Home - February 9, 2017

What Actually Happens When You Buy A House

In case y’all are just catching up, I shared last week that we’re doing a fun little series on home buying. I just bought my first home (omg omg omg), so I thought I’d share how the whole process works. So much of this stuff was honestly pretty foreign to me before going through it, and a lot of it can be pretty complex. I was hesitant to write this series, but the last article got good feedback – so I’m happy to hear that it was useful!

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Warning: depending on where you are in life, this post slash series could either be really boring or extremely helpful.

Last week, I shared the top questions you should ask before buying a home (some fun, some not so fun, some really long lulz). Today, I’m sharing what actually happens when you buy the house – the whole, long, sometimes painstaking process. I tried to include everything I possibly could about the entire process of buying a house from start to finish. Of course, these are just my opinions, before making any home buying decisions, be sure to chat with a Realtor you trust – like for real, this is supes important. Plus, there can be many nuances to these steps depending where you live and all that.

OK, let’s get going.

Know Your Purchasing Power

Even though you can’t wait to check out all the pretty homes, that’s not until a little further down the line. Try not to get your hopes up or fall in love until you speak with a professional lender. While online mortgage calculators can be helpful, they sometimes don’t take into consideration other costs such as mortgage insurance premiums, hazard insurance and all kinds of other fun stuff – major eye roll. So it’s EXTREMELY important to get thoroughly pre-approved for a mortgage loan. During this process, a mortgage company  basically takes your entire financial picture into account to give you an idea of what you can afford and what your monthly payment will look like at the end of the day. Annoying but helpful for sure!

Some of the things they’ll need to take a look at are:

  •       W2s
  •       Paystubs
  •       Bank account statements
  •       Records of any debt (credit cards, student loans, etc.)

You’ll also want to see where your credit score is at – they’ll take your middle score from the three major credit bureaus (not your highest) and above 740 is ideal for the best interest rates (even if it’s lower, you can still make it work! Just talk to a lender.) Check annualcreditreport.com where you can pull one free report a year. Make sure there are no inaccuracies on your report that need to be corrected/disputed and handled those ASAP if there are.

Keep in mind that only YOU know what you’re comfortable with. So while you may be qualified for $500,000 and a $3,000 a month payment, you may only want to go as high as $400,000 and a $2,000 a month payment based on your lifestyle habits. Check out some affordability calculators or just run an online budgeting tool for pointers.

The Down Payment and Other Costs

The more you put down (aka, the more cash you have up front), the less your monthly payment will be and vice versa. You can put down as little as 0% (if you’re a veteran), 3.5% (for an FHA loan), or 5-20+% for a conventional loan – so confirm these with your lender since they’re all over the place.

Historically, 20% down has been the “gold standard” for a conventional, 30-year, fixed-rate loan. But the market has changed and it’s always best to see a variety of loan packages and finding a lender and rate that feel good for ya. Lots of time, you can put less down and still lock in a killer interest rate, but some people feel more comfy with that full 20% down. Again, once you find a lender you like and trust, they’ll be able to walk you through all of this! Either way, having a huge cushion in savings is a must (like we went over last week)…whether it is for the down payment, other closing costs, or property taxes down the line.

Side note: What is a Mortgage? It’s okay if you don’t know – I’ll fill ya in. It’s your long-term loan on your home that you secure via your lender (see first section above). These are typically 30 year loans, and generally are either fixed rate, or adjustable rate. There are other types of mortgages (like interest only), and other term lengths so be sure to talk to your lender about what type is best for you and your lifestyle. The good news is every month you’re paying your mortgage payment you’re putting equity into your own home (yayyyy!), the bad news is for the first long while this is primarily interest (boooo). But think about it: even if you don’t plan to stay in a house for 30 year – which is very rare these days – you’re gaining equity each month (aka better than renting). And in a lot of places where the market is steady and rising, that means you may be able to make money if you sell some years down the road.

House Hunting

Once your pre-approval is in place, you know your savings game is real strong and you’re ready to go, you should find a Realtor who can help you with what comes next. It’s always best to get a referral from someone you know if possible, but if not check out online reviews and find someone with a lot of local knowledge. Most importantly, it should be someone you can see yourself spending a LOT of time with and that you genuinely trust and value their opinion. Also, it’s FREE (not a lot of people know this! The seller pays the entire commission and splits it with the agent on the buying side). Cool huh?!

Now, the fun stuff. When it comes to the search, first things first: really think about what you’re purchasing  – it’s a big commitment!  How long will you live there and what are your primary motivations for buying? Know the market and housing trends in your area, keep school districts in mind if that’s important to you, and consider what commercial areas are nearby. Can you see yourself being happy there for at least 3-5ish years??

