Buying a house for the first time can be one of the most full-on adulting challenges you ever undertake. This is perhaps the biggest purchase of your life, after all, with zeros being bandied about willy-nilly and obscure terminology coming at you from every corner. Fear not, we are here to help.
The first thing is to figure out your budget.
Otherwise, what’s the point of even looking at that three-story Queen Anne Victorian with a turret, if it turns out you can barely buy the adjacent chicken coop? The difficulty of determining just how much house you can afford can be compounded by the fact that what the bank says you can pay for is not always the same as what you’re comfortable with. Start by making a list of all your monthly expenses except for rent, including groceries, credit card payments, health insurance, retirement savings, student loans, etc. Include any large yearly expenses as well, like insurance premiums or annual vacations. Subtract the resulting total from your take-home pay, and that’ll tell you how much you can afford to spend on your new home each month. Use a mortgage calculator to research current interest rates, and factor those in to get an estimate of what your total mortgage payments would be (this is kind of a loose number at this point, since you don’t yet actually know what kind of mortgage deal you can get).
Calculate your monthly expenses, without rent
Subtract that total from your monthly take-home pay: this is how much you can afford to spend on a new house
Calculate and incorporate current interest rates into that total
Ask for pre-qualification or pre-approval.
This step is simple. You supply a lender or bank with a picture of your basic overall financial situation (debt, assets and income), and they provide you with a general idea of the types and amounts of loan you qualify for. Remember, since this is just a quick overview, those rates aren’t written in stone. Pre-qualification should be cost-free and available over the phone, especially if you’re well paid and have little-to-no outstanding debt. Pre-approval is next and it’s much more in-depth. As such, it usually requires a fee. You’ll complete an official mortgage application, and supply the company with an array of documents so they can perform a comprehensive financial and credit background check. With this in hand, your lender can tell you the specific loan amount for which you’re approved. In some cases, you may even be able to lock in a specific interest rate. This step is invaluable, because it allows you to only look at homes you’re certain of being able to purchase, and not waste your time mooning over a dreamhouse that’s way out of budget.
Find your realtor and new home.
A little thing like getting a cup of coffee for your realtor while you’re on the way to look at a prospective property can make a huge difference in your relationship. After all, this person should be your ally. Impress them: provide your requirements and mortgage arrangements in writing, so you stand head and shoulders above all other possible buyers. Once you’ve established some intimacy, pump them for information. What’s the lowest price the sellers will accept? How many offers have been made? Why are they leaving? You’d be surprised by what a realtor will be willing to tell you, thanks to all that good, solid groundwork you put in. Also, try to coordinate visiting multiple properties over the course of a day (if you take too long over viewings, you run the risk of losing the home you finally decide on), take lots of pictures and have a checklist. When you’re inside the house, bring all your Sherlock-level detecting skills to play: does it smell damp?, are there discolored patches on the walls?, is it in a flood-prone area? Check that the hot water and electricity work correctly, and that you have cell phone service. Be charming to the owners (honey’ll serve you better than vinegar), and ask about the neighborhood, while looking closely for any winces or grimaces. If you decide you like a property, come back at night and check out the area when those pesky noisy next-door neighbors are home. Find out how frequent trash collection is, and whether there’s recycling. Check that it’s in a good school district, if children are a near future possibility for you. So, to recap:
Make friends with your realtor
Get the nitty-gritty on each home they show you
Coordinate multiple house visits for the same day
Take lots of pictures
Have a checklist of requirements
Play detective and be suspicious of each house
Charm the owners and ask about the neighborhood
Do some recon: check out the house you like at a different time
Choose a lender.
For a good list of tips on how to do this and what to ask prospective lenders, check out our What Should I Ask a Potential Lender? article. If you’re considering an online mortgage broker but aren’t sure, our article What Makes A Good Online Mortgage Exchange?, can help you decide.
Get a home inspection and appraisal.
You finally found the dream home you can afford. Within a few days of having your offer accepted, your real estate agent should coordinate an inspection of the home, to check for structural damage. If there’s anything that needs fixing, you can decide if you want the seller to do so before finalizing the sale. Before closing, remember to do a final walk-through the house, to see if the changes were made. The appraisal should be coordinated by your lender.
Finally, coordinate the paperwork and close the sale.
As you should know by now, the house-buying process requires an inordinate amount of paperwork. On your end, fortunately, most of that has to do with financial requirements for your mortgage provider. In turn, they should handle the rest of the paperwork and loan documents.
Congratulations, you just bought a house!