How do I buy a house? You have questions and we have answers!
Educate yourself before you spend your time going in the wrong direction. When you start thinking about buying your first house, it’s easy to get caught up in the excitement. Before you know it, you’ve registered on 20 real estate search apps, you’ve got 20 or more realtors calling, texting and emailing you, and you’re figuring out how to buy a house with next to nothing down.
At RE/MAX Capitol Properties it is our top goal to make your real estate transaction as stress free for you as possible. We start with good communication about each step in the process from finding a lender to looking at homes for sale, from writing the contract to handing over the keys!
Steve Prescott, RE/MAX Capitol Properties Broker/Owner, has been rigorously vetted by the Dave Ramsey program to receive the Endorsed Local Provider (ELP) opportunity that he has held for 10 years. He follows the Total Money Makeover steps in his personal and professional finances, so you can trust that he’ll know how hard you’ve worked to get to the point of being ready to make a move. The ELP program is a nationwide service that connects homeowners to realtors for home buying and home selling.
We understand how easy it is to buy a house you can’t afford, and that mistake can negatively affect your finances in the short and long terms. We hope to help you understand the steps of the home-buying process with smart decisions about your home purchase.
We agree with and follow these 7 steps that Dave Ramsey encourages with his followers.
7 Steps for Buying a House:
- Save for a down payment.
- Find a real estate agent.
- Get pre-approved for a mortgage.
- Go house hunting.
- Submit an offer.
- Get a home inspection.
- Close on your house.
The decisions you make when you buy your home can make a difference between a home that’s perfect for your family and a home that is a financial burden. When you are making smart decisions that focus on the long term, then home buying becomes a joy!
When to Buy a House
Before you start thinking about the steps of the home-buying process, there are a few things you should do:
Evaluate your finances. Be sure you have consistent income and a good stash of cash for a down payment.
Consider the housing market. If you want to make a smart investment on your home purchase, you need to buy a house that’ll go up in value. Talk to your real estate agent about home values in your area and their potential.
Think about your life stage. It doesn’t make sense to buy a house if you may move next year. The process of buying and selling a house is expensive, so make sure you feel confident you’ll be in that area for the next two to seven years.
You’ve considered the questions above and believe it’s the right time to buy a house, let’s get started!
Step 1: Save for a Down Payment
Don’t be tempted to skip the money question and jump straight into looking at homes. Home shopping is much more fun than thinking through your finances! Making sure your financial foundation is solid will make your life much easier overall when it comes to your home purchase.
You’ll build years of memories in your home, sharing countless meals in the kitchen and spending hours enjoying warm summer days in the backyard. Do you want those moments overshadowed by financial stress?
Are you financially ready to buy a house?
Dave Ramsey recommends before you begin the home-buying process, paying off debt and saving up three to six months of expenses in an emergency fund. Being financially ready to buy a house is important.
When you are your own landlord, the responsibility of paying for repairs falls on you. You’ll need to be prepared if your water heater bursts after just three months in your new home?
When you don’t have room in your budget and no savings to fall back on, the stress of a minor home repair will be overwhelming. If you have a full emergency fund and no debt taking in your monthly budget, an unexpected repair won’t disrupt your life.
How much should you save?
Just like any goal, buying a home takes planning and preparation. The hardest and longest tasks are saving cash for the down payment, closing costs and other moving expenses.
- Down payment: We recommend putting down at least 10% on your new home, but 20% is even better because you avoid private mortgage insurance (PMI). That’s an extra cost added to your monthly mortgage payment, and it doesn’t go toward paying off your mortgage balance.
- Closing costs: We recommend you save 3% of a home’s purchase price for closing costs. Closing costs are the fees charged by title companies and lenders involved in your real estate transaction. Prepaids cover any prorated property taxes and insurance items.
- Moving expenses: These can vary from hundreds to thousands of dollars depending on how much you’re moving and how far away your new home is from your current place. To help with budgeting, you can call moving companies in your area for quotes ahead of time. If you plan to make updates to your home—like repainting, installing blinds, or buying new furniture—you’ll need cash for that too!
Now it’s time to save for a down payment. Set a plan, take consistent action and focus on your milestones and you’ll have that down payment before you know it.
