Seven steps to buying a home: stay on track and achieve your home ownership dream!
Are you ready to buy a home but don’t know where to start? Looking at homes is probably the best and most exciting part of buying a home, but there’s certainly more to the process. Here are a few key steps that will get you on track to buy a home.
Step 1: Save for a down payment
Are you aware of how much money you will need for a down payment? Depending on the type of loan you qualify for, you could buy a home with 0% down, but typically you will need at least 3.5% down. In addition, you’ll need funds for earnest money, usually $500-$2000 or more, readily available within three days after acceptance of your offer by the seller.
Earnest money is money you pay after your offer is accepted by a seller. The earnest money acts like a down payment on the property to show that you are a strong buyer when writing an offer.
If the transaction is successful and makes it to closing, the earnest money is credited back to you and deducted from the amount of money you bring to closing (down payment, add closing costs, subtract earnest money). If a transaction fails to go forward, earnest money is usually given back to the buyer and the property goes back on the market.
Step 2: Engage a lender
A lender is one of the first people you want to begin a relationship with when you are looking to buy a home. They can check your credit scores, help you prepare a savings plan for down payment, look at your income to see how much you can afford, and provide insight on what your monthly payments would be.
When qualifying for a mortgage, lenders can also calculate likely monthly taxes and private mortgage insurance, including home insurance and association fees, if any. This will give you a complete understanding of your budget, purchasing power and actual monthly payments.
Private mortgage insurance is required if you provide under 20% down for your home purchase. The insurance is added to the monthly mortgage payment.
All of this can sound a bit scary to some home buyers, but buying a home is definitely an obtainable goal so don’t be discouraged. Qualifying for a home is the next critical step and necessary before looking at homes with a realtor. It is also in your best interest to know your price range before looking, so you are not comparing homes outside your range to the homes you qualify for.
Helpful tips when working with a lender:
- It is best to be forthright with the lender about any known loans, liens, or judgements right away as you don’t want any hidden issues to come up later on, for instance after you have found a home you are trying to purchase.
- When you are in the home buying process, check with your lender before making any big purchases such as furniture or a vehicle, as this could affect your debt-to-income ratio and prevent you from being able to purchase and close on a home.
Debt to income ratio is easy to calculate: take your monthly total debt payments and divide by your total monthly income. This number is important to lenders as it measures your ability to manage monthly payments and repay your loan.
You are pre-approved, now what?
Now that you have chosen a lender, you will have received a pre-approval letter from them. You can now choose a realtor to help find you a home. This is the exciting part of buying a home!
Step 3: Choose a realtor
Having a good realtor by your side when searching for a home is extremely beneficial to you. Some real estate agents are more experienced than others, so choose wisely and make the best decision for you. Here are some ideas as you begin your search for a realtor:
- Look at reviews
- Ask for a referral from friends and family
- Is the agent available by phone and call you back in a timely manner?
- Are they trustworthy and do they have your best interest at heart?
- Are they knowledgeable about real estate and the current market?
There are risks in buying real estate, so having a good realtor you can count on helps reduce some of those risks. Especially if this is your first major property purchase, you’ll want your realtor to provide guidance at each step and help you be on the lookout for potential issues.
Helpful tips when working with a realtor:
- Broadening your search parameters can sometimes provide more homes in your price range.
- Writing a strong offer should help give you the best opportunity of a seller accepting your offer over another.
Step 4: Find the right home
When you start looking at homes online, you will get a sense of what you like and need in a home and the price range affiliated with those types of homes. Another good thing to consider when looking is room size and square footage. Knowing how big or small of a home you need will narrow down your search and get you closer to making final decisions. The location of the home is also a key factor. Check out maps and how many miles you will travel to town, schools, stores, and health facilities. Maps will also show you the lot size, tree coverage, and how close you are to neighbors.
