How To Buy a House In 10 Steps
Most home sales involve the following 10 steps.
Let’s take a closer look at what each of these steps involves and what you’ll do along the way.
Step 1: Calculate How Much You Can Spend on a House & Save.
Once you decide you’re ready to buy a home, it’s time to set a budget. A good place to begin is by calculating your Debt-to-Income Ratio (DTI). Look at your current debts and income and consider how much money you can reasonably afford to spend each month on a mortgage.
Homeownership comes with several costs you don’t need to worry about while renting. For example, you’ll need to pay property taxes and maintain some form of homeowners insurance. Factor these expenses into your household budget when determining how much house you can afford.
- Saving For a Down Payment and Closing Costs
You can save for your home purchase in several ways, including through investments and savings accounts. If you have relatives who are willing to contribute money, you may be able to use gift money toward your down payment. (If so, be sure to provide your lender with a gift letter.)
But how much do you need to save before buying a home? Let’s look at some of the major expenses related to the purchase, and how much you might want to save for them.
- Down Payment
Your down payment is a large, one-time payment toward the purchase of a home. Most loan programs require a down payment.
Many home buyers believe they need a 20% down payment to buy a home. This isn’t true, though. Plus, a down payment of that size isn’t realistic for many first-time home buyers.
- How Much Do You Need for A Down Payment?
Fortunately, buyers who can’t afford a 20% down payment have several options. For example, you can potentially get a conventional loan with as little as 3% down. Federal Housing Administration (FHA) loans have a minimum down payment of 3.5%. Department of Veterans Affairs (VA) loans and United States Department of Agriculture (USDA) loans even allow eligible and qualified borrowers to put 0% down. Also, many states offer down payment assistance programs to qualified buyers, so be sure to research whether any assistance is available to make your home purchase more affordable.
- Closing Costs
You’ll also need to save money to cover closing costs – the fees you pay to get the loan. Numerous variables factor into how much you’ll pay in closing costs, but it’s best to prepare for 2-4% of the loan amount. This means that if you are borrowing $300,000 for your purchase, you might pay $6,000 – $12,000 in closing costs.
Step 2: Find a Lender you Trust to help Decide What Type of Mortgage Is Right for You
Before you can apply for a mortgage, you’ll need to decide on the best type of loan for you and which one you’ll qualify for. Having a trusting Lender partner is key!
- Conventional Loans
Conventional loans are mortgages that are not backed by an agency of the federal government. Most conventional loans are also conforming loans, meaning that they conform to the limits put in place by the Federal Housing Finance Agency (FHFA) to regulate how large a loan can be and remain eligible for purchase by government-sponsored enterprises (GSEs), Fannie Mae or Freddie Mac. However, jumbo conventional loans, which exceed these limits, are also available. Conventional loans are always a popular option for home buyers, and you can get one with as little as 3% down.
- FHA Loans
Backed by the Federal Housing Administration, FHA loans are less of a risk for lenders because the government insures them if you stop making payments. As a result, FHA loans have credit score requirements that aren’t as strict as conventional loans. You can be approved for an FHA loan with a down payment as small as 3.5%.
- VA Loans
VA loans are mortgage loans for veterans, active-duty service members, reservists or National Guard members, and surviving spouses who all meet certain eligibility requirements. The most popular benefit of VA loans for home buyers is the absence of a down payment requirement.
VA loans are insured by the Department of Veterans Affairs.
- USDA Loans
Another type of government-backed loan, a USDA loan helps people in rural and suburban areas buy homes. You can get a USDA loan with 0% down, but your home must be in an acceptable rural area, and you must meet income eligibility rules.
Step 3: Get Preapproved for A Mortgage
When you’re ready to start house hunting, it’s time to get preapproved for a mortgage. After you apply, your lender will give you a preapproval letter stating how much you’re approved for based on your credit, assets and income. You can share your preapproval letter with me so I can help you find homes within your budget.
To get preapproved, you need to apply with your lender. The preapproval process typically involves answering some questions about your income, your assets and the home you want to buy. It will also involve a credit check.
Step 4: The Right Real Estate Agent for You – CALL ME!!!! Jody Allen 512-736-5639 = See Home Page
Multiple people are involved when getting a mortgage and buying a house. As your representative in the home purchase transaction, I will look out for your best interests by finding homes that meet your criteria. I’ll also get you showings, help you write offers and negotiate on your behalf. I’ve been in Real Estate since 2006 and the Austin area since 1989. I am a HUGE asset to have on your team!
