I am a strong believer in buying a house to live in or for investment. We can always afford to buy a house or a second house as long as we have proper planning and are prudent with our finances. Do you want to have a property that you can call your own? Here is a general step by step house buying process that you can follow in order to purchase your very own house. Stop helping the landowner to own his house by paying your monthly rent.
10 Simplified Steps Guide To Buy a New House
Having said so, buying a house is a long-term financial commitment that you really need to think through. Then again, it will be an investment that pays amazing dividends later on in your life. I have just recently purchased our new dream bungalow house during the pandemic. As I have said, it is doable regardless of whether the economy is good or not. Feel free to refer to use this buying a house step by step guide.
Step 1: Are You Ready To Buy A House?
Before you begin the home-buying process, you should ensure that you're able to handle all the financial responsibilities involved. Therefore, the initial step is to conduct research. You need to verify your credit score, and assess your financial situation. Just search, "Credit score check" and you will get a list of reliable websites or companies which can help you to assess your credit score.
Do Your Homework
Before you can purchase a home, you must determine the desired location. Create a list of potential locations and conduct extensive research on them. It's crucial to investigate the area's crime statistics and public school ratings just to name a few. Then again, you should never overlook the basics. Where are the closest grocery store and supermarkets? How far would you have to go to get to work? Distances will make quite a lot of differences in your final decision.
Credit Rating For House Buying
Obtaining a financial loan from the bank to buy a house is not always simple. Banks and mortgage lenders will obtain a credit report and will analyze your credit score and financial history to determine your eligibility for a house loan. It is essential to be one step ahead of them and to know your position. In other words, do clear your "light" debts whenever possible such as study loans and credit card debts before applying for a loan.
Your credit and financial history will determine if and at what interest rate you can receive a mortgage. Buyers with higher credit scores typically qualify for better mortgage rates and loan terms. You will even be able to get a higher percentage of the loan as well should your credit score is good. So it's important to understand your credit score before moving further.
Step 2: How Much Money Can You Afford To Buy a New House
Before you get in touch with a bank or mortgage lender, it is advisable to determine how much money you can afford to buy a new house. The bank or the mortgage lender will tell you how much money you qualify for, but you need to make sure you don't exceed your means. Never bite off more than you can chew. Make sure you calculate your payments carefully before you move on to the next step.
In general, experts have advised spending no more than 35 percent of one's gross monthly income on housing expenses. The following are the possible costs that you have to take into account:
- Principal: This is the mortgage loan you took out to buy your new house.
- Interest: This is the fee that the bank or mortgage lender charges you for the loan that you take.
- Taxes: Depending on the country and locality of your new house, there will be several different taxes that you will need to pay accordingly. This may include Property Tax, Assessment Tax, and Property Gain Tax just to name a few.
- Insurance: Purchasing insurance to cover your house is not mandatory but as a homeowner, you do want to protect your house from possible damages in the form of floods, fire, storms, and earthquakes, no?
- Association Dues: These are costs you are required to pay if you are a member of a homeowners association. If your residence does not belong to a homeowners organization, you will not be required to pay this charge.
You can consider using the following exact mortgage affordability calculator that I use to figure out how much you can afford to buy a house. After determining how much you can spend, you should examine the lifestyle you wish to keep and provide a cushion for unexpected, emergency expenses. Budgeting considerations such as retirement, tertiary education finances for your kids, and family vacations should not be overlooked.
Costs for Down Payment and Closing
We recommend checking with your real estate agent or lender to establish which charges must be paid in advance. The first step is, of course, to save for the down payment on a house that you want to buy. Typically, in Malaysia, you are required to fork out a minimum of 10% of the property's purchase price as a down payment.
Keep in mind that the larger the down payment, the greater the equity and the cheaper the monthly mortgage payments. By making a larger down payment, you can save on interest and reduce your likelihood of having to pay mortgage insurance. Consider your alternatives carefully before selecting a down payment. For example, if you were to purchase homes for sale in Hattiesburg MS, a greater down payment could be advantageous, but not if it depletes your savings.
