Tired of paying for your landlord’s mortgage? If so, you’re probably thinking of buying your very own home. Not only will it provide your family with more space and privacy, it’s also a stable and lucrative asset.
But if you’re not quite sure how to buy a house for the first time, we’ve put together this comprehensive guide for you:
Stage 1: Deciding to buy a house
You may want to purchase a home, but are you truly ready for it? If you can answer “yes” to all these questions, you’re all set to become a homeowner:
- Do you have sizable cash savings?
- Is your credit score healthy (740+)?
- Do you have a stable job and good career prospects?
- Are you getting married or having kids soon?
- Are you willing to stay put for at least five years?
- Can you handle basic home repairs and maintenance?
- Is the real estate market buyer-friendly?
Stage 2: Readying your finances
How to set a budget is one of the most common questions regarding how to prepare to buy a house. Luckily, the 28/36 rule offers a simple but useful guide. It states that housing costs should be no more than 28% of your gross monthly income and that you should spend no more than 36% of your money on debt servicing (including your mortgage, car loan, credit card balance, etc.)
Once you’ve established your budget, verify that you can actually loan that amount. Contact a mortgage lender and apply for pre-approval to find out how big a loan you can realistically qualify for.
If your credit score is a bit low, pay off existing debt more aggressively to lower your income-to-debt ratio. You should also request a free credit report and check for errors that may be lowering your score. The higher your credit score, the better the interest rates you get, and the greater the savings you’ll enjoy.
Stage 3: Finding a buyer’s agent
Don’t just hire any agent, choose one that specializes in representing buyers. Not only do they have a pulse on all available properties in an area, but they also have a fiduciary duty to act in your best interest. And the best part? Hiring a buyer’s agent is free—they split the sales commission with the seller’s agent. Just be sure to ask these questions when interviewing an agent:
- How many homes have they sold in the last three months?
- What is their listing price-to-selling price ratio?
- How quickly can they help you find a home?
Stage 4: Looking for homes that fit your lifestyle
What exactly is your definition of a dream home? Go beyond square footage and the number of bedrooms and bathrooms, and look for features that suit your lifestyle. If you love dogs, for example, a house with a spacious yard is ideal
Note also that different kinds of properties cater to different kinds of buyers. A home in the suburbs is perfect for growing families, while a condo in the city is perfect for career-driven individuals.
In general, it’s best to buy a slightly bigger home that you currently need in case you decide to have more kids in the future. And don’t just focus on the house itself—look at the neighborhood, too. A good one is near top schools, business districts, shopping centers, and transportation hubs.
Stage 5: Escrow and appraisals
Once a buyer accepts your offer, you enter the escrow phase. During this time, both you and the seller must perform due diligence before finalizing the deal.
As the buyer, you are entitled to request a professional inspection of the property, which protects you from buying a house with deal-breaking flaws. If repairs are needed, you may ask the seller to fix them for you or renegotiate the price and do them yourself. Your bank will also appraise the property to verify that its fair market value lines up with the mortgage amount you’re applying for.
Stage 6: Closing the deal
Closing represents the transfer of ownership from the seller to you. The closing process typically costs 3%-4% of the property’s contract price and takes about 40 days to complete.
If both sides are happy with the deal and no major issues are uncovered, the home’s deed will be transferred to you. Review your purchase contract to verify when you can move into your new house.
Stage 7: Moving in
After closing on your new home, immediately make preparations to sell your current one. Then book a moving company and begin packing your belongings. Don’t forget to notify your bank, insurers, and utilities of your new address.
Upon moving into your new home, be sure to change the locks—you don’t know who else has access to the house keys, which represents a big security risk.
Ready to be a homeowner?
If you follow these steps to buying a house for the first time, you are sure to have a smooth and hassle-free experience.