Step 2: Find the Right Fit Real Estate Agent
You can do a lot of research on your own, but you need the help of an expert when it comes to actually finding and securing your perfect home. It’s okay to start your home search online, but be sure to engage with the realtor that fits you through communication you receive online.
A buyer’s agent will help you navigate through the home-buying process. In some cases, they may be able to help you find a house before it hits the market. When it comes to making an offer, your agent will negotiate on your behalf so you don’t pay a penny more than you have to.
How does a buyer’s agent get paid?
A real estate agent will work for your best interest and is a key part of your home-buying team. But they don’t work for free. So how much should you be prepared to pay? Typically nothing.
In most cases, the seller pays your real estate agent’s fees, so using a buyer’s agent is free to you. Why would you not want to have a true professional in your corner when you make your biggest investment?
What should you look for in a buyer’s agent?
You may know a lot of real estate agents in your area. But keep in mind that not all agents bring the same knowledge, work ethic and experience to the table. You want an expert who can show you how to buy a home!
When you’re interviewing a real estate agent, don’t settle. A true rock star will have:
- Specific experience assisting home buyers like you
- Full-time real estate experience for at least two years; Steve Prescott the Endorsed Local Provider for Cheyenne WY has 25 years of real estate experience and 10 years as an ELP
- Excellent communication skills
- An attitude that makes you feel like you’re their only client
- A long list of sold homes every year
- Exceptional experience in your local market
Dave Ramsey says, a true pro won’t shy away from tough questions. They’ll be a mover and a shaker, ready to fight for your best interests as you’re searching for the right house and negotiating the terms of the contract. As a home buyer, working with an agent who cares more about you than his or her commission check is one of the biggest advantages you can give yourself!
Step 3: Get Preapproved for a Mortgage
If you can’t pay cash for your home, then you’ll need a home mortgage loan.
How do you get preapproved?
It only takes a quick conversation with you about your income, assets and down payment, for a lender to prequalify you to buy a house. Getting preapproved takes a little more work. A lender will need to verify your financial information and submit your loan for preliminary underwriting. You’ll want to start this step when you decide which real estate agent is the right fit for you, so that when you begin your home search you’ll have a preapproval letter showing you’re a serious buyer.
How do you know which mortgage option is right for you?
Be aware of bad financing terms or you risk turning your biggest asset into a liability. That’s why getting the right mortgage is so important! Setting boundaries before you start home shopping makes it easier to find a home you’ll love that’s within your budget.
Here are the guidelines Dave Ramsey recommends and so do we:
- A fixed-rate conventional loan: With this option, your interest rate is secure for the life of the loan, leaving you protected from rising rates. Any other mortgage option is a terrible idea.
- A 15-year term: Your mortgage payment will be higher with a 15-year term, but you’ll knock out your mortgage in half the time of a 30-year term and save thousands in interest.
- A monthly payment no more than 25% of your monthly take-home pay: This leaves plenty of room in your budget to achieve other goals like saving for retirement or putting money aside for your kid’s college fund.
Once you know how much you can afford to spend on your new home, stick to it. Make sure you and your spouse are both on the same page about your budget.
If you need more help with the numbers, check out our mortgage calculator. You can play around with the numbers to see how different home prices affect your overall mortgage payment.
Step 4: Go House Hunting
Now for the fun part! Once you reach this step, your finances should be solid and you should know exactly what you can afford. You’ll be committed to a real estate agent who will guide you through the process of buying a home each step of the way!
Sit down with your realtor and determine your must-have home features. If you’re buying a home with your spouse, make separate lists and compare. Once you decide the features you both want use that criteria as the north star of your home search. Together with your realtor you will be able to set realistic expectations and target your search to areas you can afford.
How do you know if you’re making a good investment?
When you’re looking for the perfect home, it may be hard to imagine you’ll ever sell it. Remember, even if you think it’s your forever home, you should always shop with resale value in mind. Consider these questions as you look at homes.
- Don’t compromise on location or layout. These are two things you can’t change about the home you buy. No amount of curb appeal can make up for a truly terrible floorplan. If you don’t love the location or layout, chances are potential buyers years from now won’t either.
- Look past the surface. Don’t let a pastel pink bathroom keep you from an otherwise great home. Other buyers may not be able to look past those easy-to-fix details like décor and paint color, so you could score you a deal.