The other significant price you must account for is closing charges. These legal fees pertain to the processing and securing of your loan agreement, as well as legal fees for SPA (Sales and Purchase Agreement). Although the exact amount can vary based on your loan amount and local tax regulations, closing expenses are typically between 3 and 6 percent of the purchase price. You might also need to include Stamp Duty fees and even the commission that you need to pay for your real estate agent.
Step 3: Assign a Real Estate Agent
As you may have observed, purchasing a home involves many processes that you might have otherwise overlooked. Although some home buyers choose to handle the whole transaction on their own, having a trustworthy and dependable real estate agent can make the process much easier. In fact, I have assigned real estate agents to help me with my home buying.
Your real estate agent will represent you throughout the house-buying process to ensure that you find the perfect home, ask the correct questions, submit a competitive offer, have the ability to negotiate, and obtain all required documents and disclosures. But perhaps even more importantly, having a real estate professional on your side can provide you priceless peace of mind. That's true as I can free up my time to do other more important things.
To choose the proper real estate agent, it is necessary to ask the right questions. Some questions to ask include:
- How long have you been an agent for real estate?
- How are you different from other real estate agents?
- How many clients have you served?
- What experience do you have locating properties within my budget?
- How well-versed are you in my desired areas?
- Can you provide me with the necessary references and documents?
Once you have chosen the ideal agent, he or she will discuss your budget, and assist you in establishing your priorities. Usually, a new housing project will have its very own property agents, so you have no choice but to stick with them. For second-hand houses, you can assign your very own real estate agent to help you with the whole house-buying process.
Step 4: Search For Your Dream House
Once you and your real estate agent have discussed your needs, it is time to begin property hunting. Be sure to always stick to your priorities and predefined criteria. Try not to be too picky until you view the houses in person, as it is quite unlikely that any listing will be an exact fit for your dream home. I find it to be extremely true. The moment I stepped into this new house of my for the very first time, it was way better than me just looking at the photos which did not do any justice at all to the real property.
If you have assigned an experience and resourceful real estate agent, he or she can not only help you filter down homes in your selected location but also show you pricing and market time trends in the desired neighbourhood.
Explore Various Areas And Houses
You'll notice that the more houses you view, the more they begin to blur together, so be organised and discuss with your real estate agent the many features you like and dislike about each property. When viewing a property, take notes and ponder on the home and its surroundings. Several factors you need to seriously consider are:
- The home's size, design, and physical condition
- The neighbourhood the residence is located in
- The duration of your commute
- The facilities in your immediate neighbourhood and area
- The schools in your area
Despite the fact that a house in bad condition may appear to be a bargain, you may be responsible for making repairs. Even homes with obsolete appliances can be a hassle because you'll have to spend extra money to replace and dispose of them. Therefore, when viewing each home, be realistic and carefully examine what you're willing to live with and what your budget can accommodate.
Step 5: Make an Offer To Buy The House
When you have identified a home that you want to purchase, you must initiate the offer procedure. immediately. Otherwise, others might "hijack" your dream house if you are too slow. Request that your real estate agent conducts comparative market research to identify a fair price for your house based on recent comparable sales in the area. The less competition there is and the longer the house has been on the market, the more negotiating leverage you will have.
Beyond your intended offer price, you should discuss with your real estate agent if it makes sense to add any stipulations. A contingency is a clause in an offer that specifies that if a certain condition is not met, the buyer is free to terminate the contract without penalty. So be sure to set these fine prints as your backup plan.
Despite the fact that sellers may balk at offers with conditions, certain contingencies are worthwhile regardless of the seller's opinion. So be sure to discuss with your assigned real estate agent who has your best interest in mind.
Mortgage Contingency Clause
You must include a mortgage contingency clause in your offer if your ability to afford the home is contingent on your ability to acquire a loan. This contingency will allow you to withdraw your offer if you are unable to obtain the finances needed, especially a housing loan.
Even if your loan has been pre-approved, you should still include this imperative mortgage contingency clause in your offer. If you fail to do so, you will be responsible for the earnest money deposit regardless of whether you have acquired a mortgage. Do not overlook this simple but necessary clause in your offer letter.
