The 10-Step Process of Buying a House: Big Moments Made Easy
September 6, 2019
Buying a house is a series of choices that should lead to living in a place that best suits your needs. But how do you decide what you need? How do you advocate for those choices? And where do you even begin? We’ve distilled the answers into a few points to consider to help make this process smoother and alleviate some stress you might be feeling.
1. Make Sure the Time Is Right
As exciting as buying a house can be, you’ve got to make sure you’re buying one at the right time.
Knowing when that is will depend on certain factors:
- Are you ready to be a home-owner? Buying a house is a big step toward what’s next. But it’s also a big responsibility. Not only will you be in charge of any repairs your home might need, but you’ll also be living in one place for a long time paying off your mortgage.
- Are you financially prepared? Buying a house is an investment—and buying a house at the wrong time can lead to your financial ruin. Soon-to-be home-owners should make sure they have a steady income, a healthy credit score, and enough money on hand to make a substantial down payment. Think of it this way: the best time to buy a house is when you can afford it.
- Are you following market trends? Buying a house that goes up in value as opposed to down will depend on trends in the housing market. Analyzing the rises and falls of mortgage interest rates and home sales will help you know, at least in terms of numbers, when you can get a good deal. If you need some guidance here, ask more questions to a real estate agent.
2. Set a Budget
The first stressor about buying a house usually begins with cost considerations. A good way to narrow down the field of houses you might be looking for is to put your budget first. Here are some important questions to consider:
- Do you intend to take out a mortgage, pay cash, rent-to-own?
- If a mortgage is the best decision for you, how soon would you like to pay off your loan? Ten, fifteen, thirty years?
- How much do you have available now for a down-payment?
Investopedia suggests your mortgage payments should not exceed 25% of your monthly income. This is a figure you can take some control over.
Consider going through your monthly budget and using this data to inform changes that might take place with 25% of your income going to mortgage payments. If you don’t yet have a budget or could use a little help, take a look at these free budgeting tools.
3. Start Saving
After establishing a budget, it’s a good idea to start saving.
But how much should you save? The answer to that question depends on three housing costs:
- Your down payment – this is how much you’ll initially put down for a house before paying off your mortgage in installments
- Your closing costs and prepaids – these are fees you, along with your seller, will pay to complete the process of buying a house
- Your moving and home repair costs – these are expenses you’ll pay not only to successfully move into your new home but also to renovate or refurbish it as you please
For down payments, a common recommendation is to pay 20% of a house’s purchase price (although most home buyers tend to put down less). As for closing costs and prepaids, expect to pay 2 to 7% of this same purchase price. Moving and home repair costs will vary depending on the services you employ.
4. Learn How Mortgages Work
If paying cash for your home is not an option, worry not. A mortgage can be a great option for those who are hoping to pay off the investment of their home in more manageable installments.
A mortgage is a loan agreement between a lender (mortgage lender or bank) and an aspiring homeowner.
In taking out a mortgage, the soon-to-be homeowner agrees upon a timeframe in which they will pay for their loan in full. Mortgage payments are often monthly but the repayment process is decided between the homeowner and lender.
Lenders consider these three things when approving mortgage applicants:
- Down payment – A down payment is cash paid upfront. Typically, lenders like to see a down payment that is 20% of your home’s price. Putting more money down up-front can yield a better mortgage and interest rates. Generally, your down payment shows your lender how serious you are about your home purchase; it also contributes to informing the bank how big a lending risk you might be should the economy crash, you fall on harder times, etc.
- Credit Score – In addition to your down payment, your credit score gives lenders information about whether they can rely on you to make agreed-upon payments in full and on time. Before you begin considering homeownership, consider your credit score first. Take steps to protect and raise your credit score to make your application for homeownership more appealing to lenders.
- Debt-to-income ratio – Your debt-to-income ratio is a figure calculated by taking your monthly debt payments and dividing them by your gross monthly income. Consumer Financial Protection Bureau states, “evidence from studies of mortgage loans suggests that borrowers with a higher debt-to-income ratio are more likely to run into trouble making monthly payments.”