I’m a local market expert Tested. Trusted. Top-rated.
Step 5: Begin House Hunting
I will help you hunt for houses within your budget. It’s a good idea to make a list of your top priorities, some of which might depend on the type of house you’re looking for and whether you’re in search of a starter home or a forever home.
- What To Look for When House Hunting
Here are some factors to consider when shopping for a house:
Rank your priorities from most to least important and we will discuss your list. I will then show you homes that fit your criteria. You may need to spend some time searching for the perfect home, so don’t get discouraged if your hunt takes longer than you expected. I’m here for the long haul! Only you can decide which property is right for you.
Once you find a property that fits your needs and budget, it’s time to make an offer.
Step 6: Make An Offer on A House
When you decide to make an offer on a home, I will fill out all contracts and addenda. We will discuss it in detail and then I will submit it to the seller in writing.
- What Happens After You Submit an Offer?
From here, the seller can respond in one of three ways:
Step 7: Get A Home Inspection
Lenders usually don’t require a home inspection to get a loan, but you should still get an inspection before buying a property.
During a home inspection, a 3rd party inspector will go through the home and look for specific problems. They’ll test electrical systems, make sure the roofing is safe, ensure appliances are working and more. After the inspection closes, the inspector will give you a list of problems they found in the home.
- What Do You Do with Your Inspection Report?
When you receive your inspection results, I will review each item with you, line by line and look for major issues. If a home has a serious health hazard, ask the seller to correct the problem before you close. If you can’t reach an agreement, you may want to move on and consider other options.
- How Does an Inspection Contingency Work?
It’s common for home buyers to include a home inspection contingency in in their purchase offer. A contingency gives buyers the option to back out of a purchase (or negotiate repairs) without losing their earnest money deposit if the home inspection reveals major issues with the home.
- Ask For Repairs or Credits
After viewing your inspection results, you might want to ask your seller to address some of the issues that were found. You can do this in one of three ways:
Step 8: Get A Home Appraisal
A home appraisal is a review that gives the current value of the property you want to buy. You will typically need an appraisal before buying a home with a mortgage loan.
Lenders require appraisals because they can’t lend out more money than a home is worth. If the appraised value comes back lower than your offer, you might have to consider different options such as increasing your down payment or re-negotiating your offer. I will help you determine if you should contest the results of an appraisal. I be able to locate additional comparable homes to consider when appealing the value from the appraisal.
- How Does an Appraisal Contingency Work?
Home buyers should also include an appraisal contingency in their offer. Appraisal contingencies are often drawn up to allow buyers to back out of a purchase (or negotiate a lower price) without losing their earnest money deposit if the home appraises for less than the offer amount. As with inspection contingencies, appraisal contingencies vary, so make sure you understand the nature of your agreement.
Step 9: Do A Final Walkthrough
You should do a final walkthrough of your new home before you close, even if you’re 100% committed to the property. This time allows you to check and make sure the seller left everything as it should be.
Walk through the home and make sure the seller hasn’t left any belongings. Check your repair areas if you requested them and keep an eye out for pests. If everything looks good, it’s time for you to confidently move toward closing.
Step 10: Close and Fund on Your New Home
Three business days before closing, your lender is required to provide you with your Closing Disclosure, which tells you what you need to pay at closing and summarizes your loan details. Read through your Closing Disclosure and make sure the numbers all look correct.
- What To Expect at A Closing
Once you’ve reviewed your Closing Disclosure, it’s time to attend your closing meeting. Bring your ID, a copy of your Closing Disclosure and your funds for the cash needed to close.
You’ll sign a settlement statement listing all costs related to the home sale. This is when you pay your down payment and closing costs which together is called your Cash to Close referenced above. You’ll also sign the mortgage note, which states that you promise to repay the loan. Finally, you’ll sign the mortgage or deed of trust to secure the mortgage note. Once all the funds transfer in the system between everyone’s banks, the loan is considered funded. This could take hours or sometimes finalizes the following business day depending on wire transfer cut off times.
Once funding is complete, you’re officially a homeowner!
Congratulations!
Most home sales involve the following 10 steps.
Let’s take a closer look at what each of these steps involves and what you’ll do along the way.
Step 1: Calculate How Much You Can Spend on a House & Save.
Once you decide you’re ready to buy a home, it’s time to set a budget. A good place to begin is by calculating your Debt-to-Income Ratio (DTI). Look at your current debts and income and consider how much money you can reasonably afford to spend each month on a mortgage.
