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Buying a home is one of the biggest decisions you’ll face in your life.  If you mis-step, you can easily put yourself in jeopardy of ruining your finances.  I’ve purchased homes, sold homes, rented homes, and I’ve even had a property foreclosed on.  It’s a long story that was due to a legal battle and a lot of under-handed bullshit, but hey, it happened, I took a huge loss and long term credit hit, but I’ve persevered from it, learned from it, and am much more financially sound because of it.

While my website caters more towards saving for retirement, buying a home can either speed up your retirement plans, or delay them.  Today I’ll share some tips that I’ve learned from my fortune as well as mis-fortune.  

As you finally begin to ponder purchasing your first home, you can let your imagination and emotions run wild. Before long, you’re browsing for homes online and staking out neighborhoods just to view current listings. And you’re making time for research, creative financing, and so much more. You’ve even put a plan in place to buy your house without putting any money down.

Guess what? Many people have bitten off more than they can chew by buying a house they can’t afford. Overall, by paying too much for a house you’ll hurt your chances at creating real and lasting wealth. So, it’s best to learn the home buying process from front to back. You’ll be empowered, you’ll learn the ropes, and you’ll understand the home buying process like it’s the back of your hand. This will help you make the best decisions possible when choosing your first home.

7 Simple Steps to Buy a House

Home Buying Tips

You shouldn’t be surprised to discover that buying a house will take time. No matter what, you have to prepare no matter how amazing the house is because jumping in before you’re prepared is a big mistake.

Care to guess the most important aspect of buying a house? Learning how to do it the right way is more important than anything else.

We’ve got you covered with our seven step guide to teach you how to buy a home the right way.

A Guide to Buying a House in 7 Simple Steps

  • put aside money for your down payment
  • mortgage preapproval
  • choosing the right real estate agent
  • happy house hunting
  • making your offer
  • inspecting the property & more
  • it’s closing day

Making the right decisions during the home buying process could mean living a happy and comfortable life with your family. Or if you do things wrong, you can get in way over your head and feel like you’re drowning and making foolish decisions.

You don’t have to feel completely drained physically and mentally and stressed out beyond belief while buying a house. You can have fun, find the home of your dreams, and make informed and intelligent decisions that will set you up for the long-term if you follow our advice.

The Opportune Time to Buy a Home

How can you tell when it’s the perfect time to buy a house? Before going through the steps below, you need to take a moment to do the following:

  • Look over your finances – do you have enough money available for a down payment? Do you have a nice income that can afford your expenses plus a mortgage? If you think you can handle it and you’re financially secure, then you’re probably ready to buy a house.
  • Look over the housing market – buying a home is a big investment so you need to do this the smart way. By smart we mean buying a house at a low value so the purchase price of the home can appreciate. You can ask a local real estate agent about the value of homes in your area and find out about potential investments that will rise in value in the future.
  • Look at the stage of your life – are you planning on moving far away within a year? Buying a home and then selling it a year later is going to be very expensive. If you’re going to buy a home, make sure you’re going to be there for a while – meaning at least 5 to 7 years. If you’re getting married, you should wait a year before you even consider buying a home because you may want to move and relocate.

How do you feel? Do you think it’s the right time to buy a house? If so then here’s how you can get started.

1. Putting Aside Money for a Down Payment

down payment

Most people hate thinking about money and the last thing they want is to question whether or not they can afford a down payment. On the other hand, shopping for a new home is lots of fun. It’s way more fun than thinking about your financial situation, right? But if you have a weak financial foundation, you could end up buying a home that you later come to regret if you can’t afford it.

You have to stop thinking short-term. Your new home is going to be amazing and it’s a place where you will create many memories. You’ll enjoy warm summer days in the backyard with your family and eat numerous meals together. Financial stress can put a serious damper on these wonderful memories so getting your financial ducks in a row is incredibly important before making this purchase.

As you know, buying a house is usually the biggest purchase a person will ever make in their entire life. Is this something you are ready to accomplish? We have two questions to ask to help you determine if this is true.

Do you have the financial means to buy a house?

Prior to starting the process to buy a home, the best move to make is to pay off all of your outstanding debt and save an emergency fund that can cover six months of your expenses. It’s really important to have your finances in order before buying a house. Why you wonder?

Well, when it’s no longer your landlord’s job to repair the odds and ends that break from time to time you’ll need money to pay to get things fixed. As an example, what if your hot water heater suddenly stops working? Are you going to take cold showers for the rest of your life or do you plan to fix it? We obviously know the answer to this question.

If your budget is jam-packed and your savings is nonexistent, you may have to eat Ramen noodles and take the bus for the rest of the year in order to repair your hot water heater. On the other hand, if you have an emergency fund available you can afford to make this unexpected repair without having to turn your life upside down.

How much do I need to save?

It’s important to prepare and plan when buying a home. You’ll need money for moving expenses, closing costs, and a down payment.

