A quick description of the steps needed to buy a home.
When my wife and I were buying our first home, we started out as most people do. We drove around the area that we were considering, to find “for sale” signs on different homes. We took the information from homes we liked, so we could contact the Realtor.
At this same time, I went to the bank to find out about the home loan.Before we knew about our standing with the bank, we contacted a Realtor who was always sending us fliers, and who was selling a house we were interested in. His first question to me was “Have you been approved for a home loan?” Since I had not been, he told me to call back once we were approved, and then he hung up. Fortunately for us, another Realtor we contacted that day called back asking to set up a meeting with us, and he was the Realtor we used to find our home. He was great in explaining the steps to us. The steps below may not happen in the order listed, or may not happen at all, but they are a good way to find and purchase your home.
Before I go through these steps, I would like to mention that there are several resources and agencies which help first time home buyers. My favorite for information is from HUD. Even if you are not buying a HUD home, you might want to read some of their guides. There are links to some of these organizations listed on the Resources for the Home Buyer page.
Step 1 Our eyes are bigger than our wallet. Most of us drive through a neighborhood looking for a home that matches our dream home. The only problem is that we might not be able to afford it. I recommend going to your bank or mortgage broker to pre-qualify or to be pre-approved for a home loan. Once you know what you can afford, you can narrow down your search parameters.
Step 2 Find a realtor. You can find and purchase a home without a realtor, but a realtor can save you time and money. When you present a realtor with the information about your desires and price range of a home, they can quickly narrow down the range of homes to show you. They can also help you through other steps of this process, so you do not have to go hunting for information and services. Finally, they will help you through the closing process. Remember the Realtor who is listing a house for sale works for the seller, so they will be looking for the best deal for the seller, but all Realtors work by a code of ethics, so no Relator will treat you unfairly.
Step 3 Making an offer for a home. Each seller will want to get the best price, and the buyer will want the best deal. Your Realtor will know the market conditions, so that your offer will be accepted. A price on a home depends on a number of factors, and the buyer’s inclination is to go low, so do not be surprised when your Realtor suggests otherwise. For example, I wanted to offer $4000 less than the asking price for my home, but the Realtor told me that was a bad idea. He pointed out that the home had been listed for much higher, but the seller had to do a lot of major repairs along with coming down on the price. Other homes in the area were actually listed $10,000 more than the house I was looking into buying. My offer would have been immediately rejected. If you do make a lower offer, the seller may come back with a counter-offer of a price he will accept, or he may just not accept your offer. A Realtor can be an asset to judging how to bring about these negotiations to a successful conclusion.
Step 4 Once you are in negotiations for a home, you will probably want to know its condition. There are different inspections which can be done. The two most common are the home inspection, and the WDI report. I describe the home inspection in detail below. A WDI report is created by a pest control company. WDI stands for “Wood Destroying Insects”. Other inspections are: alarm system checks (performed by security companies); HVAC check (performed by air conditioning firms); pool inspection (performed by pool maintenance firms); and a structural analysis by a structural engineer. You can even have a plumber check out your water supply systems. Many people will have a foundation company perform an inspection. How far you go or do not go is up to you, but an inspection cannot tell you whether to buy a house or not; it can only tell you the home’s condition. To be safe, I would suggest the home inspection, so that you will have a general idea of possible issues with your home.
Step 5 After the inspection(s), you have a chance to re-evaluate your offer. If there is a major problem, the buyer may want the costs of repairs to be deducted from the price, or he may want the repairs done by the seller before closing.
Maybe some equipment is still functional, but it is old, so the buyer may want a home warranty insurance to cover the equipment if it breaks down in the first year. When I was at this stage, I really wanted to have every little thing repaired by the seller, and I was still hoping to lower the price of the home. Again my Realtor was a voice of reason. He pointed out that the repair issues were minor, and we would just be petty insisting that the seller should cover those costs. My Realtor did suggest asking for the home warranty, which was not a bad idea.
Step 6 This step will probably be happening at the same time as step 5. You may need a survey of the property. This can be required by the lender or the title company to establish what is being purchased. If the home has been recently (usually within two years) surveyed, you may not need a new one.
Step 7 Your lender may require an appraisal of the property. This is to determine if the property’s value is in line with the price that you are paying.
Step 8 Arrange for homeowner’s insurance. There is a section below with tips on this topic.
Step 9 Make arrangements with the mortgage lender and title company for payments needed. Costs could include charges for the survey, the appraisal, the title, or any service provider’s fee. Service providers could include home inspector or attorney. You may need to pay the insurance at this time, or money to the bank.
Step 10 The final step is the closing. There is a section below to help you make this process easier. Closing is tying up all paperwork and fees, in order to transfer the house to you.
Lastly, the time period before closing can be hectic. It is advisable that you go through the information being presented to you to prevent any problems. You may not be able to read everything, so ask questions of every one you are contacting, and write notes on what was said. My experience at this time was that people acted like I should all ready now all the terms, while understanding all of the implications of what I was doing. In part, this happened because for some workers, there was an assumption that I should know, and others just were not good at explaining. There was also an element by some of taking advantage of my misunderstanding, but few people that you are dealing with will behave in this manner.