How to buy a house

Many people dream of home ownership but it mandates homework, legwork and considerable effort on your part to ensure that the process goes as smoothly as possible. Here's how to make your dream become a reality.

Steps

1. 1. Strengthen your credit. Pay off credit cards and resolve any credit disputes or delinquencies. Your credit rating takes into account both how you use the credit you have available and whether your outstanding credit is too high for your income. Get Your Credit Report for Free so you can see what the lenders see on your credit history.
2. Use a mortgage calculator to determine how much house you can afford, and how much you'll likely be able to borrow. Get preapproved (not prequalified) to get the actual amount you can pay . Most lenders allow you to put up to 28 percent of your gross income or 36 percent of your net toward a house payment. Most homesellers will not accept offer from buyers who are only prequalified.
3. Be ready to hand over a substantial down payment. Most mortgages are based on the buyer putting down 10 to 20 percent of the purchase price. Putting down less up front often, but not always, requires you to pay private mortgage insurance (PMI), which increases your monthly housing cost and is not tax deductible.
4. Always meet with a loan officer or mortgage broker before contacting a real estate agent. This way, you'll have a clearer idea of what you can truly afford considering your personal financial situation.
5. If this will be your first home, strongly consider attending a free first-time buyer's seminar before house shopping. Your loan officer might be able to recommend a seminar.
6. Calculate whether buying or renting makes more financial sense for you. If you are planning on moving in the foreseeable future, renting may be more cost effective. Also, in some very hot real estate markets you can rent a house or apartment at a lower payment than a mortgage for that same house.
7. Sign up for an MLS alert service to search on properties in your area so you can get a feeling for what is on the market in your price range.
8. Find a good real estate agent to represent you in the search and negotiation process. The real estate agent should be: amiable, open, interested, relaxed, confident, and qualified. Learn the agent's rates, methods, experience, and training. Ask for a referral from your loan officer.
9. Decide from the beginning that you will not "fall in love" with the house until after you close the contract. Otherwise, you will pay full price (or more) on the home and the real estate agent will be powerless to negotiate the price down. Be willing to walk away from any home; no home is so perfect that the seller can charge what one desires. If it comes down to it, you can always hire a builder to design and build your dream home.
10. Define the area you'd like to live in. Scout out what's available in the vicinity. Look at prices, home design, proximity to shopping, schools and other amenities. Read the town paper, if there is one, and chat with the locals.

11. Visit a few open houses to gauge what's on the market and see firsthand what you want, such as overall layout, number of bedrooms and bathrooms, kitchen amenities, and storage.
12. Go into exhaustive detail when describing what you want in a home: number of bathrooms and bedrooms, attached garage, land and anything else that may be important, like good light or a big enough yard for the kids.
13. Shop aggressively. Unless you're under the gun time-wise, look at as many homes as possible to get a sense of what's available. Don't rush into buying if you don't have to.
14. Look beyond the home to the neighborhood and the condition of nearby homes to make sure you aren't buying the only gem in sight. The area in which your home is located is sometimes a bigger consideration than the home itself, since it has a major impact on your home's resale value. Buying a fixer-upper in the right neighborhood can be a great investment, and being able to identify up-and-coming communities--where more people want to live--can lead you to a bargain property that will only appreciate in value.
15. Visit properties you're seriously interested in at various times of the day to check traffic and congestion, available parking, noise levels and general activities. What may seem like a peaceful neighborhood at lunch can become a loud shortcut during rush hour, and you'd never know it if you drove by only once.
16. Determine whether you need to sell your current home in order to afford a new one (see Related wikiHows). If so, any offer to buy that you make will be contingent on that sale. Contingent offers are more risky and less desirable for the seller, since the sale can't be completed until the buyer's house is sold. You may want to put your current house on the market first.
17. Include earnest money with your offer.--usually $1,000 to $5,000. Once you sign an offer, you are officially in escrow, which means you are committed to buy the house or lose your deposit, unless you do not get final mortgage approval. During escrow (typically 30 to 90 days), your lender arranges for purchase financing and finalizes your mortgage. This is also when all inspections must be completed.
18. Make sure final acceptance is predicated on a suitable home inspection. Request the following surveys and reports: inspection, pests, dry rot, radon, hazardous materials, landslides, flood plains, earthquake faults and crime statistics.
19. Close escrow. This final step in buying a home, usually conducted in a title office, involves signing documents related to the property and your mortgage arrangements. The packet of papers includes the deed, proving you now own the house, and the title, which shows that no one else has any claim to it or lien against it. If any issues remain, money may be set aside in escrow until they are resolved, which acts as an incentive for the seller to quickly remedy any problem areas in order to receive all that is owed.

