Buying a house is crazy. Especially for us first timers. We saved all our notes, charts, and tips so that we could share the process from our real-life-first-time-home-buyer’s perspective, and a request we got the other day to write a post on the subject was the motivation we needed to finally do so. Here it goes!
Step 1: CASH MONIES
The first thing we did was get a good idea of our budget. There are two numbers you really need to think about: your down payment (a percentage of the cost of the home you pay upfront), and your month to month payment (we broke this down below).
The down payment part is easy. How much cash can you part with right now (and still maintain a comfortable enough cushion in your pocket)? And what percentage are you comfortable putting down (10%, 20%, etc)? If you put down less than 20%, you have to pay mortgage insurance each month on top of all your other monthly payments, so we personally tried to find a house that we could afford to put 20% down on. But if you have less cash you can part with immediately and you don’t mind paying a little extra each month, you can put down less.
For month to month payments there are a few more factors to consider (try not to let your eyes glaze over…)
- Principal and interest- most real estate websites will calculate this for you for each house listed.
- Property tax- sometimes it’s on real estate websites, other times you can google the tax rate in the area you’re looking at.
- Homeowners insurance- this one we didn’t know til we actually put in an offer on our house and got a quote. Might be google-able. You could possibly get quotes from insurance companies if you want something more accurate.
- Utilities- these are harder to estimate. We talked to family that lived in the area and found out their costs, then figured the proportional cost for the size of house we were looking at. I hear you can also call utility companies directly to get their rates.
- HOA fees- not all areas will have these, but if they do they’re usually listed on real estate websites.
- Mortgage insurance- if you put down less than 20%, the bank requires you to pay this.
The taxes, homeowners insurance, utilities, HOA, and mortgage insurance all depend on the house you get, so just get a ballpark idea of what they cost for the area you’re looking at and size of house you want. We got our ballpark and subtracted that from max amount we wanted to pay per month (we were aiming for no more than we paid for rent at our apartment). That left us with the limit on how much we wanted to spend on our mortgage.
Beware of budget creep!!!! As you look at houses, you’ll start thinking “we can look a little higher than our max budget because we can always argue down the price.” So your “max budget” creeps a bit. Then it creeps a bit more and a bit more. Then before you know it you’ve put in an offer on a house $100,000 OVER what you originally aimed for (true story- a few weeks before finding our current house we put in an offer on one $100,000 more expensive. Thank goodness it fell through!)
Step 2: GET A PRO
Find. A good. Realtor. Ours was a friend of Evan’s family and she was AWESOME. Having somebody who had our best interest in mind made things a lot less scary. If you don’t have personal connections to a realtor, go to open houses to meet them. You’ll know pretty quickly whether you get “good person” vibes or “salesman” vibes. You can also look up reviews online.
Step 3: LEGIT PREAPPROVAL
Even though you don’t have to do this as soon as you start making house appointments, you should. Why? Because if you find a house you want to put an offer on, a preapproval letter will make your offer stronger. Considering two of the three offers we put down on houses were against competing offers, anything we could do to make our offer stronger was a plus. Who is a seller going to choose, the grown ups who the bank has already said they’ll lend money to, or the hoodlums who may or may not actually get approved? Get yourself legit!
We were initially a little confused about getting preapproved. Did it mean we had to get our loan from the bank that preapproved us? No! Getting preapproved by Bank A does NOT mean you have to get your loan from them. You can go with Bank B or C if you want (more info on getting your actual loan later). To get preapproved, just contact a bank/mortgage company and they’ll tell you all the material you need to gather before they can preapprove you (pay stubs, tax returns, etc). You send them the info, they send you a preapproval letter. Don’t put it off, it’s easy.
Step 4: HOUSES
This is the super fun part! Look at houses!! We were very involved and specifically picked every house we wanted to see, but if you have less time your realtor can find houses for you. If you’re not sure what you want, just start looking and you’ll get there. We went back and forth about the area (downtown vs the burbs), age of the house (post-2000 vs pre-2000), and how much work we wanted to put into it (move-in-ready vs fixer-upper). Just getting in and seeing a LOT of houses really helped us figure these things out.
Seeing house after house after house, it’s easy for them to get mixed up in your head. Was the one with nice open floor plan the one that had the crooked deck? Was the really big one the one that had a huge power line behind it? Was the one with the awesome kitchen island the one with unfortunate purple wallpaper???? Ahhhh!!!
Fret not though! Pictures and diligent note-taking make all the difference in the world. I’d take pictures of things in each house that weren’t shown on the listing, and I had a bunch of questions on my phone that I’d fill out while we were walking through the house. It REALLY helped keep them straight in my head, and it also helped me to remember to look for things in the house that I may have forgotten without my list handy. Some questions I had were:
- Price and sqft?
- How many bedrooms and bathrooms?
- Are the ceilings high enough?
- Open floor plan?
- Do all the faucets, showers, toilets, etc work?
- Walk in pantry?
- Walk in laundry?
- Double paned windows? Do the windows have blinds already?
- Any water damage?
- Type of flooring?
- Evidence of foundation movement?
- How maintain-able is the yard?
- etc etc…
The list of questions goes on and on. Seriously, I could do an entire post on this step- there are so many things to look for when you’re buying a house. Some other things to consider:
- Size- bigger isn’t always better. We tried to avoid anything over 2300 sqft because we didn’t need that much space and didn’t want to clean it!
- School district- even if you don’t have kids, being in a good school district will add tons to your resell value.
- The bones- pay more attention to the bones of the house, not what it’s wearing. If a house has dirty carpet, hideous wallpaper, and dated appliances, don’t sweat it because you can easily change those things. But if it has low ceilings and your engaged to a guy that’s 6’5″… that’s a problem with the bones of the house. Or if it’s all really closed off into separate rooms and you want open concept, it might be a deal breaker. Sure you CAN raise the roof, and you CAN knock down walls, but that stuff is a lot more expensive and involved than tearing off some old wallpaper.
