No-Nonsense Guide to Home Buying
- 12 Steps to Success
by Brandon Cornett
In the last few years, the process
of buying a home has been altered
by the so-called mortgage crisis
and the continued evolution of online
real estate tools. So in this article,
we will take a fresh and modern look
at the process of buying a house.
More specifically, I will outline
the general process in twelve clear
steps.
1. Check Your Credit
Credit scores have always been important
for home buyers, but they are more
in the wake of the mortgage meltdown
of 2007 - 2008. According to industry
experts, home buyers in 2006 needed
a credit score of at least 620 to
qualify for the best interest rates
on a loan. Two years later, borrowers
needed a score of 760 or higher to
get the best rates. That's a much
stricter requirement!
So your first step should be to
review your financial situation.
Order your credit reports from Experian,
Equifax and TransUnion, and check
them for errors. Order your credit
score (different from your reports)
to see how you stack up against the
national average. If necessary, focus
on improving your score by paying
down credit card balances, making
all future payments on time, etc.
2. Determine Your Budget
Don't make the mistake of letting
a mortgage lender tell you what you
can and cannot afford, in terms of
a monthly mortgage payment. In reality,
the only thing a lender can tell
you is the amount you qualify for
-- not the amount you can realistically
afford. In other words, you should
determine your home buying budget
for yourself. There are a lot of
free mortgage calculators online
that can make this process easier
for you.
3. Research and Choose a Type
of Mortgage
Do you know the difference between
a fixed-rate mortgage and an ARM?
This is just one of the things you
need to understand before applying
for a mortgage loan. Because of increased
competition in the lending industry,
there are more types of home loans
today than ten years ago. The key
to success when choosing a mortgage
is to consider your long-term plans
and find a loan that matches those
plans. To do this, you must learn
the pros and cons of the primary
loan types.
4. Get Pre-Approved for a Loan
Pre-approval is a
process in which the mortgage lender
reviews your
financial and credit history to determine
your "creditworthiness" ... an industry
term that means: "How much of a risk
is this person, and how much are
we comfortable lending?" When you
get pre-approved for a certain loan
amount, there's a good chance that
you'll receive final approval for
that amount as well, when the time
comes.
Having a pre-approval letter in
hand also shows sellers that you
are serious about (and capable of)
purchasing their home. This can make
a big difference in hotter real estate
markets, where the seller may receive
multiple offers from competing buyers.
5. Find a Real Estate Agent
If you are buying a home for the
first time, or in a new city you're
not familiar with, it's wise to hire
a professional real estate agent.
When you compare the amount of money
you'll pay for a new home with the
size of the agent's commission, you'll
see that it's worthwhile to hire
an agent. Choose an agent who specializes
in helping buyers, as opposed to
sellers.
6. Narrow Your Search
The neighborhood you choose is nearly
as important as the house itself,
because both have a direct bearing
on your quality of life -- not to
mention the future resale value.
For these reasons and more, it's
always best to live in a city for
a while before buying a home, even
if it means renting an apartment
for a while. That way, you can discover
which areas you like best before
committing to an area.
7. Begin House Hunting
This is where you and your agent
visit properties in order to find
one that matches your needs. Here
are some helpful tips. Take a digital
camera with you to get pictures of
each home. This will help you recall
the details later on. Bring a notepad
as well, and for the same reason.
While you're at it, you might want
to bring a friend along for an unbiased
opinion of each property -- you know,
that outspoken friend who calls it
like it is.
8. Evaluate the Asking Price
It's referred to
as the "asking
price" for a good reason. Just because
a property is listed at $250,000
doesn't necessarily mean it's worth
that amount. This is another area
where it helps to have a real estate
agent. Most agents are expert at
validating sale prices against recent
sales in the area, and that's the
best way to find out if the price
is realistic or inflated.
9. Make an Offer
Once you've determined that the
price is fair and reasonable, you
are ready to make an offer on the
property. Always make the offer contingent
upon the home inspection (see next
item). That way, if the inspector
uncovers an issue that you consider
a deal breaker, you have a way out
of the contract. Ask your agent about
contingencies.
10. Get a Home Inspection
Most inspections only cost a few
hundred dollars. That's a small price
to pay for the peace of mind you
get in return. A home inspector will
review the structural and mechanical
aspects of the house, including (but
not limited to) the roof, foundation,
electrical, and heating / cooling
system.
11. Attend the Closing / Settlement
Process
So, you've made it through all of
the inspections and the process is
still on track. Great! The next step
will be the closing / settlement
process (it goes by different names
in different parts of the country).
Actually, you can prepare for this
process early on by putting extra
money aside. This is when the title
to the property is transferred from
the seller to the buyer. You'll also
be signing a lot of paperwork and
paying any other fees that are due.
12. Tie Up Loose Ends
After your move, you'll have a few
more things on your task list. Transfer
your utilities if you haven't done
so already. Complete a change-of-address
form with the post office. Get a
safe deposit box for your home insurance
policy and other important documents.
Set up a mortgage payment schedule
or an online auto-pay system. And
give yourself a pat on the back ...
you're now a homeowner!
About the Author: Brandon
Cornett is the publisher of a popular Home
Refinancing Blog and several
other real estate websites. Visit
the author online at http://www.mortgage-refinance-advice.com/blog/