The process of buying a house is a commitment of both time and energy. Why make it any more stressful than it already is?
The objective of today is to make sure you walk away understanding the home-buying process, and don't feel stressed when you decide to wade into these waters. This guide is here to help you buy your first home, next home, and dream home--the right way.
Step 1: Credit Score
The first thing you will want to do when considering buying a house is to determine what your credit score is. This information gives lenders an idea of the kind of borrower that you are -- do you pay your bills on time, how long have you been paying bills on time, what sort of debt have you carried, how much debt do you have overall? This is another great reason to get started building your credit at a young age with a credit card to pay for gas and food with or taking out a small student loan to make payments on.
The three major credit-reporting agencies (Experian, Equifax, and TransUnion) keep track of your credit activities, and when a credit score is pulled, you are assigned what is called a FICO score anywhere between 350 and 850. The higher your score, the better the interest rate and terms you will get on your mortgage. If you have an 850 credit score, you are likely going to get the lowest rate offered by your lender.
What is the minimum credit score needed to get a mortgage? Although I have seen scores as low as 520-550 secure mortgages, you are typically going to need a 580 or above if you are planning on going the FHA route. If you have an excellent credit score (720+) you can expect to get a good mortgage rate and terms from your lender.
Step 2: Affordability
Determine how much home you can comfortably afford. I like to use an online calculator such as the one on NerdWallet to quickly determine a range of affordability. Once you figure out your price range, take to the internet and look at houses in the area you want to move to that are within that range, starting at the low end and working your way up. I always suggest finding homes in the lower end of your price range that you still like, that way if anything were to happen, you would not be in a financial bind. If you can barely afford it now, it is typically safer to jump down a price bracket to be safe.
Here is a link to the NerdWallet Affordability Calculator I use
Step 3: Finding your Realtor
Your Realtor will be your shepherd through the home buying process. Make sure your decision is the correct one before getting into the process, and take your time interviewing agents. Speak to them about more than just real estate and try to get a sense of what they are like as human beings because at the end of the day a real estate transaction can become an emotional roller-coaster of a process. You want someone with a stable head on their shoulders who is not going to crumble under stress and pressure and will be there to keep you from breaking under the stress as well.
Your Realtor has a fiduciary responsibility to ensure that your interests are well--represented before anyone else's. In addition, they have a professional duty to maintain a high level of ethics throughout the process, respecting all parties involved.
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Step 4: Find a Lender and Get Pre-Approved
As a Realtor who speaks with dozens of customers wanting to get into homes as soon as the thought of buying crosses their minds, I cannot emphasize enough the importance of getting pre-approved by a lender. Nothing is worse than the feeling of going to submit an offer for the home of your dreams, only to find out the Seller is not accepting offers that are not accompanied by a pre-approval letter.
Use Google or Yelp to find local reputable lenders and make sure that they have good reviews. If you cannot decide, ask your Realtor for several top-rated choices and they will provide you with multiple to choose from that will provide you with premium service. The lender is another crucial player in the process, and communication with them is key to closing your home on time.
Once you have decided on a lender and have asked that they begin the pre-approval process, they will pull your credit and analyze your financials. Typically they will ask for pay stubs, bank statements, taxes, etc. to help them come to a conclusion of what you can afford. Upon arriving at a number they are comfortable lending to you, they will deliver a pre-approval letter to you that you can submit along with your offers on homes. This makes you more competitive, especially if other offers on the table do not have accompanying pre-approval letters.
Step 5: Tour Homes
Referring to my other blog post on determining which homes to tour, use a process of elimination and save yourself the headache of seeing every home in town. After each stop on the tour, fill out a property evaluation form provided to you by your rockstar Realtor, or bring one yourself. This will help narrow it down further, and will be especially helpful to review later on when you are making your final decision and have trouble remembering which house was which!
Step 6: Submit an Offer
The offering process is most often times the most emotional part of the home buying process! During this time you will work with your agent to come up with the most enticing offer possible to the seller with the hopes that they accept, all while getting as good of pricing and terms as possible for you as the buyer. This is a delicate art and sometimes consists of multiple back-and-forth communications between buying and selling parties before coming to an agreement.
If there is a multiple-offer situation and you do not win, don't let it get to you. It just means your house is somewhere out there waiting for you to find it. Get back into the game and find your dream home!
If your offer is accepted, now the real fun begins. This is where your Realtor earns their keep, as all the heavy lifting takes place between acceptance and closing. Time to schedule inspections, appraisals, surveys, and more!
Step 7: Inspections
In Texas, it is typical to have a short period at the beginning of the contract (negotiable timing, but let's use 10 days as an example). During that time, the buyer can schedule for a home inspector to come out to the property and scour it from top to bottom looking for any deficiencies that are in need of repair.
Typically an inspector can get you a report written up within 24 hours, allowing you to go back to the seller with your Realtor and negotiate for either repairs or a reduction in sales price to help offset the cost of repairs that you will incur upon taking ownership of the house.
Step 8: Insurance and utilities
These are important ones, especially if you like your home and you like using water and electricity! Before moving into your new home, take the time to find an insurance provider that offers a policy amiable to you and is within your budget. Additionally, you will want to call all local utility providers that service your future home and establish accounts with them. Make sure they have your move-in date on their calendars so that they will have utilities turned on for you. Nobody likes moving into a cold, dark house with no way to warm it up!
Step 9: Closing and funding
Practice your autograph, because you'll be putting it to good use on closing day. Although it may seem daunting, you can get through all of the paperwork and cross the finish line. This is the final step, so that means it's time to celebrate! Once the funds from your account have gone through escrow and been deposited into the seller's account, the home is yours!
Step 10: Keys and moving in!
You're now a proud new homeowner, and it is time to move into your home. Your Realtor will arrange for you to get the keys whether they deliver them to you, or they are at closing for you to leave with. Make sure all of your things are already packed up so you can get into your new house and start enjoying it right away!
Matt Moreland, Realtor® is a real estate agent serving the Lubbock, Texas and the South Plains. After graduating with a Bachelor of Business Administration in Finance with a concentration in real estate from Texas Tech University, he began practicing real estate full time at McDougal Realtors in Lubbock, Texas. Matt enjoys spending time with his wife and their dog. Some of his hobbies include investing in real estate, elk hunting, backpacking, barbecuing, and playing guitar. To schedule a commitment-free consultation please call 469-744-3610 or fill out this form to get started.