So, you have these moments in life when everything just starts to come together. About a decade ago, I got engaged and I got a call from our Realtor saying that the offer we put in on a house was accepted. All in the same week!
For those that have never bought a house or haven’t bought one in a long time, here are the nine biggest steps that I encountered in buying my first home. There are so many things that can go wrong in the process of buying a house that I didn’t even think it would be worth writing about until I had been all the way through the process. The following steps assume you will be taking out a mortgage to buy your house (cash buyers would skip a lot of steps and probably know enough that they don’t need a list like this anyway).
9 Big Steps to Buying a House
1. Find a Realtor (optional)
Our first step in finding a house was to find a Realtor. You don’t have to get a Realtor but it’s free for you (both the buyer and sellers Realtors are paid out of the purchase price of the home) and your Realtor has a lot of expertise that you probably don’t have. As someone going through the process without any real estate or contract knowledge, I can say that doing this without a Realtor would be way too hard and time consuming.
2. Find a House
Go online to national websites like Zillow.com, Trulia.com or local communities like liveatchurchillfarms.com to start looking for houses. Your realtor can help you find homes if you like, but Tag and I preferred to find ones we like online and send a list to our realtor so he could set up the showings.
3. Get Pre-Approved for Financing (optional)
Once you’ve found a house you like and are thinking about making an offer, it’s a good idea to get pre-approved for financing. This will help you understand if you can realistically get a loan for the home, and it also shows the seller that you are serious and have the means to buy his or her house. You don’t have to do this, but it makes your offer look stronger.
4. Make an Offer
Talk to your Realtor have him pull some information on recently sold homes in the area and come up with a good offer. If you think the house is worth $200k, go in with an offer that is lower than that but not so low that the seller doesn’t take you seriously. Remember that your Realtor’s commission is based on the sale price of the house, so a higher sale price means a bigger commission for him or her. Listen to your Realtor’s advice, but it’s your money and ultimately your decision how much to offer.
5. Negotiate
If your offer isn’t accepted, negotiate. For the house we are hoping to buy the seller drew a line in the sand at $205k. We came back and said there’s no way we could do $205k and the best we could do was $200k; take it or leave it. We were actually really surprised when he took it.
6. Get an Inspection
I’m not a nationwide real estate expert or anything, but in Texas you have an option period (typically 10 days) where you can back out of the deal at any time. This 10 day period is the time to get your inspection. If there is anything wrong with the property that wasn’t in the seller’s disclosure, consider asking for additional money off the sale price. Don’t ask the seller to fix problems because you don’t know if they will do it right. Just ask for money off the sale price and do it yourself.
7. Apply for Financing
Once the inspection is done and you are ready to buy the house, you need to talk to a bank and start the financing process. Shop around for rates and keep in mind that closing costs are expensive. You’ll either need to pay cash at closing or have the bank increase your interest rate in exchange for paying some or all of your closing costs.
8. Get an Appraisal
The approval process for getting a home loan is very long and extensive, but one of the biggest hurdles is the appraisal. A bank isn’t going to lend someone $200k for a house if they believe it’s only worth $190k. In my case the bank hired the appraisal company and set up the appointment while I paid for it (which is part of the closing costs). My appraisal came in right at $200k, so now there’s just one more (huge) step.
9. Get Approved for Financing
At this point there’s just one more hurdle to jump (this is where Tag and I sit today): have the bank approve the loan. They need to make sure you have enough money to pay for the down payment and closing costs, that your income is high enough to support the monthly payments, that you’ve been at your job long enough to consider your income stable. They check your credit score, credit history, and do a bunch of other stuff. It takes a long time, but that makes sense. If you were going to lend someone over a hundred thousand dollars I hope you’d take the time to review their creditworthiness too!
