How to Buy a House
Are you tired of renting apartments and rental homes, mama? Throwing away so much of your hard-earned money on living in a property that someone else is making profit off of? Renting a home or condo is more expensive per month than owning one, in 42 of America’s 50 states, according to Investor’s Business Daily. Not only that, but investing in your own property can add serious dollar signs to your net worth, as real estate is one of the best assets you can own (unlike a car). The value and cost of homes are steadily climbing, as you can see from this nifty interactive chart over at The Economist. Isn’t it time you and your family learn how to buy a house?
It doesn’t matter whether you’re moving from a parent’s home to your own, upgrading your current place from something newer, or simply making the change from renter to home owner, buying a house can be a huge milestone in you and your family’s lives! And as such an important life-changing event, it’s surprising that no one teaches us the ins and outs of home buying in school (unless you’re earning your real estate license in college).
One of the best ways to get a handle on home buying is to educate yourself on the process. Know what to expect! So to help you better understand the process, (and so you can teach your children in the future), James (my fiancé who just so happens to be a Texas realtor) and I have teamed up to share the steps to buying a house – from prep to closing day!
Before you actually start looking for a house (although you may still find yourself looking around Trulia and Zillow apps just for fun!) there are a few prep-steps you need to handle, first.
When you buy a house, paying 20% of the purchase price upfront and financing whatever’s left, is ideal.
What does 20% look like? Obviously this all depends on the price of home you’re looking for. Use this formula to figure out home much you’ll need to save:
(Price of Dream Home) x (.2) = Amount of Down Payment
Considering the average home price greatly depends on the area you live in, let’s just use some general numbers here as an example…
In Frisco, TX, where Kandy Apple Mama is based, the average home value is $383,100 (according to Zillow). So 20% of that would be $76,620. Sounds crazy, right? For some of us, that’s more than our annual salary. But don’t let that number stop you! A twenty percent down payment can sound outrageous to many of us, especially if you’re struggling with debt, but there are some ways around it.
Down Payment Assistance
Many of us looking to buy a house (especially our first) are completely unaware that there are so many programs available to help with down payments. Just doing a quick Google search brings up a list of down payment assistance programs. Visit Down Payment Resource and answer a few simple questions to see if you qualify for some of the programs.
There are also many cities that provide down payment assistance themselves, especially for first time home buyers. Try doing a little research on it to see what may be readily available. If Googling “(city name) down payment assistance” doesn’t come up with much, you can always talk to a realtor about programs they’re aware of. (We’ll get to realtors in a bit.)
A friend of mine recently shared info on a non-profit organization called NACA (Neighborhood Assistance Corporation of America). This organization not only helps buyers find the best mortgages available, but they make it a priority to help you be financially successful when it comes to buying a home.
It starts with a class where they prep you on how their program works. While no down payment is required, they show you how much you’ll need to save up per month before purchasing – for closing costs, home improvements, and anything extra. NACA doesn’t care about your credit, either. They’re more worried about payment history, and whether you’ll be able to make your housing payments. And the best part of the organization is that it’s everywhere!
Check out NACA’s website to learn more.
If you’re a veteran, you may qualify for a VA loan, which requires no down payment when buying a home. And no mortgage insurance, either!
There also seems to be (in Texas anyway) many other veteran assistance programs to help with down payments and mortgages. You can see if you qualify for them through the Down Payment Resource link mentioned above.
Wait, what’s mortgage insurance?
Generally, anytime you’re buying a home with less than 20% down payment, the bank requires you to buy mortgage insurance. This protects them (not you) in case you default on the loan and can’t make payments. They won’t lose so much money when they foreclose on it and kick you out.
On top of a down payment, it’s also a good rule of thumb to have a hefty savings account at the ready for any and all repairs and upgrades that may arise once you do move into your own house. Once you own the property, you’ll be the only one on the hook when things break (and believe me, things love to break!).
The amount of savings is completely up to you. My cousin and his wife were one of the worst case scenarios when they bought their first house. Everything started breaking! From the roof leaking, to appliances breaking – even their chimney fell over! So do yourself a favor and be prepared for anything.
Another thing to think about when preparing yourself for buying a home, is your credit score. You want to be able to present yourself in the best financial situation possible, and that includes when it comes to your credit. Kristen shared her tips on credit scores, credit building, and credit repair in her post What is Credit, Anyway?
Put your best foot forward by building up your credit score before looking into qualifying for a loan.
When buying a home, you’ll need a reliable source of income in order to qualify for a mortgage. The longer you’ve stayed with a company, the more dependable you’ll seem to lenders. While a salaried position isn’t required, if you’re a contractor or for whatever reason get paid with a 1099, they require a minimum of 2 years employment. Of course, it’s best to speak to a lender in order to find out exactly what you need to qualify for a home loan – but we’ll get to that in a minute.
What is it you need?
Another important part of your pre-search preparations is to determine what you really need. I’m not talking about what you can afford – what is it you need? Do all of your children need their own rooms, or can the boys share one and girls another? Do you work from home and need an office space? Does your family of 6 have trouble sharing anything less than two full bathrooms?
Sit down and make a list of the bare minimum you and your family need to live comfortably. Then make a list of “wants” next to it. This will be part of your “wiggle room” when you start looking. Next, we’ll get into what you actually qualify for.
Once you have a handle on your credit, down payment options, and an idea of what it is you’re looking for, the next step is to get pre-qualified for a loan. You’ll need to contact a lender who can determine the amount of home you qualify for. This isn’t necessarily the price point you’ll be looking for, but it does determine the maximum amount of mortgage you can afford. The higher the number, obviously the more buying power you have.