- Location- this might sound like a no-brainer, but make sure that commute is doable. Also pay attention to things like- how close is the nearest grocery store? Do you back up to a busy street? How far away are you from major highways?
- Price per square foot compared to other houses in the neighborhood. You do NOT want the most expensive house in the neighborhood, because the lower value of the other houses will pull down the value of yours when it comes time to sell.
When you find the house for you, you’ll know. Don’t settle. Be patient. We had our eyes set on this one specific neighborhood because it was walking distance from this cool area with shopping, bars, restaurants, etc. We put offers on TWO houses in that neighborhood. The first fell through because there was a cash offer higher than ours. I was pretty upset. So when another house in that neighborhood went for sale, we put an offer on it even though it was $100,000 more than we were aiming for (and about twice the size we wanted). After losing the first house, we were afraid if we didn’t jump on this new one we’d regret it. This one also fell through because the seller wouldn’t come down in price to meet our offer, and at the time I was pretty upset about losing that one too. But it ended up being a blessing in disguise- I’m SO glad we didn’t end up with something way out of our size and price comfort zone. When the house we DID end up buying went on the market, in another neighborhood just a few minutes farther from the cool area, we walked in and KNEW it was the one. We put in an offer before we even left the house.
One last note about house hunting- if you can, bring an experienced home owner with you! Evan and I did most of the shopping ourselves, but his parents came to a couple houses with us and pointed out some really good questions to ask about each house and noticed things we may not have noticed on our own.
Step 5: AN OFFER THEY CAN’T REFUSE
After screwing up a couple offers, we didn’t want to mess this one up. We had our preapproval letter ready, and we also wrote a letter about us directly to the seller. We talked about how we were newly engaged, how this was going to be our first house, how excited we were to be homeowners, how we wanted to put a lot of love into this house and take good care of it. We offered above asking price because there were several offers on it already. We agreed to a shorter than usual three-week closing period. And we got the house!!!
Every situation is different though, it all depends on supply and demand of the houses in your area. Our house already had several offers the first weekend it went on the market so we knew we had to act quickly and pull out the big guns. But if the market is slower in your area, lucky you! You’ve got a bit more buying power and you can argue down the price.
Step 6: APPLY FOR A LOAN
The buyer accepts your offer, woot! Now you actually have to get funded. Good thing you already got that preapproval! Shop around for a loan to get the best rate (we went to two different places). The bank/mortgage company will tell you what they need to give you a rate (it’s similar to the stuff you had to gather to get preapproved). We ended up going with Bank B even though we got preapproved by Bank A.
Don’t let loan companies pressure you! If they call you at 4:50 and say they can offer you this “great rate” but you have to choose by 5:00, that’s a red flag. And yes, this happened to us. And yes, that’s why we went with Bank B (who ended up having a lower rate than Bank A’s “great rate” anyway).
One of our readers had a great tip to add too- and that is to keep an eye on your credit score! In order to get the lowest rate possible you need your score to be as high as possible. So if you know you’ll be buying a house, don’t go close any credit cards, open up new lines of credit, or make big purchases (like a new car). All that stuff will negatively affect your credit. Also, keep an eye on how many times you let your credit be pulled by the banks you’re checking out. It’s ok to do it a few times during a 30-day period while you’re loan shopping because it’s understood that you want to shop around for a mortgage, but don’t go crazy cray. Getting your credit score pulled will lower your score as well.
Step 7: CONTRACT, INSPECTION, AMENDMENTS
Once your loan is all in order your can sign the official contract for your house! This part is easy! And super exciting! Your realtor and the selling agent will whip up the contract and all you have to do is give them your John Hancock.
Once you’ve signed, you have a certain period of time called the “option period” where you have the option of walking away from the contract for any reason OR proposing amendments to it. You use this time to get inspections and estimates for any repairs that need to be made. Our realtor got us connected with an inspector and professionals that could give us estimates on all the stuff the inspector found that we needed to fix. We had a 7-day option period and getting all this done during just a week was a little hectic, but I think most option periods are 7-10 days so maybe you’ll get lucky and be on the 10 end of that. Just make sure to tell the professionals you’re contacting that their estimates are time sensitive because of your option period- they’ll understand!
Because there were a decent amount of repairs that needed to be made, we asked the seller for an additional amount taken off the price we offered. She agreed, our realtors amended the contract, and we signed! Note: you have to let your lender know if you amend the contract price because they’ll need to adjust the amount they’re lending you.
We found that it REALLY helped to be there during our inspection and estimates. We learned a lot about the house and how to fix the problems that were found. It’s also a good idea to bring an experienced homeowner (friend, family, etc) with you who knows how to ask the right questions.
Step 9: CLOSING
Once our contract was finalized we just had to wait on the loan company to get all its ducks in a row (appraisal, writing the HUD, etc) and then we were good to go for closing! Everyone makes it sound like signing all those papers is a horrible ordeal. It’s not. True it is a lot of stuff to go over, but we got free lunch and free coffee so I was happy happy. Beforehand we had to go to the bank and get the biggest check ever (our closing cash- ahhh!!!) But again, this part is easy peasy!
Step 10: GET EXCITED!
You did it! You got a house!!! YOU ARE A COMPLETE BADASS!! Put on a crazy hat, grab a jug of crunk juice and CELEBRATE!!!
Now all there is to do is move in! And repair things! And make it your own! And mow lawns! And fix leaks! And all that good home stuff that keeps you busy 24/7. Hope this post has helped make the whole process a little less intimidating for everyone else out there wanting to buy their first house. Good luck!