Buying a house can be an exciting and emotional process. Before starting your home search, you’ll want to understand the ins and outs of homebuying. This will empower you to make decisions that are the best for your family — and your wallet. Show
What to considerIs now a good time to buy a house?Yes and no. Mortgage rates reached record lows in early 2021 but jumped in 2022. Meanwhile, strong demand for homes pushed prices up and frustrated many potential homebuyers. According to the CoreLogic Case-Shiller Home Price Index, property prices rose by nearly 20 percent between May 2021 and May 2022. However, the record-breaking housing market has finally begun to cool. Realtors report slowing price gains and rising inventories, and housing economists foresee a retreat in mortgage rates. That’s all good news for buyers. “Mortgage rates may have already peaked, and could stay between 5 percent and 5.5 percent through the remainder of 2022,” says Mike Fratantoni, chief economist at the Mortgage Bankers Association. “If that were to be the case, potential buyers, who had been scared off by the rate spike, might find their way back to the housing market.” The price boom has created inevitable concerns about buying at the peak. Home values go up over time, but there is a possibility that prices in some places have hit a plateau. “I would be careful about buying near the top of the market, especially if I want to be in the home for only a few years,” says Ken H. Johnson, a real estate economist at Florida Atlantic University and co-author of the Beracha, Hardin & Johnson Buy vs. Rent Index. “If you look to buy, bargain aggressively and be willing to walk away. Real estate most definitely is a good investment, but don’t just buy now because that’s what everybody else is doing.” Should I buy a house?Taking the leap to homeownership can provide a feeling of pride while boosting your long-term financial outlook, if you go in well-prepared and with your eyes open. When thinking about buying a home, consider whether you want to put down roots or maintain flexibility with your living situation. How secure is your job, and can you comfortably budget for home repairs and maintenance on top of monthly housing payments? Are you ready to stay in one place, and do you have kids or family members to consider? When should I buy a house?In normal times, spring is the traditional start of the home-buying season, with many listings typically hitting the market. The market still hasn’t quite returned to normal since the coronavirus upended that schedule, however. This winter should be relatively slow for buying, but with low housing inventory, it will still feel competitive compared to pre-pandemic off-seasons. At any rate, your own financial readiness is more important than the time of year. This means having your finances organized and your credit in order so that you’ll be able to smoothly secure a reasonable mortgage. In addition to a down payment, potential homebuyers should have enough money set aside to cover closing costs, which can range from 2 percent to 4 percent of the purchase price. When budgeting for your monthly mortgage payment, factor in not only the principal amount and interest, but also property taxes, homeowners insurance, homeowners association fees (if applicable), plus private mortgage insurance if you’re putting down less than 20 percent. Don’t forget to set aside money for ongoing maintenance and those unexpected repairs that are bound to pop up, too. Here’s a step-by-step guide for buying a house:
1. Understand why you want to buy a housePurchasing a home is a major decision that shouldn’t be taken lightly. If you’re not clear on why you want to buy a house, you could end up regretting your decision. How to get started: Define your personal and financial goals. “Buyers should think about things like when they intend on moving and what they want in a home — amenities, ideal location and how long it could take them to save for a down payment,” says Edwence Georges, a sales associate with RE/MAX in Westfield, New Jersey. “These are all important to help define the goals they would like to meet.” Key takeaways:
2. Check your credit scoreChecking your credit score will help you determine your financing options; lenders use it (among other factors) to set your loan pricing and see if you’re able to repay your mortgage. The better your credit history, the better the chances you’ll have of securing financing with the best terms and rates. How to get started: You can get your credit report and score from each of the three major credit reporting agencies, Equifax, Experian and TransUnion, for free once a year. Your bank or credit card company might offer free access to your score or credit report, too. Key takeaways:
3. Create a housing budgetSetting a realistic budget for your new home will help inform what you can afford and how much your all-in costs will be. How to get started: The purchase price isn’t the whole picture. Carefully factor in other expenses to determine what you can afford.