But what can you comfortably afford?
The lender will also be able to tell you your approved interest rate, which will help determine what your monthly payment may be depending on your loan amount. This, in turn, will help you truly understand the price you should aim for.
If you’re pre-approved for a $300,000 mortgage and a 5% interest rate for 30 years, your monthly loan payments would come out to $1610.46. And this isn’t including mortgage insurance, taxes, or home owner’s insurance. But if $1600+ is pushing it for your monthly budget, you may want to aim for a lower payment. A home for only $200,000 with 5% interest would lower the payments to $1073.64 (not including mortgage insurance, taxes, or home owner’s insurance).
Once you’re pre-approved and know what kind of monthly payment you can comfortably afford, now you can start looking for homes in that price range!
Finding a Realtor
You can hire a realtor at any point in the in the above mentioned steps, but once you’re pre-approved and ready to search, this is the time you really need one. Realtors can help you find the perfect home, submit offers, and make sure you’re protected in the process.
They have your best interests in mind and want to make sure you get into the home you not only deserve, but that fits your needs. Plus, they have access to MLS where almost all properties are listed. Unlike the public access homes-for-sale sites, MLS is constantly updated with the most current listings. If it says it’s listed, it’s listed.
In Texas, more often than not, buyer’s agent realtor fees are covered by the seller’s closing costs. It’s definitely a negotiation point, so don’t let a 3-4% commission scare you away. Having a realtor on your side when it’s time to submit offers and negotiate with seller’s agents is well worth the cost.
I know where we live, sometimes it feels like there’s a realtor on every block. They’re everywhere! Seriously! Even my fiancé James is one. (JMLRealty.com)
But if you can’t seem to find one in your friends group, Realtor.com is a great resource.
Searching for the Perfect Home
When searching for your dream house, it’s important to keep an open mind. Many potential buyers are shocked when they first start looking and realize just how much home their buying power can get them. The value of homes have shot up in the last decade. $150,000 doesn’t buy what it used to.
You’ll want to share your “needs vs. wants” list with your realtor so that you stay on the same page. Your realtor will work with you to figure out how to get you the best bang for your buck. Sometimes that means looking in neighborhoods you hadn’t considered, or working with whatever wiggle room you have as far as price, or “wants” are concerned.
It’s also the realtor’s job to look out for (and bring your attention to) potential problems in a home – including foundation repairs, roof or water damage, electrical issues, etc. Of course, they won’t find everything – that’s what a home inspection is for! Also, keep in mind that sometimes repairs can be negotiated into the contract when buying a house. So again, keep an open mind.
Putting in an Offer
Once you’ve decided on a house and are ready to put in an offer, your realtor will handle the rest. They’ll write up your contract, walk you through signing it, and submit it to the seller’s agent.
If Your Offer is NOT Accepted
If the sellers didn’t accept your offer, don’t give up! Everything happens for a reason. Keep searching for your perfect home.
Currently, in Dallas, it’s a major seller’s market for any property under $300,000. Houses are sold in mere hours in some cases. If you’re dealing with a “seller’s market” wherever you live, this gives the seller an advantage and could increase your cost. In some cases, you may want to start looking at lower priced homes in order to have a more comfortable cushion if you’re having to offer more than the asking price.
If Your Offer IS Accepted
If the sellers accept your offer, congratulations! You’re so close to buying a home! Buuut we’re not quite there yet.
Good Faith Deposit and Home Inspections
A good faith deposit, otherwise known as “Option Money” is a deposit that allows you to inspect the house during the “option period” (a period of time you and your realtor will set).
The home inspection is done by a home inspector (duh) that you and your realtor will find. This is another expense you’ll need to keep in mind. The average inspector charges $200-400+ according to Home Advisor.
The inspector, once hired, will walk through the entire house checking from the roof to the foundation, and everything in between, for issues. The oven, the plumbing, every plug and light switch, HVAC…and the list goes on.
If they find any issues, the inspector will include it in their report. And if the home inspection comes back with issues you’re not comfortable dealing with, then you can back out of the contract only having spent the option money. Of course, if it comes back with minor issues, sometimes your agent can negotiate repairs or money for repairs into the contract.
Next the Lender Takes Over
Now it’s time for your lender to get to work securing your home loan, and having a home appraisal done. This will give you a detailed report on the actual value of your home. It’s important to note that a lender (depending on what kind of loan you’re working with) will not give you a loan for more than the appraised value, so if you offered more than it was worth, you’ll have to either pay the difference with your down payment, or negotiate for a lower price.
Getting a loan for more than the appraised value in order to do repairs or improvements is a whole other ballgame. Talk to your lender with any questions you may have about it.
Make sure your funds are ready, because you’re almost there! You’ll also want to have homeowners insurance in line. Shop around for the best deal. Often times, whoever you have auto insurance through will give you a discount for adding a homeowners insurance policy. Just do whatever’s best for your family and your budget.
Then 48 hours before closing, you’ll be able to do a final walk-through of the home to double-check that things are in line. If something that was included in negotiations hasn’t been left or taken care of, let your realtor know asap.
If everything’s in line, on closing day (woohoo!) you’ll finally sign the mortgage documents and become the official owner!
Yay! You’re a homeowner!!
Buying a house doesn’t have to be complicated, especially when you have a great realtor on your side. Knowing about the home buying process and what to be prepared for can keep you from feeling overwhelmed. Prepare yourself financially, get pre-approved, find a home with the help of a realtor, put in offers and wait for one to be accepted! It can be a trying process that demands patience, but have faith in yourself. Know that whatever is meant to be, will be.
We hope this info helps you get into the house of your dreams!