And Now We Wait…
This is just a high level overview of our process so far. Who knows what other hoops we’ll have to jump through to make sure the financing is approved? Right now I’m just waiting to hear back from the bank to find out if I need to give them any more information. Over the next few weeks I’ll discuss some of these steps in much greater detail talk through some of the specifics of what Tag and I did, what we did pretty well and what we could have done better. I’m not an expert by any means; I’m just happy to share my experience and I hope it helps someone.
Readers: Have you bought a house recently? Was your experience the same as mine?
Read More Great Articles From Thousandaire
Yes, You Can Make Millions Trading
How I saved $700 Redoing the Suspension On My Car
Kevin McKee is an entrepreneur, IT guru, and personal finance leader. In addition to his writing, Kevin is the head of IT at Buildingstars, Co-Founder of Padmission, and organizer of Laravel STL. He is also the creator of www.contributetoopensource.com. When he’s not working, Kevin enjoys podcasting about movies and spending time with his wife and four children.
My experience is different from pretty much everyone else because we purchased my grandmother’s house from my dad. So we skipped a lot of the haggling steps and my dad paid for the inspection and the repairs (which weren’t many of each since my grandfather kept that house in great shape).
I do like to hear other’s experiences since mine was so completely different.
Sounds like you got a good deal. I’m jealous.
A few months ago I tried to buy a foreclosure. It was in a neighborhood better than my own but just a short distance away. It had amazing potential but needed a new roof and a few (well, a LOT) of updates. It was everything I wanted. I put in an offer of $78k (way over the ridiculously low asking price) with a pre approval letter from the bank. I lost out (along with 5 other offers) to a cash offer of $48k. It was the most heartbreaking and nerve wracking week of my life. I am pretty sure the realtor for the place never presented other offers and just scammed the bank. My realtor told me its hard to prove and wouldn’t really do anything for us. The house across the street from it is fully updated is up for sale for $127k. I haven’t really seriously tried to buy a new house since.
Sounds like it could have been a great deal. It’s too bad. Maybe one day you’ll have enough cash to put in a cash offer on a house.
Here were the steps my girlfriend and I had when buying our house.
1. Found a realtor
2. Got pre-approved (ended up not using the mortgage company we got pre-approved at but it didn’t matter)
3. Found a house.
4. Made an offer
5. Negotiated
6. Lost house to another bidder; console crying girlfriend
7. Found another house
8. Made an offer
9. Negotiated (got house this time)
10. Went on unexpected business trip to Hawaii for 2 weeks
11. Got inspection
12. Got financing taken care of (used my credit union; it was very simple)
13. Brought lots of checks for large sums of money to the settlement and signed lots of papers.
14. Seller signed papers earlier in the day and didn’t leave the keys to the house so the seller and seller’s realtor met us at the house to give us the keys.
15. Moved in the next day.
16. Lived there for 6 months now and love the place.
Your situation sounds very similar to mine, except we didn’t lose the house. Congratulations on getting your house and I’m glad to hear you love it!
I don’t understand what you mean by, “You don’t have to get a realtor but it’s free for you.” Right now it is a buyers markets so you can make the buyer pay for it, but I don’t see how it is free?
The buyers realtor is paid 3% of the sale price of the home, which is paid by the seller. If someone sells their house for $200k, each realtor involved in the transaction will get 3%, or $6k, and the seller actually only gets $188k.
If you don’t use a realtor then you should demand a 3% lower sale price because now the seller doesn’t have to pay your realtor 3%.
Congratulations! That’s exciting!
We are in the process of buying a house too, but it’s a little different since it’s being built. We’re finalizing all of our choices, and we will close in March 2013. I’ve never built anything before (my last house was over 100 years old) so I wasn’t sure what to expect, but it has gone surprisingly smoothly. Our biggest issue has been figuring out what to do with the houses we each had/selling them/renting them out, since we’re combining households. I’m jealous that you don’t have to deal with that in this market, although I’m not sure how the current St. Louis market compares to yours.
I’ve always wanted to build a house because my parents built a house in 1998 and I thought it was cool. Maybe one day… Good luck with your other houses. One day I hope I can rent out a home and make some passive income.
