Buying a Home

Understanding the Home Buying Process

Step 1 – Deciding to buy a home

Starting a home-shopping / home-buying process means answering a lot of questions. Are you ready to buy a home? How much of a mortgage can you afford? How’s your credit? What size house do you need? What area do you prefer to live in? How are your cash reserves?

The more Q&A, research and soul-searching you do in advance, the smoother the process will be later on. Let’s look, then, at some key questions you should ask yourself in the self-assessment phase.

What Can You Afford?
Before house hunting, determine how much of a mortgage you can comfortably afford. “Comfortably” means you can pay your mortgage each month and still have money for living expenses, savings, and quality-of-life niceties. In other words, you don’t want a mortgage payment that forces you to “squeak by” each month.

To determine your mortgage comfort-zone, you need three things: a budget, a price and a mortgage calculator. For the price, just start with the cost of a house you think you might be interested in buying.

At first, don’t worry about whether the price is too high — you’ll find that out soon enough when you run the numbers.

Next, run the home price through a mortgage calculator at current interest rates and at a 30-year fixes mortgage. (You might choose a different mortgage type later on; but this exercise is just to get a ballpark mortgage payment based on home price, so choose the 30-year fixed option for the sake of simplicity.)

Mortgage calculators can easily be found on the Internet. Just type “mortgage calculator” into any major search engine, and you’ll find several.

Sample Mortgage Calculation
Let’s say I’ve done some research and found that a home in my preferred area with the number of rooms I want, and offering the features I have in mind, comes to about $500,000. I plan to get a loan for 80% of this amount and then split the remaining 20% between a down payment and a second mortgage.

Step 2 – Understanding the market

Your first step here is to figure out what city (or town) and neighborhood you want to live in. Regardless of whether or not you have school-age children, try to buy in a district with good schools. If you sell the home in the future, a strong school system will be a major advantage in attracting buyers and getting top dollar.

Your real estate agent should be available to give you at least the basic information about schools in the area.

Type of House
Next, try to determine what kind of house will fit your wants and needs. This will help you narrow your search, and it will help your agent pull recent sales information on similar types of homes. At a minimum, ask yourself the following questions:

  • One story or two?
  • How much space do I need now?
  • How much space will I need in a year or two, or three?
  • What features do I want in a home?
  • What architectural styles appeal to me?

Write down as many characteristics as you can think of. Categorize them as either “must have” or “would be nice to have.”

Next, get out there and search! Your agent will help you a lot in this regard, but don’t stop there. Drive through neighborhoods. Read the “Homes” or “Real Estate” section of your newspaper. Your dream home won’t find you … you have to find it.

When you actually start touring homes, take your priority list of size, style, features, etc. Compare each home against the list to see if it offers the things most important to you.

But don’t be too quick to reject a house if it doesn’t at first measure up. You can always build a deck or update a kitchen. If you find a house that excels in all other areas but lacks one of the items on your list, ask yourself: “Is this something I can add on myself?”

Step 3 -How to select an agent

Why Use an Agent?
Even with the wealth of information available on the Internet these days, it’s a good idea to have an agent. The fees you’ll pay an agent are nominal when you consider what all an agent can do for you. Buying a house is a monumental event that can affect you for years to come — an agent can help you make sure it’s a positive event. Among other things, a good agent will act as your home-buying expert, tour guide, negotiator, paperwork administrator, and, most importantly, your trusted advisor.

Additional Benefits of Having an Agent

  • They can help you understand the different financing options available to you.
  • They can likely refer you to a lender who can help pre-qualify you for a loan.
  • They almost always have access to the Multiple Listing System (MLS), an electronic listing of homes for sale by other agents.
  • They may know of homes for sale in the area that are not yet being marketed.
  • They can help you stay on track throughout the buying process, with the many appointments and events the process brings.
  • They will handle all the home-buying paperwork … and there’s a lot of paperwork.
  • They can help you negotiate with sellers.
  • They can help you determine the realistic value of homes based on recent sales in the area.

How to Find an Agent?
Seek referrals from friends who have bought homes in the area. Look on the Internet. Look in the “Homes” or “Real Estate” section of your local newspaper.

The ideal agent knows the local area well. And most importantly, he or she listens well and respects your needs and limitations. Trust your instincts. If an agent makes you uncomfortable for any reason, find another one.

Step 4 -Closing the transaction

A day or two before the actual closing, you should receive a final HUD settlement statement from your lender. This statement will list all the charges you’ll have to pay at closing. Review it carefully with your agent.

What Happens on Closing Day? In a nutshell — a lot of paperwork, and all of it important. The closing agent, generally an escrow company representative, will list all remaining monies that you owe the seller (remainder of the down payment, prepaid taxes, etc.), as well as any money the seller owes you (unpaid taxes and prepaid rent, if applicable).

When you’re comfortable that you understand all the documentation, you’ll sign the mortgage. You’ll pay all remaining closing costs. The deed will be recorded in the state’s Registry of Deeds.

Congratulations! You’re now a homeowner!