There are 12 steps to successfully finding, financing, and buying your dream home.
Make sure you don’t miss any.
Finding, financing, and buying a home isn’t as easy as it may sound. It’s not rocket science, granted, but there are a number of steps that you’ll have to traverse to make sure you reach your end goal – a great deal on your dream home.
Finding Your Dream Home
Step 1: Decide how much you can afford
Before you ever log on to a home search website or set foot into a model home, figure out how much home you can afford. What’s the maximum home price you comfortably pay, given how much money you’re planning to put down?
You’ll probably have a better idea of the monthly mortgage payment you can afford, rather than the amount you can afford to pay for the house. Once you know how much you can afford to pay each month, it’s relatively easy to work backward from there and figure out how much you can afford to pay for the house.
When you’re thinking about what you can afford, be careful not to stretch yourself too thin. Too many families got into trouble when they bought more house than they could comfortably afford. Many took out adjustable rate mortgages, knowing that they wouldn’t be able to afford the monthly payment when the mortgage adjusted – they were overly confident that they could refinance before that adjustment.
Plan based on your current situation – your current income, your current debts – and, if you’re considering an adjustable rate mortgage, the highest possible rate (most ARMs have provisions that cap how high the rate can go – but that cap is often far, far higher than the initial interest rate).
If you calculated the amount you can afford well – and your credit is decent – you shouldn’t have any problem getting a loan. Most lenders like to see a debt-to-income ratio less than 41%. That means all of your debt, including credit card minimum payments, car payments, school loans, your mortgage – and any other monthly debt obligations – divided by your monthly income (before taxes) should be less than 41%.
Online mortgage calculators – there’s a good one at www.bankrate.com – will help you calculate how much mortgage debt you can afford given your other debts, likely property taxes, and your income. Once you’ve got that number, plug in the money you’re planning to put as a down payment and the calculator will tell you the maximum purchase price you can afford.
Step 2: Get pre-approved
Once you’ve decided how much you can comfortably afford to borrow, get a pre-approval from your lender. A pre-approval is a statement from a lender of the amount of money you qualify to borrow. Pre-approvals are typically good for 90 days and are contingent upon your financial situation staying the same.
There are a number of benefits that come with getting pre-approved:
- First, you’ll know from the outset how much your bank will lend you, so you won’t waste time looking at homes outside of your price range;
- Second, sellers will look more favorably on your offer, because they know that your bank will come through with a loan for the sale amount;
- Third, you’ll have good leverage to negotiate with other lenders (you can say “Bank XYZ offered me this deal; what are you willing to offer?” As the slogan goes, “when banks compete, you win.”
Step 3: Identify what you want in your home and prioritize your preferences
Of course, there are many more homes in a given area for sale than you would be interested in buying. The first factor you should use to narrow down your search is the amount you can afford.
Then, sit down with your family and think about the other factors that you value. Is the school district important? Proximity to your job? Do you want a home with a pool? Make a wish list – even including pie-in-the-sky wishes. Think about everything you would want in your ideal home and neighborhood.
Next, refine that pie-in-the-sky list based on a more serious consideration of what’s really important – and what’s realistic. Rank the home characteristics on that refined list in order of importance.
That list will make your real estate agent’s job much easier – and the chances that you’ll find your perfect home much greater. If you’re looking for your home online, use your most important characteristics to narrow down the search.
Step 4: Find a real estate agent
You’ll often hear a certain amount of grumbling over real estate agents’ fees. Just like you hear grumbling over lawyers’ fees. And doctors’ fees. Yet that doesn’t mean that you’ll represent yourself in court. Or do your own surgery. Likewise, trying to navigate the world of home buying without a real estate agent can be risky business.
Don’t get us wrong – it can be done. But there’s a reason why many homebuyers who bought their home on their own wouldn’t go it alone again. Put simply: its hard work.
A good real estate agent – like the ones at LAWestsideHomeValues – will help you find your dream home more easily than you could on your own and, perhaps more importantly, will help you negotiate the best deal.
And it won’t cost you a dime.
That’s right, when you use a real estate agent to help you buy your home, that agent’s fee comes out of the proceeds of the sale of the home.
To find a real estate agent, start with the National Association of Realtors (NAR). Members of the NAR are real estate agents bound by a strict code of ethics. To find a Realtor in your area, visit http://www.realtor.com/findreal/WhichPages.asp, call our office at 310-403-7381 or e-mail us at info@LAWestsideHomeValues.com today.
Once you’ve found a real estate agent that you’d like to work with, call him or her up for an interview. Ask questions like:
- What’s your experience helping buyers like me (looking for homes in the areas I’m interested in, in my price range)?
- How long have you been a real estate agent?
- Do you work as an agent full time?