Let’s hope the landlord process goes smoothly, it might go well or it might not. There was a recent post on Get Rich Slowly about this, and the comments were very helpful.
1. Found a house FSBO
2. Got preapproved for a loan
3. Made a reasonable offer and met in the middle
4. Told the bank and the seller they had 30 days to complete the paperwork or the deal was off.
5. Moved in 28 days later.
From the time the house was listed in MLS until I moved in was 34 days. There is no way this would have been possible if either of us had used a realtor. It also saved me about $20,000 compared to equivalent houses in the same neighborhood, and I got a bigger lot.
The deal was sealed with a handshake and the paperwork was signed on the hood of my pickup truck.
That’s impressive. I wouldn’t even know where to start with figuring out what paperwork I’d need. I’m sure I could figure out how to do a home purchase without a realtor, but I don’t have the time for it.
It’s super easy.
Most of the paperwork is required by the bank issuing your loan. if you paid cash for the house it would only take one signature. I made an offer and let the seller and bank handle the grunt work. The seller just needs to provide access to the property for the inspector and arrange for the plat survey.
I guess the hardest part was deciding between an internet discount lender and a local bank (Wells Fargo.) I (actually the seller) paid a little more in closing costs, but the loan terms were almost the same. It was worth the extra $2,000 in closing costs for all the details to be handled by someone else. Like I said before, I paid 20G less than the going rate and that includes the extra 2G in closing costs.
Congratulations – FSBO sounds awesome. I just wanted to chime in and say that I just closed on a house with a 30 day turnaround. I did use a realtor, but that didn’t hinder the process.
My wife and I bought a house in april, and we followed the same basic steps. I think one of the key things is getting a realtor as a buyer. Like you mention, it’s totally free, so there’s no real reason not to do it. They know a lot more about the market than you do, and are there to help. Ours was great.
Ours has been good so far. For me, I think the value comes in him knowing the ins and outs of how to purchase a home, making sure the contract is correct and I’m not getting screwed, etc.
What does 200K get you in your area? I live in Canada (where there was no meltdown in real estate) and I found exactly 1 house under 200K. A 50 year old, 2 bedroom bungalow on 1/2 an acre.
I’m getting a 3 BR, 2 BA, 2000 sq ft built in 1990 on 0.25 acres. Mind you, I’m in the suburbs and not in the city. That same house could cost $800,000 in a different location. It could also cost under $100,000 in yet another location. As they say, it’s all about location.
There’s a bit more to getting a mortgage (your steps 7-9) than you think. I was a mortgage broker for a short time (it’s almost as sleazy a business as insurance). A friend of mine wrote a couple of books on the subject you might want to get (search for Patrick Mazor on Amazon). There is an *enormous* difference in cost between doing your mortgage right and doing it wrong.
A home inspection is so important to the home buying process! And it’s equally important to hire a qualified home inspector. Ideally, you want one who is independent, and doesn’t rely on referrals from a realtor. The best inspectors are also members of the American Society of Home Inspectors (ASHI), which has stringent standards for its certification process.
Two great resources for finding a local home inspector:
www.ashi.org
Www.independentinspectors.com. This is the website of the Independent Home Inspectors of North America. Members of IHINA are forbidden to market directly to realtors.
Using a home inspector who is both ASHI-certified and a member of IHINA is one of the best ways to ensure a thorough, unbiased evaluation of your home.
I’m still at the beginning of this process! I have a realtor, I was preapproved by two different institutions, and now it’s just a matter of finding the right something!
I haven’t begun the home buying process yet, so I’m horribly under educated on this topic. To clarify – if you get pre-approved for a loan, you don’t have to then reapply later, right? You just go back to the bank where you were pre-approved and they give you the loan, yes?
Pre-approval doesn’t actually mean very much nowadays. The way I understand it, the pre-approval just means they checked your credit report and there were no glaring issues.
