How to Buy a House

I’ve talked about why renters should consider becoming homeowners. The market is still a buyer’s market, for the most part, so this week I’ll share some information on how to buy a house.

The most important way to prepare is to get your finances in order. This means getting a credit report, collecting financial documents like your tax returns and W2 forms to demonstrate your reportable income, printing bank statements to show your cash reserves, and making an itemized list of your monthly obligations (rent, car payment, insurance payment, utilities, etc.). Gathering this data will allow you to figure out how much house you can afford.

The next step is to figure out how much house you want to afford. Do you want to have a little money left over at the end of each month, or are you investing all you can in your new home? Is there growth potential in your job? Does your spouse plan to go to work and increase your household income next year? Or, are you a young couple planning to start a family and have one of you quit your job to stay home with the baby? Be honest with yourself about what kind of payment will allow you to live the way you want to.

Remember, owning your own home means a mortgage payment, tax and insurance payments, and maintenance expenses. On the bright side, it also means building equity in your own property instead of paying rent to someone else so they can build equity in theirs.

So, you’ve got your finances together and have decided on your price range. Now, you need a real estate agent—one you like and trust. Tell your agent how much you want to spend, what your new home must have and what you’d like it to have. Share your preferences about location, property size, home size, number of bedroom and bathrooms, and any special considerations (e.g., Americans with Disabilities Act-compliant, one-story, specific school district). Be as picky as you can up front so your agent doesn’t waste your time showing you homes you’re not interested in.

Be prepared to look at lots of homes, and do yourself and your agent a favor: be completely honest. Tell your agent what you like and don’t about each. You won’t hurt your agent’s feelings if you share negative impressions. It’ll just speed up the process of finding homes that fit your needs. You should also be open with your agent about any contingencies. For example, you can only afford a home at this price after you receive the court settlement you’re expecting or as soon as you sign the contract for your new job that you’ve been promised verbally.

Once you’ve found the home you want, it’s important to be a savvy buyer. First, make sure all of the folks involved in buying the home are involved up front. If grandma is helping with the down payment and wants to approve the purchase, be sure to plan ahead. Sometimes buyers have to compete, and if you cannot make a timely decision, you could lose your dream home to a more organized buyer.

Then, work closely with your agent to make an offer that spells out exactly who is paying for what, and exactly what is included in the sale. Who’s paying for inspections? Repairs? Loan fees? Closing costs? What stays with the house? Hot tub? Window treatments? Pool equipment? Being a good negotiator means paying attention to the details. Your agent can help with this. They are familiar with real estate contracts and connected with local inspectors and service people (e.g., plumbers, contractors, electricians, pest and fungus companies) who can provide quality work.

I was recently asked, “When does an agent’s relationship with a buyer or seller end?” I said, “When one of you dies.” Smart real estate agents know that people typically stay in their homes for about seven years. After that, they’ll need a good agent to help them buy and/or sell their next home, and if that agent has been helpful during those years, they’ll be the first person that the buyer or seller calls. So don’t hesitate to ask for help from you agent even after the sale, they will be happy to be of service, it means you will remember them.

If you’re short on cash, see whether the seller is willing to work with you by paying for some of the closing costs or loan fees. This allows you to use the cash you have towards the down payment or for repairs. If you are pre-approved for a loan, sellers are more likely to help you out because they know you are a serious buyer able to complete the purchase.

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