Realtors are prone to asking questions when it comes to setting up search parameters. They will need to find out what your price range is, what town/cities you are interested in, size of home with number of rooms needed, acreage/yard space, as well as garage or extra buildings on the property. Discussing some of these things ahead of time with your realtor will give them an idea of what properties may be a good fit for you in accommodating those needs.
Finding the right place to call home can be a challenge. Trying to get on the same page as a spouse, sometimes even more difficult. Compromising is key! There will always be things you like and things you may not. If the space inside the home feels right, the location and neighborhood is good, and all there is to do is make it your own, great! If it needs more work than you expected, move on, the right home will come along. If you have the resources to do a major overhaul or want sweat equity, that is fine too! Deciding as you go will help narrow options to reach a good decision. A house is not a home till you move in and make it yours!
Step 5: Write an offer
You and your realtor have found the house! Now what? Time to write a good offer! This is one place in the process where the expertise of the realtor really shines. An experienced realtor will help by going over all legal documents and what they mean, terms of the offer and how each term can affect the overall offer, along with providing ways to write a strong offer that sellers don’t want to refuse. Your experienced realtor knows market conditions, can provide sold comps, and can negotiate on your behalf.
Read and ask questions along the way so you understand all of the legal documents that you are signing, especially Buyers Agency. These are valid, legal, and binding documents. Take the time you need at this step to review before signing!
Buyers Agency is a legal contract between you and the firm based on both parties’ duties and obligations during the contract period and discloses how commission shall be paid.
Step 6: The property inspection
There are a few different inspections a buyer could request before purchasing a property. Inspectors look for any major defects that would prevent health and safety to those living in the home. Home Inspectors visually look for any structural or mechanical issues. They cannot test surfaces for mold or destroy the home in any way. Inspectors will check appliances, plumbing, and mechanicals to verify they are all in working order and to code. If a home inspector finds anything concerning, it is up to the buyer and seller to do further investigation or bring in contractors if necessary. A Well and Water Inspection tests water and well components. A Septic Inspection looks for cracks and other related system issues that could cause concern. A Radon Test measures radon gas in the lowest levels of the home to see if they are below 4.0 as set by the Environmental Protection Agency. All inspections are optional, scheduled and paid for by the buyer.
An inspection contingency is one of the most important parts of the home buying process. This step ensures the purchase does not go forward until the buyer has a chance to learn and understand any issues the property may have. A person can waive the contingency and still have an inspection non-contingent, or buy as-is.
Step 7: Appraisals
Appraisals are paid at closing by the buyer as part of the closing fees. Once the Inspection Contingency has been removed, a Title Company orders an appraisal. The Appraiser goes out to the property and does an evaluation of the home, while looking at similar sold properties to determine value. The buyer receives the report after the appraisal is complete. If the property appraisal meets all requirements, the purchase moves forward. If not, the parties go back to the negotiating table to see how to proceed. This will determine if you, the buyer, will still go forward with the purchase, or if the property goes back on the market and the housing search starts over. This can be a difficult situation to be in which is another reason to have experienced realtors for both the buyer and the seller. Realtors will go over options with both parties and hopefully reach a mutual agreement.
Time to close and move in!
Once all contingencies (Inspection, Appraisal, and Financing) are removed and final underwriting is finished by the lender, the sale will be approved and given “clear to close” on the property. Documents will be sent to all parties and the title company will then schedule your closing date. The title company will send you an Alta Statement three days prior to closing stating the amount of money that you will need to wire or certify to the title company. Once that is done and all documents are signed, you now own the property and will be handed the keys. This is an amazing moment that you have worked hard to achieve! It is time to move in and enjoy your new home. Congratulations!
We can provide you the expertise you’re looking for! If you are ready to begin your home search, our real estate agents offer superior communication along with area and market knowledge.
Stop by or give us a call at Route 63 Realty in Hayward, Wisconsin 715-558-7846. Our staff are readily available to help answer any questions you may have.
“A house is not a home till you move in and make it yours!” – Route 63 Realty