Homeownership comes with several costs you don’t need to worry about while renting. For example, you’ll need to pay property taxes and maintain some form of homeowners insurance. Factor these expenses into your household budget when determining how much house you can afford.
- Saving For a Down Payment and Closing Costs
You can save for your home purchase in several ways, including through investments and savings accounts. If you have relatives who are willing to contribute money, you may be able to use gift money toward your down payment. (If so, be sure to provide your lender with a gift letter.)
But how much do you need to save before buying a home? Let’s look at some of the major expenses related to the purchase, and how much you might want to save for them.
- Down Payment
Your down payment is a large, one-time payment toward the purchase of a home. Most loan programs require a down payment.
Many home buyers believe they need a 20% down payment to buy a home. This isn’t true, though. Plus, a down payment of that size isn’t realistic for many first-time home buyers.
- How Much Do You Need for A Down Payment?
Fortunately, buyers who can’t afford a 20% down payment have several options. For example, you can potentially get a conventional loan with as little as 3% down. Federal Housing Administration (FHA) loans have a minimum down payment of 3.5%. Department of Veterans Affairs (VA) loans and United States Department of Agriculture (USDA) loans even allow eligible and qualified borrowers to put 0% down. Also, many states offer down payment assistance programs to qualified buyers, so be sure to research whether any assistance is available to make your home purchase more affordable.
- Closing Costs
You’ll also need to save money to cover closing costs – the fees you pay to get the loan. Numerous variables factor into how much you’ll pay in closing costs, but it’s best to prepare for 2-4% of the loan amount. This means that if you are borrowing $300,000 for your purchase, you might pay $6,000 – $12,000 in closing costs.
Step 2: Find a Lender you Trust to help Decide What Type of Mortgage Is Right for You
Before you can apply for a mortgage, you’ll need to decide on the best type of loan for you and which one you’ll qualify for. Having a trusting Lender partner is key!
- Conventional Loans
Conventional loans are mortgages that are not backed by an agency of the federal government. Most conventional loans are also conforming loans, meaning that they conform to the limits put in place by the Federal Housing Finance Agency (FHFA) to regulate how large a loan can be and remain eligible for purchase by government-sponsored enterprises (GSEs), Fannie Mae or Freddie Mac. However, jumbo conventional loans, which exceed these limits, are also available. Conventional loans are always a popular option for home buyers, and you can get one with as little as 3% down.
- FHA Loans
Backed by the Federal Housing Administration, FHA loans are less of a risk for lenders because the government insures them if you stop making payments. As a result, FHA loans have credit score requirements that aren’t as strict as conventional loans. You can be approved for an FHA loan with a down payment as small as 3.5%.
- VA Loans
VA loans are mortgage loans for veterans, active-duty service members, reservists or National Guard members, and surviving spouses who all meet certain eligibility requirements. The most popular benefit of VA loans for home buyers is the absence of a down payment requirement.
VA loans are insured by the Department of Veterans Affairs.
- USDA Loans
Another type of government-backed loan, a USDA loan helps people in rural and suburban areas buy homes. You can get a USDA loan with 0% down, but your home must be in an acceptable rural area, and you must meet income eligibility rules.
Step 3: Get Preapproved for A Mortgage
When you’re ready to start house hunting, it’s time to get preapproved for a mortgage. After you apply, your lender will give you a preapproval letter stating how much you’re approved for based on your credit, assets and income. You can share your preapproval letter with me so I can help you find homes within your budget.
To get preapproved, you need to apply with your lender. The preapproval process typically involves answering some questions about your income, your assets and the home you want to buy. It will also involve a credit check.
Step 4: The Right Real Estate Agent for You – CALL ME!!!! Jody Allen 512-736-5639 = See Home Page
Multiple people are involved when getting a mortgage and buying a house. As your representative in the home purchase transaction, I will look out for your best interests by finding homes that meet your criteria. I’ll also get you showings, help you write offers and negotiate on your behalf. I’ve been in Real Estate since 2006 and the Austin area since 1989. I am a HUGE asset to have on your team!
I’m a local market expert Tested. Trusted. Top-rated.
Step 5: Begin House Hunting
I will help you hunt for houses within your budget. It’s a good idea to make a list of your top priorities, some of which might depend on the type of house you’re looking for and whether you’re in search of a starter home or a forever home.
