A couple of weeks ago, my sister was looking for a two-bedroom apartment around the providence, RI, area and the average was about $1200 a month! The places we were finding around that price weren’t anything great. They were basic apartments, and a majority of them had carpet, which I personally hate, or an outdated bathroom with hot pink walls (yikes!). To each their own, but for the same price a couple hundred more, you could have your own house! (You could also live in a luxury apartment for 1400 plus instead, but that’s not saving or making you any money.) These reasons are exactly why last year I bought a house. I didn’t know where to start, but through experience, I learned a lot about the process. In this article, you’ll learn ten steps to take to see if it’s the right decision to buy a house.
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1. Save for a down payment
I 100% agree that you probably should put down 20% on a house or close to it. For example, on a 200,000 home, the down payment would be 20,000. This way, you avoid PMI, private mortgage insurance, which is another fee on top of your mortgage that doesn’t go towards your principal, and you can get a better interest rate. Realistically most people don’t have 20%, but you can put as little as 3.5% down with an FHA loan. This kind of loan doesn’t have PMI, but you will be charged their insurance fee, which doesn’t go away. If you qualify for a conventional loan, you will be able to remove PMI when you have 20% equity in your home, or you have paid off 20% of your home’s value.
There also may be opportunities in your state that offer programs for first time home buyers, including no money down or down payment assistance. If you’re in Rhode Island and you’re interested in these programs, check out Rhode Island Housing. Besides a down payment, you do need money for an inspection, the appraisal, and closing costs. All together they can be a pretty significant amount. The best way to go about it is to SAVE, SAVE SAVE! If you don’t use all of the money for your downpayment, I guarantee it’ll come in handy for something. It might be during the buying process or for things around the house after you’ve bought it.
2.Check your Credit Score
Your credit score is crucial in determining what kind of loan and interest rate you’ll get. Although I do use the Credit Karma app to check my credit score, it isn’t 100% accurate. Every year you are allowed one free credit report from the three main creditors Equinox, Experian, and Transition. You can get all three at www.annualcreditreport.com. This website is the most accurate way to get your credit report. You also need to make sure the information in your credit report is accurate.
According to the Lenders Network, you can apply for an FHA loan with as low as a 500-579 credit score, but you may not get approved. With a credit score of 580+, you are more likely to get approved for an FHA loan. For most other loans, including conventional, VA, and FHA 203K, you would need a credit score of at least 620+. USDA has the highest minimum of at least 640+. I’d recommend at least working up to 620 if you’re not there yet to start applying for loans.
3.Get Pre-approved
You can choose any lender of your choice for a pre-approval. The pre-approval lets you know how much money you will be able to borrow to buy a house. It will also show the programs you qualify for and the interest rates you are eligible for. You will have to provide a lot of information, including your pay stubs, credit reports, w2’s, past income tax returns, etc. The pre-approval will show buyers that you are serious and that you have purchase power. I also recommend to shop around and get a couple more pre-approvals from different lenders. This way, you can see who has a better interest rate.
4.Get a Real Estate Agent
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Having a real estate agent is not necessary, but I highly recommend it. For the most part, they are very knowledgable in the process and will help you from the pre-approval, all the way to the closing date. They can set up portals for you with all of your requirements for a house so that you get notified of accurate, new listings daily.
In my experience, they had a group of professionals they recommended for all of my needs along the way. We didn’t need to go out and look for professionals like a lawyer. Like the pre-approval, you can choose whoever you want for your realtor, but DO YOUR RESEARCH. Even though realtors are free, some realtors are not as good as others, and some of them are not working in your best interest. They do get a small percentage of the sale at the end, so you want to make sure your real estate agent is trustworthy, has time, and can put in the work for you.
5. Look at Houses
Now that you have your real estate agent and portal, you can get to the fun and frustrating part. On the one hand, its a lot of fun and exciting to visit potential homes to be because the price is right and the pictures look perfect online. Unfortunately, half, if not more, than the houses you’re looking at do not look exactly like the pictures online. There are photographers for real estate, and they know how to take good pictures to reel you in. With that being said, you will find the house that you want, but it takes patience and time.
6. Make an Offer
After visiting what feels like hundreds of houses, you finally found the one, and It’s time to make an offer. Typically the seller will list the price of the home, and you can offer the exact amount, offer a higher amount or offer a lower amount. Your decision on what to offer will vary for each house.
Some questions I’d keep in mind are, does the house need work? What are the prices of the homes around the area? I’d even keep the number of people at the open house in mind. For example, if the house is beautiful and there’s a lot of potential buyers, you might want to bid higher if you really want the house. If you do bid higher, make sure it’s a sensible offer and within your budget. Remember, the pre-approval tells you exactly how much you are allowed to borrow and if your offer is way higher than the value of the house, the bank will not approve it, and you’ll be back to the drawing board.
7. Home Inspection
You have a 10-day window for inspection. You will be responsible for paying for the inspection. Things typically covered in a home inspection are the condition of the home’s heating and cooling system, plumbing and electrical system, roof, floors, attic, foundation, basement, structural components, doors, windows, and if you have any pests.
After the inspection is over, the inspector will give you a written report letting you know the things that should be taken care of. With this list, you can either choose to walk away from the house, ask them to fix some of the issues, or ask them to give you credit to fix the problems before closing. If you are buying a fixer-upper, they might sell the house as-is, meaning the inspection is for informational purposes only, and your only options are taking the house as-is after the inspection or backing out of the closing.
8.Home Appraisal
The lender will request an appraisal to assess the value of your home. Some of the things they look at are home renovations, location, square footage, and the condition of the house. The buyer is responsible for paying for the appraisal. This step is intended to protect the buyer and the lender from making a bad buy. The lender wants to make sure they are letting you borrow a reasonable amount for the purchase of your home. If your appraisal is lower than the price of the house you agreed on, you may have to renegotiate with the seller or come out of pocket with more money down to pay the difference.
9.Closing
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The closing is finally here! This time is where you finish all of the paperwork, transfer deeds, any old taxes get taken care of, you get the keys to your house, and you get any credits that are owed to you. Before you get to the paperwork, you do get a final walk through to make sure the house is in the same condition as when you put the offer down. The people involved in the closing are usually your closing agent, an attorney representing you or the lender, the title company representative, sellers real estate agent, the buyer, and the lender.
In some cases the seller may or may not be present. There will be a LOT of paperwork, but you must read all of the fine print before you sign all of the documents and ask questions if you need clarity on anything. The closing is also going to cost a large amount of money if you didn’t negotiate closing costs when you were making an offer. USA Today says the average US median home valued at $210,200 is $13,357, so make sure you are prepared for that.
10. Move-In
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Now for the fun part, Move-in! (No one actually likes the idea of moving, but you get what I mean.) It’s finally yours, and you can start painting, redecorating and buying new furniture. Buying a house is definitely a long and hard process, but I can honestly say it is worth it in the end. If you have any questions or comments please leave them below :).