Buying A Home 101: So You Wanna Buy a House, Eh?
If you’re buying your first home, you might have two polar impressions of buying a home. On one end of the spectrum, there are some that believe that buying a home is as easy as buying a wine at the liquor store: pick one out and pay for it (my cousin was one of those). On the other end, there are buyers who find the task so daunting, it puts them into a paralyzing panic. The truth, of course, is somewhere in the middle. The process of purchasing real estate is a process and let me give you a few hints to make your experience as painless as possible.
Step 1: How Are You Gonna Pay For It?
Funding for a house comes in various forms. Some people have the means to pay for a house with cash. That makes the transaction simple. Every REALTOR® in the country will tell you, “Cash? Let’s party.” 23% of real estate sales in January of 2017 were cash transactions. You can skip the financing portion of this blog. Most real estate transactions, however, are done with financing of some sort (bank loans).
Let’s talk about financing.
Home loans are going to require payments. It’s important to consider what sort of payments you can afford. The lenders have ratios and equations for figuring out how much they THINK you can afford. They have their calculations, but you should also think of your monthly budget outside of their calculations. It is possible that while the bank/credit union approve you for $1200 payments, your Kanye/Kim Kardashian lifestyle might not allow for anything over $900/month. The lender can get a read on your current debts and ascertain some spending habits, but they won’t be able to predict your black caviar habit that arrives every Spring. Check a mortgage payment calculator to get a rough estimate of how much house you can afford. Consider that you will also have to heat/cool/insure/furnish/maintain your home.
If you need a loan to purchase a house, I cannot stress this enough, START WITH A LENDER. While REALTORS® are generally knowledgable about many types of loans, we can’t really speak on behalf of a lender. Lenders will rarely tell you, “No.” You read that correctly. Before you get lawyered up, let me explain. If you go to a lender and you don’t have enough income or a high enough credit score, they can tell you what you need to do to become a viable borrower! More accurately, lenders will tell you, “Yes!” or “Not right now.” They can give you a path towards making your home owning dreams come true. Maybe it’s paying down some debt. Maybe it means making $3,000 more per year. Whatever the case is, the lender knows how to help you with that. Let’s move on…
Let’s talk about down payments.
Depending on your loan situation, you will more than likely, have to bring anywhere from 3% to 20% of the purchase price with you at closing for a down payment (maybe even more depending on what you arranged with your lender). Do not forget down payments and closing costs (2% to 5% of the purchase price). You will have to have all this money on your closing date. I should also caution you that there are also pre-paid costs to buying a house. If you put in an offer to purchase, the buyer is usually responsible for paying for inspections and appraisal. These can be between 200 and 500 dollars each.
After you have financing figured out, your lender will give you a pre-qualifying or pre-approval letter for a certain amount. Now, you know how much you can spend, which makes finding a house that much easier. It’s nice to have options, but it’s also nice to be able to throw out the houses that are out of your price range. Sometimes too much choice is paralyzing.
Step 2: Find a REALTOR®
I know, I know. Step one was massive!! There’s a lot that goes into financing a home. Step 2 should be a lot easier. Find a REALTOR. I will help you. The best of the best is here. In all seriousness, there’s a chance you’re going to spend a lot of time with your REALTOR. They are also going to represent you in any conflicts with the homes. You can “interview” as many REALTORS as you want. Find the one that feels competent and trustworthy. But seriously, consider this guy. Also, many times people find a REALTOR® first and then find financing. That’s fine, but if the lender tells you, “Not right now,” then you may not need a REALTOR® right away.
If you want to buy real estate without a REALTOR® at your side, there are a multitude of reasons not to do that. For transparency, I will admit that I want your business and I do have a vested interest in convincing you that you need my services. However, consider the evidence:
- Real estate is trickier than people realize. Your home is usually your most expensive asset. If real estate is not your forte, it is really easy to make a bad purchase.
- REALTORS® know your rights as a buyer or seller. They are trained in the nuances of contracts, how to get out of them legally, and WHEN it is appropriate to terminate a contract.
- REALTORS® do the dirty work of helping negotiate. Without the agent, it’s you answering the angry phone call about your “lowball” offer.
- REALTORS® are connected. They can help you find plumbers, handymen and women, electricians, masons, etc..
- Real estate can be perilous. Aside from the occasional scam, you’re still meeting strangers in supposedly “vacant” properties. Having an agent around gives you more set of eyes, a person familiar with the neighborhood, and another layer between you and the bad guys/gals (more on this in a later blog).
- REALTORS® are FUN! Seriously, this guy is fun.
Step 3: Find the Home of Your Dreams (or at least what you can afford right now…)
You have gotten through the yucky financing part. You’ve found a REALTOR® who fits your personality. Now, let’s get to the fun part! Seeing houses is all about seeing possibilities!
You might have searched websites like Zillow and Trulia for houses. Give those listings to your REALTOR® and let them schedule visits. Your REALTOR® might also have some suggestions as well. When it comes time to tour the houses, your REALTOR® should already have all the logistics taken care of. All you should have to do is show up and dream. If there is a neighborhood you would love to live in, let your REALTOR® know. While it is a lot of fun to drive around and look for “FOR SALE” signs, you might want to save your gas and just have your REALTOR® do the searching for you.
Good luck out there! I hope this answers some questions!
M. Anthony Cavazos