Buying a Home: A Simple & Detailed Plan

Many people want to own a home. But buying a house is a big deal. It involves a reasonable amount of money and many complicated things to understand.

Luckily, there are people who can help you. They know about money, rules, and other stuff you need to buy a house. But it's not easy to find the right people to help you. Sometimes, the whole process seems too hard, and people just keep renting instead of buying.

But it doesn't have to be so hard. To buy a home, you need two important things: a good plan and knowing the right questions to ask. A plan helps you organize everything step by step, so it's not too overwhelming. We have a plan for you here.

When you follow this plan, you will be ready and know what questions to ask. Buying a home won't seem so scary. Lots of people buy homes every year, and you can be one of them.

Here's the plan:

1. Check Your Money

Most people don't have enough money to buy a house without help. They need something called a mortgage, which is like a special loan for buying homes. But banks won't give you a mortgage if they think you can't pay them back.

So, before you go too far, check your money. Look at your credit scores and reports. They show how good you are at paying money back. You can get your reports for free from big credit agencies. Don't trust other sources; they might not be right. Make sure your reports are accurate, and if there are problems, try to fix them.

The scores range from 300 to 850. Higher scores are better. If your score is over 760, you're in good shape. Lower scores can make your loan more expensive or even impossible. Most people need a score of at least 620 for a regular loan.

Also, check how much money you have saved for a down payment and closing costs. These are extra fees when you buy a home. Sometimes you can get loans with as little as 3% to 5% down payment, but 20% is ideal. If you don't have enough money, it might be better to wait and save more.

2. Make a Budget

Don't look at houses that cost more than you can afford. It's not realistic. First, make a list of all your monthly costs, like loans, credit cards, and other bills. Include new home expenses like the mortgage, property taxes, insurance, and mortgage insurance. Even though you don't know exact numbers yet, use online calculators to estimate them.

Now, divide your total monthly costs by your monthly income. This gives you a percentage called the debt-to-income ratio (DTI). A DTI below 43% is usually okay, but lower is better. If it's above 43%, you might be taking on too much debt.

Your budget helps you see what you can afford. Don't get a house that will leave you with no money for other things. A DTI between 25% and 30% is good for a stable life.

3. Talk to Lenders

Even if you're not ready to buy, talking to lenders can help. They can tell you about the types of loans you might get, interest rates, and what they need from you. It also helps you find a lender you like and trust.

Ask for a pre-approval letter from your chosen lender. It doesn't mean you have a loan, but it shows how much money you could borrow. Some sellers like offers from people with pre-approval letters. It makes you look serious and ready to buy.

Pre-approval is different from pre-qualification. Pre-qualification is just a guess, but pre-approval is a stronger promise.

When you pick a lender, don't only rely on friends' advice or your bank. Check out different lenders to find the best rates and terms. Look at reviews and ask about your loan officer's commission. High commissions can mean higher costs for you.

4. Find a Good Realtor or Agent

Most people need a realtor or agent to help buy a house. The good news is, sellers usually pay their fees. Realtors know about the local market, help you make offers, and fix problems.

Before you choose one, talk to a few. Ask your friends for recommendations and check online. A good realtor can make your search easier.

5. Start Searching for Homes

Your realtor is your guide, but trust your gut, too. If you find a house you love, don't give up over a small price difference. Numbers are important, but so is how you feel in your new home. But don't force yourself to like a place just because it's in your budget. There are many houses out there.

Know your timeline. Buying a house takes time, usually 30 to 45 days. If you have a deadline, like a new school year or your apartment lease ending, be aware.

Make a list of what you want in a house. It helps narrow down your choices.

6. Get Your Documents Ready

You'll need lots of paperwork for your lender. Get it ready as soon as you can. This includes:

• Tax returns from the last two years.

• Recent pay stubs or proof of income from the last two months.

• Bank and investment account statements from the last two years.

• Proof of funds for down payment and closing costs.

• A landlord recommendation letter, if you rented before.