It’s good to make a pros and cons list to start and prioritize the features of your dream home from “must-haves” to “can live without.” Do you want a place that you’ll live in for a few years, maybe have a roomie (or roomies like me lulz) to offset your mortgage? Or do you want a place for a family (or potential family) that has room to grow?  Is a yard something you have to have, or are you cool with condo living for now? The show Fixer Upper is #goals but in real life those homes are called Fixers for a reason – they’re cheap but they need WORK. Are you comfortable with a heavy fixer, or would you prefer something move-in ready?

Go see a lot of houses in person! See a LOT of open houses, have your Realtor take you by things you may not have expected – seriously though, do thissss. While a picture is worth a thousand words, once you’re up close and personal with a house (the good, the bad, and the ugly) you’ll have a much better idea of whether you can see yourself there long term. On that note, pay lots of attention to the neighborhood!

The Home-Buying Process

Finding the perfect home takes patience (like this is serious, y’all), determination and time. Depending what market you’re in, you could put in multiple offers before landing on your dream home. Here’s how this will shake out:

  1. Make an offer. Your Realtor will help put this together. You’ll want come up with a number by looking at the facts. Check out the comparable recently sold homes in the area, how long has it taken them to sell? What advantages does your prospective home have vs other ones in the hood? Has yours been on the market a long time or only a day or two? You’ll take all of this into consideration when sending your offer over. Figure out what you’re willing to spend on each particular home and stick to it, that way you won’t have regrets when it comes to steps 2 and 3.
  2. Wait to hear from the seller. Depending on how much interest they have on the property, the seller may turn your offer down outright, accept it outright, or send a counter offer on the price or other terms. Drama.
  3. Celebrate, negotiate, or repeat. The whole process can be crazy! In hot markets a seller may get 10 offers in one day! So don’t get discouraged if your first offer does not get accepted, and just keep going til you find the one.

Escrow and Getting Those Keys

Think that finding your dream home was a tedious process? Wait til you’re in escrow! Escrow is the period of time between accepted offer and getting the keys (aka, your closing date). Throughout this time, which can feel like forevvvverrr, you’ll go through several steps, all of which are in place to ensure you’re protected as a buyer. Check them out below:

  •  Appraisal – a home appraisal is done by an independent, unbiased party to ensure provide that the price you’re paying is in fact a fair and legitimate dollar value for the property. Goal: to come in AT or above the price you’ve offered. If it comes in lower, you’ll be on the hook to come up with the difference in CASH money – no fun – or the sellers may concede to lower the purchase price (also not ideal because it may give them pause to consider putting it back on the market or trying for an all-cash offer).
  • Inspection – your home inspection is where alllll the skeletons of the home’s closet come out. The inspector (paid by you) comes out the property and essentially combs through the home, yard, etc. to find problems. Once you have this lengthy report in hand, you can decide how to want to proceed. This is where you’ll find out things like: roof problems, plumbing snafus, structural damage, funnn stuff.  Your Realtor will walk you through this whole process, and makes it a lot easier, but here are some things to keep in mind:
    • You can submit a “Request for repairs” that nicely asks sellers to fix some of these issues
    • You can deal with the problems at hand on your own
    • You can walk away if it seems like too much to bear once the sellers have determined what they’re willing to fix. #bye
  • Paperwork – before you do the official paperwork, you’ll likely need to send your lender updated documents (after all, your pre-approval was a while ago and the people loaning you hundreds of thousands of $$$ want to make sure you’re still all good).
  • Fees – your lender will give you a fee sheet that entails things like: total monthly payment (incorporating principal loan amount, interest, taxes, insurance, any HOA dues, etc.) along with all of your closing costs. Closing costs? Yep. I warned y’all last time. The entire cast of characters throughout this process needs to be paid, right (except your Realtor, remember: they’re paid by the seller). That means a loan origination fee, title fee, any attorney fees, etc. These can ADD up, so remember, your savings needs to be supes strong.
  •  Loan=DONE – once you’re in the clear on everything mentioned above that happens during escrow, it’s time to sign the loan docs (get your signing hand ready – this can take a while). This is the cherry on top of the whole escrow pie because it means you’re thisclose to FUNDING!!
  • Funding – boom! Loan docs are in, all contingencies (checks and balances) are removed, and the money from the bank is ready to go to the sellers. As soon as the money hits their account, you’re a HOMEOWNER!!

Go get them keys and pop the bubbly!!

Phew!! It’s a lot, right? Have y’all bought homes recently and want to share your feedback below? Was any of this surprising to you who are still renting? Would love to know – don’t be shy! Keep your eyes open for another housing tips post soon! Y’all liking these??