- Buy the least expensive home in the best neighborhood you can afford. That gives your home’s value room to grow in the future. Keep in mind that future buyers who are shopping in a $200,000 neighborhood won’t be looking for a $300,000 home.
- Pay attention to home values in that area. You can tell a lot about home values in a neighborhood by what’s happening in the community. Thankfully Cheyenne’s real estate market has consistently increased by 3-4% with some years being as high as 10%, which includes new construction.
- Research the school districts. Economists estimate that a 5 percent improvement in test scores can raise home prices by 2.5% in suburban areas. So even if you don’t have kids, school districts can be an important factor when you sell.
The average home buyer looks for about 10 weeks before finding the right house, according to the National Association of Realtors. Don’t worry if it takes you a while to find your perfect place!
Step 5: Submit an Offer
Once you’ve found the right home it’s time for submitting an offer and signing a contract agreement with the sellers.
What’s included in your offer?
Your real estate agent will work with you to submit a qualified offer. If you end up in a bidding war with other buyers, be cool and put your best offer forward. Things like being preapproved with your lender and having a flexible closing date can help make your offer strong.
Your purchase agreement will include details of the real estate transaction like:
- Buyer and seller information
- Property address
- Purchase price, lender information and down payment amount
- Earnest money deposit
- Items to be left with the home (like appliances or furniture)
- Contingencies like the home inspection, appraisal and final mortgage approval
- Closing date
Sometimes agreeing on terms is quick, but it can also be one of the hardest parts of the process. If your negotiations get intense, remind yourself that both parties want the same thing. The sellers want to sell their home, and you want to buy it. Sometimes it pays to compromise on little details if you really want to own the home. An experienced real estate agent will give you advice about when to give in and what your risks are by dragging your feet.
Step 6: Get a Home Inspection and Appraisal
Now you are officially under contract on your new home! Being under contract also means you’re done with the most time-consuming stages of the home-buying process. Now that you’re under contract, what should you expect? Your main task now is to work through the contingencies in the contract.
Contingencies are conditions that must be met in order for the home purchase to take place. They provide a safety net for you to back out of a sale without losing your deposit if something goes wrong. If you’re in a competitive market, don’t let your emotions lead your decisions. You should never skip these processes because they offer protection for your home purchase.
As a buyer, you have the right to a professional home inspection before you purchase the house, and you should absolutely do it! Typically plumbing, heating and electric systems are inspected. These are the most important precautions you can take before purchasing a home. If the inspections reveal problems with the home, you can ask the seller to fix the problem, reduce the price, or cancel the contract.
You can also consider other professional evaluations like a radon test and structural report, depending on the advice of your real estate agent and the age and condition of the home you’re purchasing.
If you’re getting a home loan, your lender will require an appraisal evaluating the value of the property. An appraisal protects you from paying more than the home’s true value. If the appraisal comes in lower than your offer price, your real estate agent can provide the best guidance for what to do next, most likely you’ll need to renegotiate the contract or you may choose not to purchase the home.
Final Mortgage Approval
As a Dave Ramsey ELP office we recommend paying cash for your home. It will help you build wealth. If you do get a mortgage, you’ll have a final step before closing on your home: getting final approval. Your lender will analyse the details of your finances to approve your mortgage. DO NOT open a credit card, DO NOT take on more debt, and DO NOT change jobs once you’re under contract. Any changes to your financial situation will jeopardize your loan approval.
Step 7: Close on Your House!
Yes! You are almost a homeowner! Your planning, house hunting and waiting are nearly over. Last step in the home-buying process is closing on your new house! Now for the paperwork.
You should receive a copy of your closing documents to review ahead of time so there are no surprises on closing day. Your real estate agent will receive a closing disclosure. Most likely, you’ll pay for:
- Closing costs
- Prorated property tax
- Homeowner’s association fees (if this applies to your neighborhood)
- Homeowner’s insurance
As you work through the paperwork don’t be worried about asking questions on terms or conditions! This is one of the largest purchases you’ll ever make, and you should know what you’re signing. Once you’ve signed the paperwork, congratulations! You’ve reached the American Dream of homeownership! Connect with Steve today at 307-630-9342 or any of our RE/MAX Capitol Properties top agents to get started on your home buying dreams!