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4. Save for a down paymentTo avoid private mortgage insurance, or PMI, you’ll need to save at least 20 percent of the home’s purchase price for a down payment. Some lenders offer mortgages without PMI with lower down payments, but expect to pay a higher interest rate. How to get started: Research the down payment requirements for the loan you want so you know exactly how much you’ll need. If a friend, relative or employer has offered to provide a down payment gift, initiate a conversation early on to learn how much they plan to contribute and if there’s any shortfall you’ll need to cover — and secure a gift letter from them well in advance, too. Key takeaways:
5. Shop for a mortgageGetting preapproved for a mortgage is helpful when you make an offer on a house, and it gives you a firmer handle on how much you can afford. How to get started: Shop around with at least three lenders or a mortgage broker to increase your chances of getting a low interest rate. Key takeaways:
Sign up for a Bankrate account to determine the right time to strike on your mortgage with our daily rate trends. 6. Hire a real estate agentAn experienced real estate agent can save you time and money by helping you find your dream home and by negotiating with the seller on your behalf. How to get started: Contact several real estate agents and ask to meet with them for a conversation about your needs before choosing one. “Someone with knowledge of an area can also tell if your budget is realistic or not, depending on the features you desire in a home,” Kruger says. “They can also point you to adjacent areas in your desired neighborhood or other types of considerations to help you find a house.” Key takeaways:
7. See multiple homesSimply viewing listing photos isn’t a substitute for visiting homes in person — with appropriate precautions in the pandemic — and getting to know the neighborhood and its amenities. How to get started: Let your real estate agent know what specific kinds of homes you want to see, or search for homes online yourself. Your agent can create your profile in the local multiple listing service (MLS), a database of homes for sale, and set up automatic searches for those that meet your criteria. You may not be able to check off everything on your home amenity wish list, so you’ll want to prioritize what’s most important to you aside from location. Key takeaways:
8. Make an offerUnderstanding how to make an attractive offer on a home can help increase your chances the seller will accept it, putting you one step closer to getting those coveted house keys. How to get started: Once you find “the one,” your real estate agent will help you prepare a complete offer package, including your offer price, your preapproval letter, proof of funds for a down payment (this helps in competitive markets) and terms or contingencies. Key takeaways:
9. Get a home inspectionA home inspection helps you get an overall picture of the property’s mechanical and structural issues. The home inspection will help you determine how to proceed with the closing process. You might need to ask the seller for repairs, or you might decide to back out of the deal if you have a contingency in the contract. How to get started: You can get recommendations for home inspectors from your real estate agent, but also be sure to do your own homework before choosing one. Depending on your contract and state of residence, you’ll generally need to complete a home inspection 10 to 14 days after you sign a purchase agreement. As a buyer, you’re usually responsible for paying the home inspector, and while the fees can vary, you’ll pay an average of $270 to $400, according to HomeAdvisor by Angi. Key takeaways:
10. Negotiate repairs and creditsYour home inspection report may reveal major or minor issues. Major problems will likely need to be dealt with before your mortgage lender will finalize your loan, while minor issues can often wait till you take possession of the home. How to get started: Enlist your agent’s help to negotiate with the seller. Ask for the seller to either do the repairs or give you a credit at closing. Key takeaways:
11. Secure your financingGetting final loan approval means you need to keep your finances and credit in line during underwriting. Once you’re ready to close, you won’t want to open new credit lines or make other major purchases until the paperwork is signed. How to get started: Respond promptly to requests for more documentation and double-check your loan estimate to ensure all the details are correct so there are no hiccups later. You may need to submit additional paperwork as your lender completes the underwriting process, such as:
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Also, avoid running up credit cards, taking out new loans or closing credit accounts. Doing any of these things can hurt your credit score or impact your debt-to-income ratio, and that can imperil your final loan approval. 12. Do a final walk-throughA final walk-through is an opportunity to view the property before it becomes yours. This is your last chance to view the home, ask questions and address any outstanding issues before the house becomes your responsibility. How to get started: Come with your home inspection checklist and other documents, like repair invoices and receipts for any work the owner conducted, to ensure everything was done as agreed upon and that the home is in move-in ready condition. Key takeaways:
13. Close on your houseOnce all contingencies have been met, you’re happy with the final walk-through and the closing agent has given the green light to close, it’s time to make it official and close on your home. In this final step, your lender will issue you a “clear to close” status on your loan. How to get started: Three business days before your closing date, the lender will provide you with a closing disclosure that outlines all of your loan details, such as the monthly payment, loan type and term, interest rate, annual percentage rate (APR), loan fees and how much money you must bring to closing. At the closing, you (the buyer) will attend, along with your real estate agent, possibly the seller’s agent, the seller, in some cases, and the closing agent, who may be a representative from the escrow or title company or a real estate attorney. This is also the time where you’ll wire your closing costs and down payment, depending on the escrow company’s procedures. Key takeaways:
Once all of the paperwork has been signed, the home is officially yours and you’ll get those house keys. Congratulations! Now comes the fun part: moving in and making the house your home. Bottom lineBuying a home involves a lot of moving parts and complex steps, but this guide — along with the professional expertise of your real estate agent and mortgage lender — can help you navigate the process smoothly. By doing your homework ahead of time, you’ll have more confidence in your decision and relish getting those coveted house keys on closing day. How to buy a house summary |