• Identification, like a driver's license or passport.

Your lender might ask for more documents later, but these are the basics.

7. Consider a Lawyer

Not all home purchases need a lawyer. Your realtor can tell you if you do. In simple deals, you can do it without a lawyer. Good real estate agents can help with the paperwork.

If feel unsure, get a lawyer. Don't just pick the cheapest one; buying a house is a big deal, and you want good advice.

8. Make an Offer and Negotiate

When you find the right house, your realtor helps you make an offer. They know the local market and can suggest the right price. Sometimes you have to negotiate for a few days. It can be frustrating, but don't give up. Once your offer is accepted, things get easier.

You'll need to put some money with your offer. It's called earnest money, usually 1% to 3% of the price. It shows you're serious. If things go wrong because of the seller, you get it back. But if it's your fault, you might lose it.

9. Get Your Financing

Once your offer is accepted, contact your lender or pick one if you haven't yet. This starts the mortgage process. Underwriters will look closely at your finances and ask questions. Approval might come close to the closing date, but that's okay.

Get homeowners insurance, arrange for a title search, and get title insurance. Your realtor and lender can help.

10. Inspections and Appraisal

Never buy a home without an inspection. Make sure your contract has a contingency for it. It helps you find problems before it's too late. Your realtor can suggest a good inspector. Make sure to thoroughly read the report.

Consider termite and pest inspections. Your lender will also order an appraisal to make sure the house is worth the price you agreed to. Your lender chooses the appraisal company.

11. Final Walkthrough

The final walkthrough usually takes place a day or a few days before the scheduled closing date. It's essential to coordinate the timing with all parties involved, including the buyer, the seller, and real estate agents.

Purpose:

• Verification of Condition: The primary purpose of the final walkthrough is to verify that the property is in the same condition as when the buyer made their offer and that any repairs or improvements negotiated in the contract have been completed to satisfaction.

• Identification of Issues: If the buyer identifies any new issues or damage during the walkthrough, they can address them with the seller before closing. This may involve negotiating additional repairs or adjustments to the sale price.

• Buyers should bring a detailed checklist to the final walkthrough. This list may include items like:

  • Checking that all appliances are in working order.

  • Confirming that agreed-upon repairs have been made.

  • Ensuring that all personal belongings of the seller have been removed.

  • Checking for any damage to walls, floors, or fixtures that may have occurred during the move-out process.

  • Verifying that the property is clean and in a generally tidy condition.

Buyers often conduct the final walkthrough with their real estate agent, who can help identify issues and facilitate communication with the seller's agent.

• Documenting Issues: If any issues or discrepancies are discovered during the final walkthrough, the buyer should document them with photographs and written notes. This documentation can be helpful when addressing concerns with the seller.

• Resolving Discrepancies: If the buyer finds issues during the final walkthrough, they should notify their real estate agent and, if necessary, their attorney. Depending on the nature and severity of the issues, the buyer and seller may need to negotiate resolutions before proceeding to the closing.

• Confirming Utilities: Buyers should also ensure that all utilities (water, electricity, gas) are working correctly and will be transferred into their name after closing. This prevents any inconvenience or service interruptions after moving in.

• Reviewing Closing Documents: The final walkthrough is also an opportunity to review any important closing documents, such as the HUD-1 Settlement Statement, to ensure that all financial details are accurate.

• Final Walkthrough Clause: The contract between the buyer and seller may include a clause outlining the final walkthrough process and the actions to be taken if any issues arise. Buyers should familiarize themselves with this clause and follow its guidelines.

12. Closing

Now you're close to owning your home. Everything is final, and you'll sign lots of papers. Make sure your down payment and closing costs are ready. Get homeowners insurance and have proper ID.

Closings can happen in person or online in some places. If you can't be there, you can give someone power of attorney to sign for you.

Welcome to Homeownership!

It might be a little stressful, but it's not too hard. Soon, you'll have your new home, and any stress will be well worth it.