In case you’re one of the many millennials wondering how to buy a house today, we’ll be honest—it’s definitely not a walk in the park! Most of the time, it’s complicated. Millennial or not, we can all agree that ‘wanting’ to own a house is one thing, while ‘actually buying’ one is another.
It’s pretty overwhelming to think of ways on how to buy a house on your own. If you’re clueless on how to start, it’s important to have a guide to refer to when it comes to this very important decision of your life.
In this article, we lay out the steps on how to buy a house that we think will make the buying process easier. Whether you’ve experienced how to buy a house in the past or if it’s just your first time, here are 8 easy steps on how to buy a house:
- Prepare your budget
- Get your pre-approval
- Hire key people
- Look for a house
- Inspections, inspections
- Get it appraised
- Own it—close the deal
How to buy a house: Things to consider
Regardless of the size or cost of your dream home, buying a house is no easy feat. In fact, you’ve probably heard a thousand times that buying a house is one of the biggest decisions you’ll ever make in life!
And buying a house is not all about money—there are plenty of things you have to consider during the planning stage. Finding the right people, getting the documents together, and finding the perfect house are just the beginning.
Before taking the steps to buy a home for the first time (or the Nth time!), here are things you may want to consider first:
1. Your finances
Having a steady cash flow or a regular source of income is a must when deciding to purchase a home. Owning a house is a long-term commitment and to avoid getting in trouble, you must make sure that you have a stable job or income so you can afford your monthly repayments.
2. Lifestyle and existing debt
Owning a house is far different than renting and it involves more responsibilities. Do you have space for additional expenses like utility bills, maintenance or tax related to owning a home? Do you have existing debt that may affect your ability to make consistent monthly payments for your home? Make sure you’re prepared for the immense financial changes that owning a house brings.
3. Settling down
Are you ready to settle down? Where do you see yourself in 5 years from now? If you think you’re likely to look for other places to settle down in the future, buying a house right now may not be the best choice for you.
4. To invest or not to invest
Given the current market trend, is it the best time to make a purchase? Ask your agent about market trends in your area and their potential to increase (or decrease) in value in the long run.
5. Your goals
Also, what are your goals? Are you thinking of buying a house for investment purposes or because you want a place to live in? If you’re just looking for investments, there are better and more convenient options for investment than buying a home.
How to buy a house now in 8 easy steps
If you have taken those 5 things in mind and you think that this is the right time to buy a house, it’s time to follow the next steps.
1. Prepare your budget
Although buying a house is not all about money, money is still a big factor when it comes to purchasing a home. In the end, it’s still a question of whether or not you can afford to buy a house right now.
If you think you’re mentally ready to make a purchase but still unsure if your finances can handle the stress, you can use a mortgage calculator to help you determine if you can afford a home right now.
Another big thing to consider is the down payment. Most future homeowners are unsure how much money to prepare in terms of down payment. For home buyers, the sweet spot is between 10% to 20% of the property value. Putting down this amount will help you avoid the dreaded PMI (Private Mortgage Insurance), which is an additional expense on top of your mortgage.
When you buy a house, you’re also committing to spend for its future upkeep. Apart from utility expenses, a house also needs maintaining, like a fresh coat of paint, new counters and other—which all translate to more expenses!
The point is, apart from saving for your downpayment and preparing for your monthly mortgage dues, you should also be prepared for additional expenses along the way!
2. Get your pre-approval
Getting pre-approved for a mortgage means that the lender has investigated your credit history to consider you as a suitable candidate for a mortgage. While this may sound quite easy, getting a pre-approval is very important to be considered as a serious buyer.
What do you need to get pre-approved?
In order to get approved, you will need to prepare the following:
1. Your credit score
Having a good credit score should be one of your goals as a future homeowner. Your credit score will determine the interest rates passed on to you by the lender. Some lenders require a credit score of 620 or better. For loans with lower interest rates, your credit score must be at least 760.
Is your credit score good or bad?
- Excellent credit: 720 and above
- Good credit: 680 to 719
- Fair credit: 620 to 679
- Poor credit: 580 to 619
- Bad credit: 579 and below
How to buy a house with bad credit
While a good credit score is ideal, this is not always the case. If your credit score is lagging behind 600, you can still get pre-approved. There are lenders offering loans for individuals with less than ideal credit scores—you just need to look for them.
However, keep in mind that lenders able to offer mortgages to bad credit individuals typically have higher interest rates. Also, lenders may charge PMI (private mortgage insurance) if your down payment falls below 10%.
2. Proof of income
To be able to own a home, you must have a stable income. Your lender may require documents like:
- W-2 statements from the last two years
- Recent pay stubs
- Proof of bonuses or additional income
- Tax returns from the last two years
Apart from the pay stubs, your lender may need to verify your salary by calling your employer or your previous employer. In case you’re self-employed, you may need to provide additional documents to verify your business and your source of income.
3. Proof of assets
As part of the pre-approval process, you will also need to provide proof of your assets like your bank statement/s and investments.
4. Other documents
You will also need to provide other documents, like your driver’s license, social security number (SSN) and other documents that your lender may find necessary.
Just make sure that you provide everything your lender requires so the pre-approval goes smooth.
For mortgage programs that can help you afford a home, this article 11 First Time Home Buyer Grants and Programs You Need to Know might help.
3. Hire key people
While it is true that you can do your own research online, you still need help from other people. Hiring key people to help you in your search for a new home may seem like an extra expense, but employing their help can actually save you a lot of time, and money.
Hiring a real estate agent
Why do you need a real estate agent? Hiring an experienced, local agent will help make the buying process easier, especially when it comes to searching for properties and consolidating the paperwork. If you’re able to hire an agent who’s well connected, you may even get a chance to negotiate better deals through them!
