“I WANT TO BUY A HOUSE. WHERE DO I START?” So, you are now ready to buy a home. It’s a big life changing decision. Where do you start and what do you do? Don’t worry. If this is going to be the first house you are buying, it is very natural that you will have a lot of questions. Most of the first time homebuyers we helped in the past are pretty confused with the process in the beginning. In fact, when I bought my first house, I was one of the many confused people that didn’t know what I was doing. So, let’s get to some of the things you need to know before you dive into a house search.
First, let’s discuss about Credit. If you know you will be buying a house, please do not make any drastic financial decisions that will affect your credit score in a negative way. For example, refrain from buying any big ticket items that will require you to finance it. By saying big ticket items, I mean cars, boats, airplanes, jewelries and such, where you will be stuck with a long term monthly payment. Not only will this reduce your credit score, it will also increase your debt-to-income ratio, which in turn will reduce your affordability on a house. It is better to first buy a house and then the rest of the big ticket items.
The next thing you need to pay attention to is the Cash in your bank. Do not make any big and irregular deposits into your bank account that may create the suspicion that you are using external sources to help you fund your down-payment to buy the house. Having a lot of money in your bank account is certainly nice, but if your bank account balance is suddenly increased by a few folds, it may not be good when you are trying to obtain financing. In fact, I am almost sure this will trigger questions from your lending institution during the loan underwriting process. Any irregular big deposits must be properly seasoned in your account before you initiate the home loan application.
Now that you have worked out the preliminary things, the next step before you hire a real estate agent is to talk to your bank or a lending institution to Pre-Qualify for a Mortgage. The bank or lending institution will most probably ask you about your financial situation and pull your credit report to determine how much of a house you can afford to purchase. How much the bank or lending institution is willing to lend you to buy a house is different from how much you think you want to spend on a house. The pre-qualified amount you are approved for will be the maximum amount the bank is willing to lend you based on your financial situation.
There are many kinds of loan programs, but in general, the required down-payment to buy a house is 20% of the purchase price. We have seen programs that require lesser down payment, 10%, 5% or even 0%. However, your borrowing cost is usually higher with those kinds of programs. Make sure you discuss the different programs with your home loan officer before deciding on one that is suitable to you. Be sure to ask for a pre-qualify letter from your bank or lending institution after you know what you are qualified for. At a minimum, the letter should state the amount you are qualified for, the terms of your loan and the percentage of your down-payment.
Once you have a pre-qualified letter, it is time to interview and hire a Real Estate Agent. When you approach a real estate agent with a pre-qualified loan letter, it makes the conversation a lot easier. The real estate agent should be able to develop search criteria for you knowing what the maximum price of your dream home should be. Keep in mind that in a traditional house buying process, homebuyers do not pay the real estate agent to help them with the house hunting.
The seller of the house (that the buyer is buying from) pays the real estate agents at closing. So, the service is totally free to you as the buyer. My suggestion is to select a real estate agent who has the time to answer your questions, who is familiar with the areas you are looking for, who is able to answer your real estate questions and who has the knowledge to tell you their honest opinions on a given property. Every real estate agent can close a deal, but a good real estate agent can save you a lot of headaches after you buy the house.
The last step is to develop a House Hunting Checklist. Your checklist should include the things that are most important to you. For example, the location, the schools, yard size, basement house, etc. Having a checklist will definitely save you a lot of time and helps you with the decision making process after you viewed the many different houses. It is also important that you discuss your checklist with your real estate agent so they will be more efficient in identifying the right kind of properties for you to view.
Finally, you are now prepared and ready to check out some properties with your real estate agent! We wish you good luck with the house buying process.
My name is Ken and my wife is Bee. I’m a Civil Engineer turned real estate investor and my wife is an IT Professional turned Realtor. Feel free to drop us your real estate questions at gat@gaiantimes.com.
DISCLAIMER: This article is written based on our personal and professional opinions. We are not certified financial advisors and are not qualified to provide financial or legal advice.