Just like your credit score, this figure is information to help lenders gauge how big a risk lending to you might be.
Getting a mortgage is one of the trickiest parts of buying a home but achieving a mortgage can leave more money in your pockets and more financial breathing room for day-to-day needs.
5. Decide What you Want
Now that you’ve committed to buying a house, it’s time to get an idea of the kind of house you’d like to buy.
Spend a good chunk of time thinking about what features or amenities you’d like your new home to have. Feel free to be as specific or as broad as you’d like while considering these housing elements. A few things to consider:
- Location, location, location – What state, city, neighborhood, or town is going to suit your lifestyle best? Are you intrigued by rural landscapes? Do you prefer the fast pace of a city?
- Type of Home – Do you want to buy a tiny house? Are you a mid-century modern architecture fanatic? Is hardwood flooring non-negotiable because of your allergies? Do you need a home that’s wheelchair accessible? Are you looking for a vintage home or something more brand new? Close your eyes and imagine what house you need to feel most comfortable. Be very specific in doing so and the answers to the above queries will arise. You might even have more great questions that will guide you in selecting your house’s interior and exterior.
- Amenities – Do you have children who would benefit from living near a park to play during good weather? How far away is your potential home to grocery stores, banks, or hospitals? Is there a neighborhood gym? What are the parts of your lifestyle that need to align with what is available near your home and how willing would you be to live further away from them?
Many of these features are customizable but perhaps having them readily available to you is something that would make your life easier? Or, maybe you’re looking for a fixer-upper to flip into a dream home that doesn’t yet exist on the market. Regardless, the choice is yours.
6. Find a Real-Estate Agent
Even if you think you’re a home-buying expert, getting some guidance from a real-estate agent is the way to go.
These buyer’s agents can lead you through all the steps involved in buying a house. They can help you find homes based on your wants and needs (and sometimes before they’re even listed) and talk with sellers for you to guarantee you’ll get the best purchase price possible.
When looking for an agent, try and find someone who has plenty of experience and strong communication skills.
7. Hunt for Your House
Out of all of these steps, this one is the most fun.
Although there are no hard and fast rules to how you should start house hunting, it’s common nowadays for people to start their search online before taking on open houses and scheduled visits.
Communicate with your real-estate agent about your wants and needs, so that he or she will know what to factor in when looking for houses to show you.
No matter when you start house hunting, know that it might take some time. Whether you need a few weeks or even a few months, enjoy your search as long as it lasts!
8. Put an Offer Out There
When you think you’ve found a future home that meets your preferences, it’s time to make an offer.
Work with your real estate agent to come up with an offer that, at least on your end, works well for you. Ask yours about seller disclosures, property-specific inquiries, or other questions about the buying process.
All that’s left is to negotiate the terms of your real estate transaction as it will appear in your purchase agreement. Negotiating this with the seller may get intense, so always keep a level head and make compromises when and where necessary.
9. Conduct Final Inspections
Although you haven’t officially closed the sale yet, by this step you will have become the contractual owner of your new house.
Before all is said and done, you should initiate these 2 types of inspections:
- A Professional Home Inspection– this is an inspection that home experts make by examining your house for any signs of structural or superficial damage that may need repairing
- An Appraisal – this is an inspection requested by lenders to assess the value of your property
Having either of these done on your home will ensure that you’re paying the right amount for what you’re getting. If you sense that there’s a discrepancy in the price you’ve agreed to, always speak up!
10. Close the Sale
This step speaks for itself: at the end of this process, all that’s left to do is close—and by close, we mean fill out a lot of paperwork.
A good tip here is to read through a copy of your closing documents ahead of time. Keeping these documents neatly organized will be a great help later.
Once you’ve signed, it’s all done: you’re now officially a homeowner!
Buying a house is a landmark moment in any person’s life. It’s a decision that could mean picking where your children’s memories will take place, the place you rest after a long day of work, or the very first place you get to call your own. This decision is an important one and you’re now ready to start your journey.
Curious about what your payments might look like with Illinois Lending?
Take a look at our payment calculator to get an idea of how much payments would be with us. Feel free to contact us online or in-person as we’re dedicated to helping you.
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