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How to Buy a House: 10 Steps to a Brand New Home

Buying a house is one of the most important processes you will experience in your entire life. You need to be sure to go through the right steps and avoid as many of the easy to make mistakes as possible. If this is your first time buying a home, you’ll want to make sure you go through the process very carefully. Here is the beginner’s guide to buying a house:

How Do I Buy a House?
The Home Buying Process Explained:

 

Step 1: Check your credit

You can start by checking your credit score on credit agencies like TransUnion, Experian, and Equifax. These credit reports show if you have been late with your payments or if you’ve run into serious credit problems in the past. If you’re new to what a credit score is, it is a number that is calculated from a formula based on the information given in your credit report.

You will have three credit scores that come from each of your credit reports. If you have a low credit score, it can hurt your chances of getting the best interest rate or even getting any financing at all. However, errors can be common, so if you find any be sure contact the agency you looked at directly. If your report is correct, be prepared to explain any problems to a loan officer.

Step 2: Set a budget

A big step is making sure you know what you can afford. You can either do this with a calculator or ask to be pre-approved by a lender who can look at your debit, credit, and income to decide what kind of loan is in your league. You should aim to buy a home that costs about 2 ½ times your gross annual salary.

If you know you have substantial credit card debt or other obstacles, then you should set your budget lower. Your monthly home payments should not exceed 36 percent of your gross monthly income. If you’re not sure, the amount of your down payment can determine how much you’ll be able to afford.

Step 3: Rounding up cash

You need to come up with some cash for the down payment and closing costs. It will look best if you are able to put down 20 percent of the home’s price as the down payment. It will look even better if you put down more than that, and you might be approved a bigger loan. If you are only able to do less than 20 percent, then be sure to look for loans that will accommodate you. You may end up having to pay for private mortgage insurance, which protects the bank in case you fail to make any payments.

Once you’ve thought about the down payment, make sure you have enough to cover any fees or closing costs. These can include loan fees, inspection fees, the appraisal fee, attorney fees and costs of a title search. These can all add up to go over $10,000, and often add to 5% of the mortgage amount. If the cash you have now doesn’t cover all your needs, you still have options. People that are first-time homebuyers can withdraw up to $10,000 without receiving penalty from an Individual Retirement Account, even though you still need to pay taxes on the amount.

You can also get a cash gift of as much as $14,000 a year from your parents without triggering a gift tax. You should also check to see if your employer can help, because some big companies will add to the down payment or help you get a low-interest loan from certain lenders.

Step 4: Getting an agent

Most sellers put their homes on the market through an agent. Sometimes buyer agents will be paid directly by you, on an hourly or contracted fee. Other times, they split the commission that the seller’s agent gets upon the sale. A buyer’s agent has the same access to homes on the market as the seller’s agent, but their loyalty should be only to you.

Step 5: Searching for a potential home

The first thing to do with this step is figuring out what neighborhood or city you want to live in. In areas with positive signs of economic vitality, there is usually a mix of young families and older couples, with low unemployment rates and good incomes. Looking for neighborhoods in cities like San Diego would be a good option. You should also pay attention to areas with good schools, even if you don’t have children to go to school. A strong school system is a huge advantage in helping your home gain value when its time for you to sell.

You should also do your own research about the real estate market in your area. If there are homes that are selling close to or above the asking price, that means the area is desirable. Paul Chunyk, owner of CA Realty Group in San Diego, recently published a video about the strong real estate market in Del Mar and how it is continuing to prosper. Look for areas like this that have projected increasing value and durability. When it comes to your search criteria, select a price range that is 10 percent above and below your actual range and a 10-mile radius to the location you are looking for.

Step 6: Making an offer

When you find the house you want, you need to act quickly to make your bid. Get advice on an initial offer if you’re working with a buyer’s broker, but do it yourself if you’re working with a seller’s agent. Gather data on at least three houses that have recently sold in the neighborhood you’re looking at. Don’t lowball if you really want the house, because the seller may then end up giving up on you.

If you’re trying to negotiate a fair price, it’s safest to deal with the seller directly. You’ll need to find ways to satisfy the seller’s needs by doing things like asking if the seller will throw in laundry or kitchen appliances if you meet his price or deduct them in exchange for a lower price. When your reach a mutually acceptable price, the seller’s agent will make an offer to purchase that will include an estimated closing date (this will usually be 45 to 60 days from the acceptance of the offer).

Step 7: The contract

Make sure your lawyer or buyer’s agent reviews it to make sure the deal lives up to 3 criteria: obtaining a mortgage, includes a home inspection that doesn’t show any substantial problems, and a guarantee that you can do a walk-through inspection 24 hours before closing. You should also make a good-faith deposit (which should be 1 to 10 percent of the purchase price) that can be deposited into an escrow account. The seller will get the money after the deal closes.

Step 8: Securing a loan

This is when you’ll need to call your mortgage lender or broker and agree on terms if you haven’t already. Decide whether you want to go with the fixed rate, or an adjustable rate mortgage, and if you should pay points. You should look into taking out a homeowner’s insurance policy if you already don’t have one as well. A lot of lenders will require that you have homeowner’s insurance before they approve your loan.

Step 9: Getting an inspection

Hiring your own home inspector is a very smart idea. You should ask to be there during the inspection, because it will allow you to gain knowledge about your new home like its general condition, wiring, heating, and construction materials. If it turns out that the inspector finds some major issues like getting the roof replaced, ask your agent or lawyer to discuss it with the seller. If this is the case, you either want the seller to fix it or deduct the cost of repair from the final price. If the seller doesn’t agree to this, you might want to walk away from the deal.

Step 10: Closing the deal

About two days before closing, you will get a final HUD Settlement Statement from your lender that will list all the charges you should expect to pay at closing. You need to review this carefully, because it will include things like the cost of title insurance that will protect you and the lender from any claims that would regard the ownership of your property. Your lender might also require you to create an escrow account. They can also require deposits of up to two months’ worth of payments. Don’t expect the actual closing to be monumental; it is a ritual affair with customs that differ by region. Have your lawyer or agent brief you on the specifics of this exciting event.

Contact Paul Chunyk

Reach out to me, I would love to give you more details and get you headed in the right direction to accomplish your goals.

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