Walk Here to Learn All The Steps to Buying a House
First-time homebuyers might think that they just find the house they want, then go to a bank and obtain a mortgage. While it would be lovely if it were that simple, many more steps to purchase exist. Whether you want to buy property or a finished home, the process takes at least five steps, sometimes it requires more than that.
1. Qualifying For a Loan
While you might think finding the perfect house would top the list, no, it doesn’t. You first need to learn how much house you can afford.
Visit the Bank or Credit Union
That means visiting the bank or credit union first. You need to know whether you qualify for a mortgage and how much money you can borrow.
Sometimes, this proves a harsh trip, since you learn quickly that you do not yet qualify for a traditional loan. That simply means you need to improve whatever makes you ineligible. For example, you might have only missed qualifying because of a low credit score or an insufficient credit history.
Credit history
You need an extensive credit history and gainful employment to qualify for a mortgage. Wealthy people can simply purchase a home outright, so they get to skip the mortgage part. If you do not have money in the bank, so that you could just go buy something and move in, you need a loan to purchase a home.
Ask the loan officer why you did not qualify. Often, this problem can be quickly solved. You can raise your credit score by about 25 points in just six months. That period of time also contributes to your credit history.
You might not have resided at your current address long enough or you have not been employed by your employer for a long enough period.
These items simply require renting for six months to change. Always ask why you did not qualify, so you can fix the problem quickly. Some problems can cause larger issues that require you to shop around for a loan program.
Shopping for a Loan Program
As hinky as that might sound, while you might not qualify outright for a loan from your bank, you may hold some status that would immediately qualify you for a mortgage from a specialized group or organization.
Military Options
If you served in the military or currently do, you could apply to the Veteran’s Administration (VA) Loan Program. Pretty much every veteran or active service personnel qualifies for this program. Rather than originating the loan, they guarantee it. That lets the bank know that if something happens to you that you cannot work and pay your mortgage, they still get their money. That often convinces the bank to offer you the loan, since they assume no risk.
Military Options
You may reside in a rural area. Perhaps your family owns a farm, but now you got married. You and your spouse want to purchase your own place, but you will continue to work on the family farm. It could be tough to find a mortgage with that risky of an income. There’s a big reason that crop insurance exists.
Enter the United States Department of Agriculture (USDA) to the rescue. Yes, the USDA, in addition to emergency loans to help save small farms during times of crisis, also offers loans to assist with rural development and first-time homebuyers in rural areas. The program exists to help keep rural America strong and help farms continue with domestic production of our crops, which we would otherwise need to import from other countries to survive.
Native American Home Ownership Programs
Members on the rolls of any nationally recognized Native American or Native Alaskan nation qualify for a Section 184 loan. These home mortgages provide for a low down payment and flexible underwriting for loans designed to help “American Indian and Alaska Native families, Alaska Villages, Tribes, or Tribally Designated Housing Entities” qualify for home loans. You can use the program to purchase a home on or off of reservation lands, also known as tribal lands.
Other Programs
You can find many other programs offered by the US government to help you qualify for a home loan. You can probably find help among these programs, which range from home buyer vouchers for those residing in low-income housing to Federal Home Administration loans.
2. House Hunting for the Perfect Home
Let’s say you qualified for a mortgage. You now know how much house you can afford because the bank will not loan you more than you could pay back while working your current job.
Now, you can house hunt!
House Requirements
How exciting. Now, what do you need in a house?
You need to think about that before you look. It becomes simpler if you’re single or married with no kids, but as long as you have children, you have a lot more to think about before visiting homes. The same is true if you intend to have children.
How many bedrooms do you need?
How many bathrooms do you need?
What is the highest crime rate neighborhood in which you would willingly reside?
What grade schools would you willingly accept?
How close do you need a home to be to a neighborhood park?
How large of a yard do you want?
Do you want a swimming pool?
Does the home need a designated home office?
Does the home need a designated media entertainment room?
Answer each of those questions in written form. You need to have a list of your home requirements to reference. This helps you avoid purchasing a home that misses an important requirement but otherwise suits you.
Those major items decide what you will tell a real estate agent you need. If you’re single and simply want small digs to call your own, you will have a much simpler shopping trip than a married couple with two or more children.
3. Find a Real Estate Agent
Ask around locally for a real estate agent if that’s where you will live. If not, you need recommendations from people who live in the types of neighborhoods in which you want to live. While you could look at Angie’s List or a similar site, if you need to relocate for work, your best bet is to ask someone at the location to which you will move.
Once you have your real estate agent, you provide them with the home requirements. They only show you houses that qualify for all of your requirements and fall into your price range. By pre-qualifying, you took the heartache out of home buying. What often happens is that you see a house you love, but it costs remarkably more than you can afford. By pre-qualifying, you find only the ideal houses to even consider, since you already know what you can afford.
4. Virtual First Looks at Houses
Your realtor provides you with five to ten homes to visit. You might look at photos or a 3D virtual tour of them first. This could help you nix a few options that either don’t look like what you like or miss some criteria in your eyes. Perhaps one has enough bedrooms, but they aren’t large enough. Perhaps the yard seems too vast to mow yourself and you love doing that.
5. House Hunting In Person
You’re looking at future homes! Go you! The first three don’t float your boat, but you fall in love with the fourth house you visit. You and your spouse cannot imagine a more perfect spot. There’s even an extra bedroom in case you have a baby. The yard seems manageable and the neighborhood just perfect. There’s even a cool shopping complex just four blocks away. You can walk to the coffee shop.
6. Making Your Offer
You tell your realtor to tell their realtor you want it. You make an offer. Uh-oh. Someone else made an offer, too. You ask your realtor to counter-offer if provided the chance. Oh, the waiting…
You lucked out. The other potential buyers did not pre-qualify as you did. They cannot obtain a mortgage quickly, so you do not need to counter-offer. Isn’t this awesome? You and your spouse get the house of your dreams and for the price you offered.
Wait. There’s more.
7. The House Inspection
Before you can buy, or rather before the owner can sell it, the house undergoes an inspection. This uncovers potential huge problems like a leaky roof or a basement that floods every time it rains. You might love the house so much you want to go ahead with the purchase.
You can ask the owner to make repairs using some of the earnest money from the purchase. They do this before you move into the house. Alternately, you can ask them to knock the cost of the repairs off of the cost of the house. That lets you get it for less and you can make the repairs after purchase or hire someone to do it.
6. Buyer and Owner Agreement
The owners agree to the solution you offered. You both sign copious amounts of paperwork. You exchange niceties, they provide your bank with the deed, you with the keys, and they skedaddle. They’re due for a vacation. Getting a house ready for sale takes a lot of work.
You move into your home. You get to snuggle up in your own bed every night and get up each morning to get ready for work in peace and solitude. You build equity while you make your on-time, monthly mortgage payments. Oh, look at you! You’re building wealth without even realizing it.
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