Some of the things you should look for in a good real estate agent:
- Has great communication skills
- Listens to what you have to say, understands what you need
- Has +10 years of experience in your ideal area
- Has good knowledge of the properties in the area
- Good track record
Hiring a real estate attorney
According to Forbes, hiring a real estate attorney to help you understand the complexities of the legalities involved in the purchase of your home should be a non-negotiable. And when speaking of hiring a lawyer, we’re not talking about hiring just someone you know. This means hiring a seasoned attorney who knows how to navigate real estate laws.
Some of the qualities you should look for in your real estate lawyer:
- Must be a full-time lawyer
- Licensed to practice law in your state
- Has extensive knowledge in the laws of your state and the areas within your state
- Proven track record
- Has great communication skills
4. Look for a house
After you’ve done the above, it’s time to look for your dream home! When looking for the perfect house, you must:
Have a ‘buying a house checklist’
Before the search, make sure to clarify what you’re looking for in a home. Sit down and take note of the things you’d like to see in your future home, like the following:
- Price range
- Distance from work or family
- Accessibility (distance from the market, shops, restaurants)
You can put in as much detail as you’d like, like a list of non-negotiables (for instance,
location) and things where you can slightly compromise in (like house color).
Do your research
With your buying a house checklist in hand, and your mortgage pre-approval letter (if you need financing), you can now do your research. Start downloading property search apps and browsing the web for house listings in your ideal area. You can also visit open houses during your free time.
Remember, your search may take a while so just relax in case you feel stuck. You’ll find the perfect home eventually!
5. Negotiate and get the paperwork done
After you’ve found the home of your dreams, this is it—it’s time to make an offer!
Submitting an offer to the property owner means that you’re really serious about purchasing the property, especially if you’re competing with other potential buyers. And when there’s competition for the property, you’ll find that your mortgage pre-approval letter (step #2) would mean a lot!
Negotiating the property would be much easier with the help of an awesome real estate agent who can do the things you probably know isn’t possible, like getting throw-ins like repairs or perhaps other freebies.
Besides getting the help of your agent in drafting the deal and in negotiating on your behalf, you will also find real estate lawyer highly valuable. Dealing with contingencies (conditions in the purchase agreement that should happen so your deal can happen) is part of the buying process and it’s important that you and your attorney work out these contingencies:
- Financing contingency
- Inspection contingency
- Title contingency
- Appraisal contingency
- Home sale contingency
6. Inspections, inspections
You’re nearly there! When you’ve made it this far, this means that you’re almost a homeowner. Before you close the deal though, you have to make sure your future home doesn’t have dark secrets—well, not really dark secrets but potential issues that should be addressed before anything becomes final.
While conducting your own inspection of the place may sound cheaper than hiring a professional inspector, it is important to not skimp on this part because a professional inspection is a ‘non-negotiable’. Conducting a home inspection will help you unearth details of the house that are otherwise invisible to the naked eye. You can have an energy audit, a pipe network checkup or even a precautionary inspection for termites or molds possibly thriving within the home.
7. How about an appraisal?
Your lender will most likely ask for an appraisal of the property before your mortgage is approved.
When should the property be appraised?
Appraisals usually happen once the seller accepts your offer. After the purchase agreement is signed, your lender will order an appraisal of the property.
Who will pay?
As the buyer, you will have to pay for the appraisal. According to The Balance, appraisals usually cost between $300 to $400 (at the time of writing) and may vary from one location to another.
How long will it take?
Appraisals are typically completed in a matter of days, but they may take longer depending on your appraiser’s workload.
What happens after the appraisal?
If your loan amount depends on the appraisal outcome, your lender will choose whichever lower between your appraisal value or the selling price. Once the selling price is higher than the appraised value, your lender will reduce your loan amount.
If the appraisal is the same as the property’s selling price, you’ll likely get the mortgage amount you’ve applied for.
What can you do with a low appraisal?
If one of the contingencies in your offer allows you to call off the deal once the house appraises lower than the property value, you have the option to call off the purchase. You can also try to renegotiate the price with the seller.
8. Own it!
If everything goes well from steps 1 to 7 then it’s time to close the deal! Before this step though, you will have to:
- Of course, get your loan approved. Make sure to wait for your mortgage approval before closing the deal
- Hire insurance for the property. As a safety measure, hire insurance for the property so you have protection in the unlikely event of any untoward incident on your property.
- Have a final walk through. Take a final walk through the property and breathe it all in!
What happens on closing day?
Be prepared for tons of paperwork! On a typical closing day, you and the seller, agents, lawyer, lender, and title representative will have to meet for the house closing.
On closing day:
- you will pay closing costs
- the seller will sign over the property to you
- you will also sign several documents (like settlement statement, mortgage note, deed of trust)
When all of these final checks are made, review all the documents (with your agent and lawyer), pay the down payment and other fees, sign, and close the deal!
Congratulations, you’re now a homeowner now!
More ‘How to buy a house’ resources to help you out
If you think you need more than these 8 steps we’ve shared, here are more resources we think you may find relevant:
- 11 First Time Home Buyer Grants and Programs You Need to Know
- 9 First Time Home Buyer Grants in NY to Check Out
- How much house can I afford?
- 23 Real Estate Websites You Should Never Miss Out
- How to Qualify First Time Home Buyer
- 10 First Time Home Buyer Grants in Texas You Can’t Miss
- How to Buy a House: 15 Steps to Buy a House for the First Time Home Buyer
We hope our how to buy a house guide has helped make the home buying process a lot easier. If you want to share your own experiences in purchasing a home or if you have questions or something you think we can help you with, let us know in the comments section below!