- What sort of continuing education do you pursue?
- Do you have references (other buyers you worked with) who I can call?
- Give me a rough idea of how you would help me find and buy my dream home.
Step 5: Leverage technology – don’t become its slave
On one hand, Internet home listings can make the lives of buyers much, much easier. With search capabilities, photos, virtual tours, and community information, online listing sites can allow you to do in hours from your computer what would take you weeks to do in the car.
Popular online real estate listing sites include:
On the other hand, the enormous amount of information that’s on the Internet can suck you in easily – and you can end up spending those same weeks trolling through listing after listing behind the glare of your computer screen.
To avoid that, set some limits for yourself, including:
- The amount of time each day you’ll spend looking online for homes
- The specific search characteristics you’ll use (take these from your refined “wish list”)
Financing Your Dream Home
Step 6: Do like mama said – shop around
Studies show that homebuyers spend an average of 40 hours shopping for their home. Yet they only spend a fraction of that – 8 hours – shopping for a loan. Why is that? Your home loan is as important a decision as the home itself – so treat it that way.
Shop around with a number of different lenders and consider factors beyond the interest rate, including:
- The interest rate
- The loan term (repayment period): the longer you have to pay on a loan, the more interest you will pay overall
- Down payment options
- The APR (annual percentage rate, which is higher than the interest rate because it includes the additional borrowing costs)
- Whether or not the loan carries a prepayment penalty (and, if so, how long the prepayment penalty period lasts)
- If extra principal payments are allowed
Step 7: Negotiate
You negotiate when you’re buying a car. Why not when you’re getting a loan? Many lenders will be open to negotiation. Of course, some things are non-negotiable – there are certain fees, for example, that are regulated by the Federal government. But you may well have success negotiating the interest rate, loan term, and APR, especially if your credit is good, income is high, and debt is low.
Step 8: Understand every word before you sign anything
Out of the last mortgage mess has come a startling revelation: deceit, predatory lending, and outright fraud among both mortgage lenders and borrowers alike was prevalent during the housing boom. To protect yourself against unscrupulous mortgage lenders, make sure you understand every word of your contract before you sign it.
Loan contracts can be complicated, so if you’re not sure that you can manage it on your own, ask your real estate agent for help. While your agent can’t give you legal advice regarding your loan, he or she can offer some insight into what all that fine print really means. You can also consider hiring an attorney. It can be well worth the expense.
The real estate experts at LAWestsideHomeValues have helped many clients through the contract signing process. We can help you, too. Call our office at 310-403-7381 or e-mail us at info@LAWestsideHomeValues.com today.
Buying Your Dream Home
Step 9: Make an offer
In seller’s markets, like the one we are currently in, buyer’s offers are being bested left and right by other buyers. Bidding wars have become commonplace. With markets beginning to show signs of shifting, as some have in certain areas, less importance is being put on making sure your offer isn’t outbid and more on making an offer that is fair for both you and the seller.
While your real estate agent should help you determine the best price to offer for the home you’re considering, the general rule is that you should make your offer at market value – which takes into account the prices that similar homes in the same neighborhood have sold for recently, and makes adjustments for your home’s unique features.
Step 10: Sign the contract
Just as you should understand every word of the loan agreement before you sign it, you should know every word on the purchase contract before you sign it, too. You real estate agent will be able to help you wade through the complex terms that are often peppered throughout a purchase contract. Remember, this is probably the biggest purchase of your life, and there are no returns, so understand what you’re getting into before you sign on the dotted line.
If you’re buying a home without the help of a real estate agent, consider hiring a real estate attorney to go over the purchase contract with you to make sure your interests are fully protected.
The real estate experts at LAWestsideHomeValues know contracts inside out. For help navigating the complexities of buying a home, including the purchase contract, call our office at 310-403-7381 or e-mail us at info@MyLAwestsideMLS.com today.
Step 11: Get an inspection
Once you’ve signed the purchase contract, the seller will get the home inspected by a professional home inspector (sometimes the inspection takes place before the contract is signed). Don’t forgo this step, even if you’re buying a new home. No matter what, make sure that an independent home inspector is hired to thoroughly check out your prospective abode.
Step 12: Close the loan
Unless you’ve paid cash for the home, the final step before you get the keys to your new house is to close the loan with your lender and the title company. Once that’s completed, your purchase money will be transferred to the buyer and title to the home will be transferred to you.
For help traversing these 12 steps of home buying, rely on the real estate experts at LAWestsideHomeValues.com. For an idea of how we can help you find, finance, and buy your new home, call our office at 310-403-7381 or e-mail us at info@ LAWestsideHomeValues.com today.
Once you’ve made it through all twelve steps, congratulations! You’ve bought your dream home. Now all that’s left to do is unpack. . .