  • Moving expenses – you may pay hundreds or even thousands of dollars to move depending on where you’re relocating. To budget correctly, call local moving companies and get quotes beforehand. Will you need to make repairs when you move in? Setting aside money for new furniture, paint, and installing new blinds will cost a pretty penny so it’s best to save for it now.
  • Closing costs – on average, real estate agents recommend saving about 3% of the purchase price of your home for closing costs and other prepaid expenses. Taxes and fees in your area will vary so you may need more or less depending on where you plan to move to but 3% is a good number to work from.
  • Down payment – you should put down at least 10% when buying a new home. On the other hand, if you have 20% for a down payment you’ll be much better off. By putting down 20% you could avoid buying private mortgage insurance a.k.a. PMI which is an additional expense you’d rather avoid.

Are you ready to finally start saving? It’s not hard to save for a down payment. Just focus on it and put a plan in place and you’ll have no trouble saving this money because it’s important to you and your family so you’ll do it.

2. Mortgage Preapproval

Mortgage approval

If you have cash it’s certainly the best way to pay for a home. But if you’re like most people, you’re going to need a mortgage.

How can I get preapproved for a mortgage?

After having a brief conversation with a lender about your down payment, your assets, and your income, you can get prequalified for a mortgage. For a preapproval on the other hand, you’ll need to do more because the lender will have to verify your income and other financial information before submitting your loan for preliminary underwriting.

Having a preapproval is definitely better because this letter let’s homebuyers know that you are serious. It makes you a much better candidate when buying a home.

How to determine the best mortgage to meet your needs?

Getting bad financing is a liability to your biggest asset a.k.a. your home purchase. So finding the right mortgage is absolutely necessary. We have guidelines that we recommend and they include:

  • 15 year term mortgage – you’ll pay a higher mortgage payment with this loan, but you’ll pay it off in half the time that the average person pays so it’s definitely worth it. The thousands in interest savings alone is a huge advantage.
  • Monthly mortgage payment parameters – your mortgage payment should only cost 25% of your monthly income. As an example, if you make $4000 a month take-home pay your mortgage should only cost $1000. At this rate, you’ll be able to save for retirement, pay for your kids’ college and much more.
  • Fixed rate conventional loan – we recommend going with a fixed rate loan because your interest rate isn’t going to fluctuate. Interest rates rise all the time and this will keep you protected.

After you determine how much you can spend on a house, you should stick to this amount. And if you’re buying a house with someone else, make sure you and your partner are on the same page with everything finance related.

3. Choosing the Right Real Estate Agent

Realtor

You may begin your search for a new home by looking online. But that’s just the beginning and not the ending.

Finding a real estate agent as a buyer is important. They’ll help you navigate through the process of buying a home. They may even help you find a competitive edge by picking plum properties when they first hit the market.

Here are a few questions about a buyer’s real estate agent.

How do buyer’s agents make money?

Simply put, you aren’t personally going to pay your real estate agent anything for their services. The seller typically pays all real estate agent fees. So this person is going to help you for free and they’re going to make a hefty profit for their time and attention as well.

What should I seek out when choosing a buyer’s agent?

Your area may have a lot of real estate agents but some are going to be better than others. Avoid brand-new amateurs just starting out. Other things to consider when choosing a real estate agent include the following:

  • Can they communicate effectively?
  • Do they have a positive attitude?
  • Are they good at selling homes? How many homes have they sold?
  • Do they have experience in your purchasing area?
  • Have they specifically helped homebuyers in your particular situation?

If they answered yes to all of these questions, you’re definitely in good hands. You’ll have someone ready to claw and scratch to get you a great deal on a house. They’ll negotiate on your behalf like there’s no tomorrow and you’ll really benefit from this relationship.

4. Happy House Hunting

Cabin

Now it’s finally time to start looking for your home. Some things to consider include:

It’s time for some homework

At this stage of the game, you have your finances figured out and you know how much you can spend in your new house. Let your real estate agent know and they will help you purchase an amazing home with absolute confidence.

Before looking for a home, think about what you want in your new place. Write down the most important features to look for. Have your spouse and your kids write a list as well. You may not be able to get everything, but you’ll at least know where everyone stands and you can use these criteria to discover the perfect home for you and your family.

How can I tell if I’m making a solid investment?