To actually get approved for the loan you have to provide a lot of documentation about your income, work history, bank account statements, etc. I am still going through the approval process right now. The bank says I’m “approved” but I still have to give them a bunch of documentation and if that stuff isn’t submitted or isn’t consistent with their lending standards they could reject the deal at any time. (again, this is how mine is working but it could be different. I’m not an expert).
Interesting, I didn’t know that!
Kevin:
Neat neat blog with great ideas. If you have a chance, visit my website which talks a great deal about the mortgage process and how to shorten the time between application and closing. Even more than that, my two books on the mortgage process are great guides for anyone who is thinking about buying a house. You can find them through my website or on my Amazon Author page (http://www.amazon.com/Y.-Patrick-Mazor/e/B0098RD6B6).
Patrick
You forgot Step 1 – figure out how much you want to pay.
A couple of years ago we moved to a small city in NE Montana (about 5000 people). There are only 2 real estate agencies in town, and almost none of the houses are on websites like zulilly.com. So we just looked at the websites of each agency, found that there were only three houses for sale in town in our price range, and only two of which that we liked. So, we made arrangements to look at both houses, and ultimately went with the house that was $40,000 cheaper than the other one (94k vs 134 – hey, we had a wide price range).
We also negotiated for the seller to pay closing costs, as if I had paid closing costs myself, I wouldn’t have had enough cash to make a 20% down payment. This way, the total cost was about the same, just more of it was on the house (i.e. mortgage) and it wasn’t an up front cost.
I don’t have much word to say on this since it was clear to me what exactly your point is and on top of that it was very well said facts that need to be consider for getting a house. Two thumbs up! I’ll surely take note on what this article shared! It was useful and thanks for sharing it…
I went through most of the steps except getting it appraised. Because it’s a condo, comparable in the building and the area were used instead.
The best thing I did was get a Mortgage Broker. Being self-employed means it’s harder to secure a mortgage since most banks consider our income less secure. My Broker was able to find me a fantastic mortgage at a rate I wouldn’t have been able to secure on my own.
Nice list, I might have changed a few things…
I agree with Patrick, #1 is figure out what you can afford and what you want to pay. Most people stretch themselves too far when they let themselves fall in love with a house before figuring out their budget. Figure out your budget yourself before you ever pre-view a house. And don’t rely too heavily on the big number the bank says they will lend you; it’s usually your s-t-r-e-t-c-h budget.
Also in my area you usually have to move getting pre-approved ahead of getting a buyers-agent or real estate agent. The industry has a saying that “buyers are liars.” Too many realtors have been burned spending time and gas money showing people houses that they could never afford them, so they try to weed them out immediately. In my area the real estate agents will not even speak to you unless you bring in one of these I-am-a-serious-buyer letters.
Next, I disagree with the idea that the agent is free to the buyer because the seller pays the commission. Don’t buy it. When all is said and done and everyone comes to the closing table; there is only one person coming to that table with a check and everyone else walks away getting paid. When all is finished the money to pay everyone has come from the buyer (or his/her financing), all of the negotiations/commissions/etc. are simply people fighting over what portion of the buyers money they are going to get to walk away from the table with. As they say follow the money— literally, it isn’t coming out of the sellers pocket.
Finally, I feel strongly that a few words of caution are needed. 1) Choosing your real estate agent is as important as choosing your home. Be careful. Check references. Get recommendations. This is a poorly regulated industry, with very low hurdles for entry and it has enormous amounts of money sloshing through the system. It attracts bad behavior and bad actors. A number of the top producers in my county were community heroes during the bubble years and always praised in the newspapers. They have now been investigated by the FBI and have been indicted for a number of fraud related real estate crimes. Apparently realtors are liars, too. 2) If it isn’t in writing it didn’t happen. I have gotten burned by this several times. Make sure that anything that is agreed on is in writing and signed by both buyer and seller. And make sure that what is written is exactly what you have agreed too. Several times a word or two was changed that I hadn’t thought much about it but it gave the other side room to wiggle out of the agreement. If it isn’t written down it never happened.