Home Sale Contigency Clause
Additionally, you should request a home sale contingency clause in your offer if you intend to sell your current home and need the proceeds to purchase this new one. This contingency will give you a specific amount of time to find a buyer for your home. In fact, many housebuyers who are short on cash have employed the exact clause in their offer to the seller. This is because they needed to sell their previous house before they could secure the fund for a new house.
The home sale contingency clause allows you to withdraw your offer and receive a full refund of your earnest money deposit if you are unable to find a buyer within the specified time period. Despite the fact that this contingency will likely be rejected by the majority of sellers, it is generally worthwhile to attempt it. If you never try, you will never know, right?
Inspection Contingency Clause
Additionally, an inspection contingency clause is a valuable inclusion in your offer for the seller. After submitting an offer, you should have the home examined to ensure you have a thorough understanding of its condition. With an inspection contingency clause, you can modify the offer based on any necessary repairs, but you can also back out of the deal if the house requires more work than you can manage. This is a crucial measure to ensure the house that you intend to purchase really matches the claim made by the seller.
Earnest Money Deposit
Also known as an escrow deposit, an earnest money deposit is needed when you make your offer to the seller. This deposit is money you pay in advance to demonstrate your commitment and make the seller more comfortable with removing their home from the market.
This deposit's monetary amount is subject to negotiation. However, a common earnest money deposit is between 1 and 3 percent of the buying price. Discuss with your real estate agent what is prevalent in your region. The funds are held in escrow and used for the down payment and closing fees at the time of closing.
If you decide not to purchase the home for any reason not indicated in a contingency clause, the seller will retain your earnest money deposit. Before submitting an offer, it is crucial that you consider the circumstances under which you may need to withdraw from the contract.
Including a few contingency clauses can be the difference between keeping your earnest money and losing it. This is not a small amount and after all, it is your hard-earned money.
Step 6: Choose a Bank For Your Mortgage
Finding a mortgage lender and getting preapproved for a home loan is the next step. Many first-time homebuyers are unaware that they may and should compare lenders before selecting one. Research can make a significant effect. Yes. My real estate agent actually sent my relevant documents to several banks to get the best mortgage offers for me.
Get Different Loan Estimates
There are frequent differences in eligibility requirements, loan rates, and closing charges between lenders, so it is crucial to conduct your research. When comparing lenders, request a Loan Estimate from each. This document will outline the loan terms, expected payments, and closing fees for your potential mortgage. Usually, this application is offered in a standard format, making it easy to compare lenders.
However, you should examine things beyond the bottom line. If a lender's offer is accompanied by subpar customer service, it may or may not be worthwhile. It's crucial to choose a lender you can trust to make the home-buying process as straightforward and convenient as possible, given the lengthy and frequently convoluted nature of the process. I am glad that all these were done by my appointed real estate agent. That is why Step Number 3 is really important.
Get Preapproved For Housing Loan
Contrary to popular misconception, prequalification for a loan does not guarantee that you will acquire one. Moreover, not all qualifications are equivalent. When you are prequalified in the conventional sense, lenders use the information you supply to assess your financial standing.
However, getting pre-approved for a loan requires a comprehensive financial inquiry, including verification of your income, assets, and credit score. When you get preapproved for a loan, it is assured that you will be able to obtain the loan, given that your finances do not change between preapproval and closing, and that the appraised value of the home is sufficient to support the loan.
A pre-approval of a housing loan is useful since it outlines how much the lender is willing to offer you and the costs associated with securing the loan. Being preapproved also indicates to the seller that you are serious about purchasing that dream house, which might make a difference in a bidding war. Due to the underwriter's evaluation of your finances, having a verified approval is vital because it gives sellers greater assurance that your loan will close.
My real estate agent really helped me to communicate with the different banks and the seller as soon as possible as the house (my current bungalow) that I have purchased is a very hot property due to its unbelievable pricing and strategic location. I am glad that his efficiency allowed us to purchase our dream house. Getting loan approvals done quickly is really important when it comes to "locking" a highly desirable property.