You may believe that once you find your dream home it’s going to be your home forever. But things happen and you may end up selling at some point so you should keep resale value in mind when choosing a big investment such as this. Some tips include the following:

  • Look beyond the surface – maybe you don’t like the color of paint in a few of the bedrooms. Or maybe the bathroom is an ugly purple and it really turns you off. Some of these things are very easy to fix so you need to look past them and really dig into the bones of the house. If it’s a solid structure then don’t worry about the cosmetic stuff because you can fix it later.
  • Home values – are homes in the area going up in value? Or is the market declining? Are there are lots of booming businesses in the area or vacant storefronts and office buildings? Pay attention to the community to determine which direction the home values are moving in and base your decision on this information.
  • Shopping for the right home – when buying a new home for the first time you should buy an affordable home that’s the least expensive in the top neighborhood that you can afford. Your home will have plenty of room to go up in value in the future when you shop this way. Who knows? In five years your $200,000 investment might be worth $300,000 by that point.
  • School districts – you may not have kids now but you may plan to have them someday. So you need to find a house in a good school district. Also, homes are typically more valuable in suburban areas where the kids get better test scores.
  • Never compromise – two things are critically important when buying a home – the layout and the location. Never compromise in these areas because they are critically important to whether or not you’ll love this home and want to stay there for a long time. And if you dislike it, the odds are that potential buyers would dislike it too.

On average, it typically takes a buyer roughly 10 weeks to find the perfect home. So if it seems like it’s taking forever, please be patient because your ideal home is just about ready to find you.

5. Making Your Offer

Kitchen

It’s time to get serious now that you found your home. Making an offer is the critical next step. Even better, you hope to end up in a signed contract agreement with the seller.

What to Include in Your Offer

Since you have a real estate agent, they will help you put together a solid offer to submit to the seller. If the property is hot you could end up in a bidding war, so it’s best to present your best offer right away in order to avoid this scenario. Being preapproved, having a flexible closing date, and making a solid offer will go a long way toward getting yours accepted.

Your purchase agreement will look something like this:

  • important information about the seller and buyer
  • the address of the property
  • down payment amounts, lender information, and the purchase price
  • an initial deposit
  • items that will remain in the home like appliances, air-conditioners, etc.
  • appraisal, home inspection, and final mortgage approval contingencies
  • the closing date

Sometimes this process is easy. Other times there will be some back-and-forth negotiation. If things get intense, remember that you want to buy the house and the seller wants to sell it so you can definitely come to an agreement. You may have to compromise here and there to go forward but it’s worth it if this is the home that you really want. Ask your real estate agent for advice on these matters.

6. Inspecting the Property & More

Home inspection

At this stage of the game, you are in a signed contract to buy this home. You should celebrate because the hard part is over and now you need to inspect the home to find out if anything’s wrong with it.

What should you expect at this point? More than anything else, you have to work through the various contingencies of the contract and inspecting the home is one of them. To make this purchase go through smoothly, you have to inspect the place within a certain amount of time – usually 10 to 15 days – and if you do not you will lose your deposit.

Never overlook any the contingencies of a contract. They are there to protect you during the home buying process.

Performing a Home Inspection

As someone buying a property, it’s your right to have a professional come to inspect the home to determine if it’s worth the purchase price. It’s an important step to make before purchasing because you don’t want to learn about major repairs after you’ve already bought the home. If you find out that there are major problems during the inspection, you could either ask the seller to fix them, ask them to lower the price so you can afford to pay for them, or get out of the contract entirely.

Other things to consider are performing a radon test, having a termite inspection done, or any other inspections you might want to consider. If you aren’t sure what to do, ask your real estate agent to make recommendations.

Home Appraisal

If you aren’t paying cash for your home, your lender will request that you appraise the property to learn its value. They will determine whether or not they will give you a loan based on the value determined by the appraiser.

For some reason, if your appraisal is less than your offer price, you should ask your real estate agent to guide you. You may not qualify for a loan at this point so you need to have a contingency plan in place in case this happens.

Mortgage Approval

Everybody knows that cash is king. You’ll have no trouble closing on the home if you are paying cash. On the other hand, if you are getting a mortgage you’ll need to get final approval before the closing date.

Your lender is going to look your financial picture over from top to bottom and go over it with a fine tooth comb. At this stage, you should not take out any other type of credit or add additional debt to your debt load because you may disqualify yourself from the mortgage and that would be a huge mistake.

7. It’s Closing Day

Red Wine

Now it’s time to close on your home. The house hunting is over, the mortgage is approved, and you’re ready to move in. Now it’s time to take care of all the paperwork, which isn’t fun but it’s a necessary part of the home buying process.

Before the closing date, get a copy of your closing documents from your lawyer or real estate agent so you can review them. In these documents you’ll learn:

  • homeowners association fees if applicable
  • info about prorated property taxes
  • your closing costs
  • getting homeowners insurance

Are you confused about anything in your closing documents? Remember to ask questions if something doesn’t make sense to you. You need to know everything before signing your name on the dotted line.

After the paperwork is finished, you can finally relax and catch your breath. You own your new home so congratulations! This process may not be the easiest thing in the world, but now that you have this amazing property to call your own you should definitely feel that everything was worth it.

Tim Schmidt

About 

A Florida-based Entrepreneur, Author, and Life Hacker, Tim Schmidt decided to take control of his retirement portfolio several years ago by setting up a self-directed IRA. This blog shares his thoughts and opinions on the top of retirement and investments. You can follow his career and travels on his Official Website as well as on his Instagram page.

Money MGMT.

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