Tips

• Find out your credit rating early on to assess how strong your mortgage application is. The higher your FICO score, which ranges from 300 to 800, the better rate you'll qualify for. Go to MyFICO.com and for a fee request a report, or request a complete credit report from a major credit reporting agency and ask that your FICO score be revealed on it.
• If you qualify, check out first-time buyers' programs, which often have much lower down payment requirements. These are offered by various states and local governments. You may also be able to access up to $10,000 from your 401(k) or Roth IRA without penalty. Ask your broker or employer's human resources department for specifics regarding borrowing against those assets.
• Get a firm estimate of how much you can expect to pay in closing costs (charges that the lender levies connected to the purchase of the house). These take in various charges that generally run between 3 to 6 percent of the money you're borrowing. Credit unions often offer lower closing costs to their members.
• Try not to fall in love with one particular property. It's great to find exactly what you need, but if you get your heart set on one home, you may end up paying more than it's worth because you're emotionally invested. The deal may also fall apart.
• Realtors charge the seller a percentage, usually between 5% and 7% depending on your area, on the negotiated sales price, called a commission. The buyer's Realtor is customarily paid a percentage of the total commission paid by the seller at closing, which amounts to about half, or 2.5% to 3.5% while the seller's Realtor receives the other half of the commission. An individual Realtor's commission is split again with their company resulting in the actual gross commission to your Realtor being closer to 1.5% to 2% of the total. Most states require disclosure of agency (who represents whom) and buyers are wise to agree to work with a Realtor who will contractually represent the buyer's interest alone. Realtors make their living through referrals from satisfied clients and therefore it's not in your Realtor's best interest to fail to negotiate the best possible price and terms for the buyer.(Example: A house offered at $100,000 could mean $3000 to the buyer's Realtor and their company. If the Realtor negotiates a price of $95,000, it would mean a reduction in commission to the buyer's Realtor and their company of only $250, or $125 to $150 gross to the agent--not an amount a competent agent would consider worth never getting a referral from the client in the future.) Buyers should be aware that a buyer's Realtor can and will help the buyer seek out houses sold directly by the owner (through signs or various websites)and negotiate not only a fair price for the home but their own commission as well. Realtors make it their business to know alot about neighborhoods and home construction, costs of repair and remodeling and determining actual value of a property. Their vested interest is in having a satisfied client who will send them future business, not sharing as little information as possible to get a home sold and assuming that the doctrine of "buyer beware" is acceptable.
• Whether you go with a realtor or not, ask the seller to agree to a home-inspection and make your contract contingent on completion of same. A seller who won't allow a home-inspection has something to hide -- walk away! A home inspection costs between $150 and $500, depending on the area, but it can prevent a $100,000 mistake. This is especially true with older homes, as you want to avoid financial landmines such as lead-paint, asbestos insulation and mold.
• Use a real-estate lawyer to review closing documents and represent you at closing. Realtors are *not* lawyers, and are in most cases utterly unqualified in the area of real-estate law. Lawyers may charge $200-$400 for the few minutes they're actually there, but they're paid to look out for you.
• If you are unsure about the price, have the home appraised by a local appraiser. Never buy the most expensive house in the neighborhood! When appraising a home, appraisers will look for "comparables" or "comps", homes in the area which have similar features, size, etc. If your home is more expensive than the comps, or the appraiser has to find comps in a different subdivision or more than 1/2 mile away, beware! Your bank may balk at financing the home, and you probably won't see your home appreciate in value very much. If you can, buy the least expensive home in a neighborhood -- as homes around you sell for more money than you paid, your home's value increases.
• If you can't afford a 10%-20% downpayment on your home, but have good credit and steady income, a mortgage broker may assist you with a combination mortgage. In that, you're taking out a first mortgage up to 80% of the value of the home, and a second mortgage for the remaining amount. While the rate on the second mortgage will be slightly higher, the interest on it is tax-deductible and combined payments should still be lower than a first mortgage with PMI. If you're buying new, consider the Nehemiah Program to get assistance with your down-payment.

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