Buying a house brings overwhelming excitement, and it's an important milestone for many. However, it can also be intimidating when you’re not exactly sure how it goes or what to expect. There are a lot of things to consider — from uncertain market trends to fluctuating prices to additional costs — making it feel like an absolute maze.
Let’s explore what the process of buying a house looks like.
What to Expect When You Buy a House
1. Know When You’re Ready
Buying a house is a major commitment. Before you even begin the process of looking for a house, you need to be ready as a homeowner. This means you need to get your finances in order to ensure you’re in a position to purchase a house.
One thing to consider is your credit score as this shows your ability to pay for the loan. To obtain a conventional loan, you’ll need a median FICO® Score of 620 or higher, though some lenders have their own requirements. They will also look into your credit and financial history, amount of money owed, and types of credit used.
Other things to consider include:
- Debt-to-income ratio.
- Employment and source of income.
- Liquid assets.
- Market conditions and timing.
Similarly, you need to be emotionally and mentally ready. Think about your goals and aspirations — for yourself, your partner, and your family. These things can influence whether or not you’re ready to buy a house.
2. Calculate How Much You Can Afford
The next step is to set a budget by calculating your debts and income. You’ll also need to consider how much you can realistically spend on your monthly mortgage.
As a guide, use the 28/36 rule of thumb. This means you should not spend more than 28% of your gross monthly income on housing expenses and 36% on your total monthly debt payments.
These expenses should be factored in when determining how much you can afford:
- Association dues
- Homeowners insurance
- Property taxes
3. Prepare for the Down Payment and Closing Costs
While mortgage payments are spread over a period of time, there are still some costs you need to pay upfront, such as the down payment and closing costs.
The down payment is a large, one-time payment towards the home. It helps lenders mitigate any potential loss in the event that a borrower defaults on their mortgage. A 20% down payment used to be the norm. But now, conventional loans can go down to 3%, FHA loans to 3.5%, and VA or USDA loans to 0% (for eligible and qualified borrowers).
Do note, though, that the larger the down payment, the lower your monthly mortgage payment will be. Plus, you’re less likely to pay private mortgage insurance.
Similarly, you’ll have to pay for closing costs, which are fees to process and secure your loan. Generally, this runs at 3%-6% of the purchase price. Your lender will provide you with a loan estimate so you’ll know exactly how much to prepare for.
4. Get a Mortgage Pre-Approval
Work with a lender to get a pre-approved mortgage that can give you real numbers around how much the bank is willing to lend you and specific closing costs.
Getting this requires thorough investigation of your finances — from income and assets to credit rating.
Securing a pre-approved letter guarantees that you’re able to obtain a loan, assuming your finances don’t change. Likewise, it demonstrates to sellers that you’re a serious buyer who is ready for and capable of buying their home, giving you an edge over other buyers.
5. Find the Right Real Estate Agent
A real estate agent represents you during the home buying transaction. They look out for your best interests and ask important questions to help ensure you find the home that suits your criteria.
The right real estate agent should be able to:
- Understand each property’s real value.
- Explain the home buying process.
- Get you showings of properties.
- Negotiate effectively.
- Write an offer letter on your behalf.
Ultimately, real estate agents are local experts who have knowledge of the market and skills in negotiations. They are crucial in taking out the stress of buying your dream house (and keeping you protected).
6. Begin the House-Hunting Process
Your real estate agent should be able to provide you with listings of properties based on your budget and criteria. Once you’ve made your selection, it’s time to see the homes in person.
During showings, pay close attention to the details of the home — from the driveway, front porch, and rooms to the basement and home systems. If it helps, take photos so you can review them when you’re deciding.
Other things you have to consider include:
- Access to public transportation.
- Community amenities like schools, centers, hospitals, parks, and supermarkets.
- Home conditions.
- Home features like the backyard or swimming pool.
- Property value trends.
- Real estate taxes in the area.
7. Make a Smart Offer
Once you’ve found the property you like, it’s time to draft up and put down an offer letter.
Before doing so, ask your real estate agent to do a comparative market analysis to see what the fair price is based on recent sales of similar homes in the area. They may even get intel from selling agents in their network.
Generally, your offer should include details about yourself, the price you’re willing to pay, and the deadline for the seller to respond to your offer. It can also include an earnest money deposit, which is about 1%-2% of the purchase price.
Once you submit your offer letter, the seller can either accept or reject the offer or give a counteroffer with amended terms.
8. Schedule a Home Inspection
A home inspection is a thorough examination of the property carried out either toward the closing of a sale or before the property gets listed.
You may want to hire a professional, third-party home inspector to examine the home. They should check for signs of mold, radon, and other potentially dangerous elements. They also need to test electrical systems, roofing, appliances, and more to ensure that the property is good to go.
Likewise, this step identifies areas where major repairs or renovations are needed as well as any work that must be completed in the future. If significant repairs are needed, you can request for them to be completed before closing. If the seller declines, you can agree to handle this but reduce the purchase cost.
9. Get a Home Appraisal and Insurance
Generally, lenders require home appraisals because they can’t lend more money than the property’s worth. They will choose the lender, but you’ll have to pay for this.
A home appraisal looks closely at the property you’re purchasing and compares it with recently sold homes in the area, essentially to determine its market value. It also takes into consideration market trends, public trends, and a comprehensive inspection of the property.
It’s also beneficial to take out an insurance policy to ensure you get coverage to replace the home in case of an accident. This should become effective on your closing date.
10. Don’t Forget to Do a Final Walkthrough
Even if you’re committed to the property, you need to do a final walkthrough with your real estate agent before you close.
This is your opportunity to ensure that everything is as agreed upon — like repairs requested, appliances included, and belongings cleared out. You’ll also want to double check the home systems, like the HVAC and plumbing, to make sure all is in order.
Once everything is good, you’re better able to move confidently toward closing.
11. Close the Deal
On this last step, your lender provides you with a closing disclosure (at least three days before closing) which outlines the terms, final cost, and outstanding charges in your loan. Be sure to review this and ensure the numbers haven’t changed too much from your loan estimate.
During the closing, you will:
- Sign legal documents: This includes the settlement statement, promissory note, deed of trust, and certificate of occupancy.
- Pay closing costs: This includes fees for mortgage application, appraisal, and title search, as well as funds to establish an escrow account (for your property taxes and insurance).
Note that a closing agent needs to be present during closing to oversee the process. They are tasked as the mediator, confirm all documents are signed, and ensure all funds are paid and disbursed.
After closing, the property title will be passed on to you, making you a new homeowner.
Buying a house can be a long and complex process as there are many moving parts to consider. These 11 factors outline it step by step, from start to finish, to help ensure that you’re on the right track to buying your home.
Are you ready to buy your new home in Las Vegas? The Brendan King Group can make it happen! Contact us today, tell us what you’re interested in, and find out how we can help.