a broker's license is more challenging than an agent's license. Check your agent's credentials in your state's licensing database for consumer complaints and licensing history.

Why Do You Need an Agent?

If you don't have a personal seller, you need an agent to access the Multiple Listing Service (MLS), an exclusive marketplace for licensed individuals.

Agents' Role

Besides MLS access, agents facilitate deals. While they may not be experts in real estate law, finance, or construction, they should have connections to professionals in these areas.

Working with Your Agent

Sit down with them to craft a perfect MLS search and set up auto emails. Inventory is low, so be quick.

Additional Considerations When Choosing an Agent

Experience and Specialization: Choose an agent with experience in the type of property and neighborhood you're interested in.
Communication Style: Ensure their communication style matches yours. You'll be in constant contact, so a good rapport is essential.
References and Reviews: Check online reviews and ask for references from past clients.
Understanding of Your Needs: Make sure your agent understands your must-haves and nice-to-haves and is committed to finding a home that fits your criteria.

Think Long-Term

When choosing a house, think beyond just the property itself. Consider factors like:

School district: Even if you don't have kids, being in a good school district can boost your property value.
Appreciation potential: Look at trends in the neighborhood. Are home values rising? Is there new development happening nearby?
Your timeline: How long do you plan to live in the home? Your needs in 5-10 years may be different than they are today.
Resale value: While you may love a unique property, consider how easy it would be to sell in the future.
Commute: Consider the distance to work, schools, shopping, and other places you frequent.

Finding a Mortgage Broker

Two Key Factors

Rate and Leverage: An FHA mortgage offers high leverage but includes charges like mortgage insurance. Shop around for the best rate.
Closing Capability: Quotes and pre-approvals are easy, but closing a loan is where the challenge lies. Get recommendations from your agent for reliable mortgage brokers.

Extra Tips

First-Time Buyer Perks: Look for federal, state, or city incentives.
Buying Down Your Rate: Discuss this with your mortgage broker if you plan to stay in the house for a long time.
Get quotes from multiple lenders: Interest rates and fees can vary significantly between lenders. Getting at least 3-4 quotes can help you find the best deal.
Understand All Costs: Besides your monthly mortgage payment, factor in property taxes, homeowners insurance, HOA fees (if applicable), and utilities.

You Found a House, Now What?

With an agent, mortgage broker, and a house you like, your agent will submit a bid. Here are the key terms:

Purchase Price: The amount you're willing to pay for the house.
Diligence Period: Usually 10-15 days from bid acceptance, during which you can inspect the property.
Earnest Money: A deposit, usually 1-10% of the purchase price, showing you're serious.
Mortgage Contingency Date: Typically 30 days, allowing you to back out if you can't secure financing.
Closing Date: Usually 45-60 days from bid acceptance, when the transaction is finalized.
Inclusions and Exclusions: Specify what is included in the sale (e.g., appliances, light fixtures) and what is not.

Understand if your bid is a binding agreement or just a letter of intent.

Diligence Period

Inspections

Hire a home inspector to identify potential issues. Remember:

Major issues are often visibly apparent.
Home inspectors aren't construction experts.
Consider additional specialized inspections if recommended by your general inspector, such as for radon, mold, or a sewer scope.
Attend the inspection in person. Seeing issues firsthand and being able to ask questions is valuable.

Negotiations

Use the inspection report to negotiate a lower price by presenting repair quotes from contractors.

Seller Credit vs. Price Reduction

Opt for seller credit to cover expenses like prepaid taxes and insurance, reducing your closing costs.

Don't Get Too Attached

It's easy to fall in love with a house, but try not to get too emotionally invested. If the inspection reveals major problems or you can't come to an agreement with the seller, be prepared to walk away. There will always be other houses.

Mortgage Contingency

Protecting Your Earnest Money

This clause allows you to back out and get your earnest money back if you can't secure a mortgage. Push your lender for an "unconditional commitment" to ensure they'll lend you the money.

The Home Stretch

Even after the contract is signed, stay vigilant. Regularly check in with your agent, mortgage broker, and lawyer to keep the process on track.

Active Monitoring

If you don't hear from someone for a while, it might indicate problems. Constant communication ensures everyone is doing their part to close the deal.

Hire a Real Estate Attorney

While not required everywhere, it's wise to have a real estate attorney review your contracts before signing. They can help identify issues and protect your interests as a buyer.

Final Walk-Through

Do a final walk-through of the property just before closing to ensure it's in the expected condition. Check that any agreed-upon repairs have been made.

Closing Day

On closing day, you'll sign a lot of paperwork and get the keys to your new home. Make sure to:

Review all documents carefully before signing.
Bring a government-issued photo ID.
Bring a cashier's check or arrange a wire transfer for your down payment and closing costs.
Consider changing your locks after closing, as you don't know who may have had keys to the house previously.
Keep all your closing documents in a safe place for future reference.

After You Move In

Update your address with the post office, your employer, banks, and other important contacts.
Review your homeowner's insurance policy and update your coverage if necessary.
Create a home maintenance schedule to keep your house in top shape.
Introduce yourself to your new neighbors and get involved in your new community.

Final Thoughts

Buying a house is a significant milestone. Stay informed, proactive, and prepared for hiccups along the way. With the right knowledge and approach, you can navigate the complexities and secure your dream home.

Remember, owning a home is a big responsibility, but it's also a rewarding investment in your future. With careful planning and this guide in hand, you're well on your way to making smart decisions and building long-term wealth.

Go forth and be a savvy homeowner!