Step 7: Obtain House Inspection and Appraisal
When your offer is accepted, you may believe you've crossed the finish line, but a few crucial stages remain. You will now need to schedule a home inspection and assessment. Usually, this is also required by the bank which offers you the mortgage.
House Inspection
House inspection is vital because it will identify areas that require urgent care for major repairs or renovations, as well as any work that may be required in the future. Hire a competent, independent home inspector to assess the property you intend to purchase. In my case, the bank which offered the mortgage sent their very own team to do the house inspection.
If extensive repairs are required, you might request that the seller complete them prior to the closing. You may be entitled to withdraw your offer if the seller refuses to undertake the repairs and a compromise cannot be found.
If you have included an inspection contingency clause in your contract, you may be able to negotiate so that either repairs are completed, the cost is reduced from the purchase price, or the deal is terminated and your deposit is returned.
House Appraisal
Before agreeing to release cash, your bank lender or mortgage provider will want an appraisal of the property at this stage. A home appraisal is an estimation of a home's true market value based on comparable transactions in the area, market trends, public documents, and a thorough survey of the property.
Keep in mind that the lender will only provide funds to cover the appraised value of the home, so if the appraisal comes in lower than the purchase price, you will need to either negotiate the price or come up with the difference. This is just one of the many reasons why it is in your best interest to have a mortgage contingency.
Step 8: Buy Insurance For Your House
Homeowners insurance, which serves as a safety net to safeguard your house and finances, is also in your best interest. Although home insurance is not required by law, the majority of banks and mortgage lenders will insist that you obtain coverage before extending a loan. I personally feel that this insurance is a must as well since a lot of your hard-earned money will be poured in this new property of yours.
Homeowners insurance covers damage to your residence and the structures surrounding it, as well as stolen or destroyed personal items. There are varying levels of coverage, ranging from basic to comprehensive, so be careful to investigate all available possibilities before selecting a house insurance policy.
Step 9: One Final Walkthrough
Don't skip the final walkthrough just because you're ready to be done with the home-buying procedure. A final inspection of the property might assist you as the buyer in determining whether the seller must make any repairs prior to the sale. Typically, final walkthroughs occur a day or two prior to closing, allowing you to confirm that all agreed-upon repairs have been performed.
Regardless of whether it is a newly completed housing project or a second-hand house, you still need to do a final walkthrough to make sure that you scrutinize the house for one last time before it is officially yours. Once, the sale is finalized and completed, you will need to bear all responsibilities for your new house. So make sure to do your "one last dance".
Step 10: Closing On Your New House
Congratulations! You have reached the finale of the step by step house buying process; It is the very last stage. When the time comes, be careful to study your Closing Disclosure, which will detail the loan's conditions, final closing costs, and any additional charges or fees. Your mortgage lender will send you the disclosure at least three days prior to the closing. In my case, it was much earlier and my real estate agent had helped me to arrange it.
During the closing, the seller will transfer the property title to you. This process, which normally takes place at a title business, management firm, escrow office, lawyer office, or your home, will be supervised by a closing agent. My appointed lawyer served as our closing agent for the purchase of our bungalow house.
The closing agent will guarantee that all required parties are in attendance at the closure. The agent acts as a mediator between you and the seller and verifies the execution of all necessary documents. Once all documents have been signed, the closing agent will verify that all money, including closing costs and escrow payments, is paid and distributed properly.
Bear in mind that you have two key tasks during closing:
- The Signing of Legal Documents: Which will include the Closing Disclosure, promissory note, deed of trust, and occupancy certificate.
- Payment for Closing Costs: This may include fees associated with your mortgage application, appraisal, survey, and title search, as well as your down payment.
You Are Now a New House Owner
Finally, you can call yourself a proud new house owner. Give yourself a pat on the back. First-time home buying might be frightening, but it doesn't have to be if you equip yourself with the appropriate knowledge and resources. By following the step by step house buying process indicated in this simple article and working with a reputable real estate agent, you can gain an insight into the house-buying process, thereby making it more manageable.
Hopefully, by sharing my experience and knowledge, you can have a hassle-free journey right from the beginning to buying your new house. Now, you can truly enjoy your new house with your family and your loved ones.
Images credit: Shutterstock
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