- What To Look for When House Hunting
Here are some factors to consider when shopping for a house:
- Price
- Square footage
- Home condition and possible need for repairs
- Access to public transportation
- Number of bedrooms
- Backyard/swimming pool
- Local entertainment options
- Local school district ranking
- Property value trends
- Property/real estate taxes
Rank your priorities from most to least important and we will discuss your list. I will then show you homes that fit your criteria. You may need to spend some time searching for the perfect home, so don’t get discouraged if your hunt takes longer than you expected. I’m here for the long haul! Only you can decide which property is right for you.
Once you find a property that fits your needs and budget, it’s time to make an offer.
Step 6: Make An Offer on A House
When you decide to make an offer on a home, I will fill out all contracts and addenda. We will discuss it in detail and then I will submit it to the seller in writing.
- What Happens After You Submit an Offer?
From here, the seller can respond in one of three ways:
- Accept the offer: If the seller accepts the offer, you can move on to Step 7.
Reject the offer: If the seller rejects your offer, the ball is back in your court. You can choose to submit another offer or move on to another home. - Give you a counteroffer: The seller can also come back with a counteroffer of their own. They may change the purchase price or the terms of the sale. You can accept the counteroffer, reject it or make another counteroffer.
Step 7: Get A Home Inspection
Lenders usually don’t require a home inspection to get a loan, but you should still get an inspection before buying a property.
During a home inspection, a 3rd party inspector will go through the home and look for specific problems. They’ll test electrical systems, make sure the roofing is safe, ensure appliances are working and more. After the inspection closes, the inspector will give you a list of problems they found in the home.
- What Do You Do with Your Inspection Report?
When you receive your inspection results, I will review each item with you, line by line and look for major issues. If a home has a serious health hazard, ask the seller to correct the problem before you close. If you can’t reach an agreement, you may want to move on and consider other options.
- How Does an Inspection Contingency Work?
It’s common for home buyers to include a home inspection contingency in in their purchase offer. A contingency gives buyers the option to back out of a purchase (or negotiate repairs) without losing their earnest money deposit if the home inspection reveals major issues with the home.
- Ask For Repairs or Credits
After viewing your inspection results, you might want to ask your seller to address some of the issues that were found. You can do this in one of three ways:
- Ask for a discounted purchase price considering the results
- Request that the seller give you credits to cover some of your closing costs.
- Ask that the seller have the problems fixed before you close.
Step 8: Get A Home Appraisal
A home appraisal is a review that gives the current value of the property you want to buy. You will typically need an appraisal before buying a home with a mortgage loan.
Lenders require appraisals because they can’t lend out more money than a home is worth. If the appraised value comes back lower than your offer, you might have to consider different options such as increasing your down payment or re-negotiating your offer. I will help you determine if you should contest the results of an appraisal. I be able to locate additional comparable homes to consider when appealing the value from the appraisal.
- How Does an Appraisal Contingency Work?
Home buyers should also include an appraisal contingency in their offer. Appraisal contingencies are often drawn up to allow buyers to back out of a purchase (or negotiate a lower price) without losing their earnest money deposit if the home appraises for less than the offer amount. As with inspection contingencies, appraisal contingencies vary, so make sure you understand the nature of your agreement.
Step 9: Do A Final Walkthrough
You should do a final walkthrough of your new home before you close, even if you’re 100% committed to the property. This time allows you to check and make sure the seller left everything as it should be.
Walk through the home and make sure the seller hasn’t left any belongings. Check your repair areas if you requested them and keep an eye out for pests. If everything looks good, it’s time for you to confidently move toward closing.
Step 10: Close and Fund on Your New Home
Three business days before closing, your lender is required to provide you with your Closing Disclosure, which tells you what you need to pay at closing and summarizes your loan details. Read through your Closing Disclosure and make sure the numbers all look correct.
- What To Expect at A Closing
Once you’ve reviewed your Closing Disclosure, it’s time to attend your closing meeting. Bring your ID, a copy of your Closing Disclosure and your funds for the cash needed to close.
You’ll sign a settlement statement listing all costs related to the home sale. This is when you pay your down payment and closing costs which together is called your Cash to Close referenced above. You’ll also sign the mortgage note, which states that you promise to repay the loan. Finally, you’ll sign the mortgage or deed of trust to secure the mortgage note. Once all the funds transfer in the system between everyone’s banks, the loan is considered funded. This could take hours or sometimes finalizes the following business day depending on wire transfer cut off times.
Once funding is complete, you’re officially a homeowner!
Congratulations!