Congrats on making the decision to buy your first home! And now that you’re ready, it’s time to look at the first steps to buying a house. To help you through the process, below you’ll find a helpful workflow complete with tips to prepare yourself in order to speed the process along for an easier and less-stressful purchase.
The first steps to buying a house are:
- Create a plan that aligns with your future goals.
- Calculate what you can afford to buy.
- Create a list of must-have features (x number bedrooms, a big backyard, etc.).
- Find a real estate agent.
- Get a pre-approval letter and start searching.
By completing this process you’ll set the ground work for a smooth purchase. And this can reduce your stress and help you get to the closing table faster. And now that you know the process, lets jump into the details so you can move from the first step to buying a house into the fun part, home ownership!
Create a Plan That Matches Your Future Goals
The first step in the process of buying a house is to think about your future and mapping out what you need now, what you will need in five years, and what you will need in ten years if you plan on staying in the same place.
- What type of home do I want (single-family, condo?)?
- Will I be having a family, or getting married (if you’re single) and is the home large enough?
- Should I buy in a neighborhood that will likely increase in value making the home worth more, which also means rising property taxes?
- Do I plan on staying here or selling in 5 years or 20 years from now?
By asking yourself where you’ll be in the near and distant future you can determine the right types of houses to look at.
For example, if you plan on having a family 5 or 10 years from now, you may want to buy a condo or a place in an up-and-coming neighborhood now. The hope here is the property will have a higher resale value in the future. If your home does, then you can make a profit from it and use that money to buy a bigger home for your family, once you’re ready for this next step in your life.
If you are ready to settle down, your job is secure, and you don’t want to move again, buy a home with enough space for you to settle down in and that can morph as your life does.
Now that you know you’re ready to buy, it’s time to think about what is within your budget.
Calculate What You Can Afford to Buy
If you’re not paying cash up front, you’ll need to take a mortgage for your home. Most lenders will require you to put a deposit down on the property. Depending on if you are a veteran, using government assistance or a traditional loan, you’ll need between 10% and 20% cash. But a mortgage won’t be your only expense.
You’ll need to add in (depending on your situation):
- Real estate agent commissions
- Closing costs (some will be covered by the seller)
- Moving costs
- Decor and furniture for the new home
- HOA fees
- Car payments if you’re moving to the suburbs from the city
- Other expenses
To calculate this you’ll want to take the total cost of your loan (you can find this by using a mortgage calculator) and add in the fees. If you take a personal loan to pay for furniture, etc… then you’ll want the total price of the loan (interest included) to help get the most accurate amount possible. This will give you the total cost.
Now take this number and divide it up by the payback period in years and then again by 12 to find your monthly payments. Next add in your other fees like monthly living expenses (food, entertainment, etc…). Now subtract this from what you make each month and you’ll know what you can afford, or how you can adjust your home or lifestyle to something that is within your reach.
The calculation is: (excluding the down deposit)
Monthly income – (total home buying costs + living expenses) = what you can afford
Now that we know the size of the home we’re looking to purchase and what we can afford, our next checkbox in the first step to buying a house is to know what we need in a home vs. what we want.
Create a List of Must Have Features
Aside from knowing what you can afford, having a list of “must haves” vs. “wants” is vital in the first steps to buying a house.
Your list can include things like:
- A minimum number of bedrooms
- A minimum number of bathrooms
- Having a backyard, side yard, etc.
- Good location (right school district for kids or close to work)
- Good quality of living (low crime area, etc.)
- The ability to rent or list as a vacation home if you move out
- Being pet friendly
Next is the fun portion of the first steps in buying a house, getting help and looking at properties!
Finding the Right Real Estate Agent
Finding the right real estate agent will help make the first step of buying a house easier. Real estate agents have tools like the MLS (multiple listing service only available to licensed agents) and access to “off market properties” (homes that are not listed publicly) so you gain access to more options. Real estate agents also network with their peers and can arrange for private showings that have every feature you want and potentially for less money than you’d think.
To find the right real estate agent ask your friends and family for referrals, then prepare a list of questions to see if the agent understands your specific needs. If your agent doesn’t know what is important to you, or won’t listen, they likely cannot find you the right home.
Ask the agent about small details like what your pets name is if you mentioned it in the beginning of the interview. You can also ask for them to remind you if you said whether a pool or finished basement is a deal breaker. Just say you cannot remember and don’t have your list in front of you if you feel weird about asking.
These little details matter as this is the home you will be living in. If they took notes and care about having you as a client, they will have these written down.
And now we’re into the home-stretch, funding and home shopping.
Get a Pre-approval Letter and Start Searching for a Home
The final part of the first step in buying a house is to get your pre-approval letter and begin your home search. Your agent will help you find a good lender and assist with how much money to ask for. This way as the two of you place an offer on a home, you can show you’re a serious buyer as you have a letter from a lender showing you’ll have the money.
To make this go faster, your lender is likely going to ask for a mix of the following:
- Personal information (Social security, birth date, etc.)
- List of prior addresses
- Bank statements
- List of existing assets and liabilities
- Proof of employment
- Average monthly income (usually a paystub)
Once your pre-approval letter is ready to go, your agent (and you if you want), will be ready to scan the MLS, Redfin, Zillow and even local real estate listings in community magazines to find you the perfect home.
And that is the first step to buying a house. From here you move onto the next steps which include negotiating with the seller, finding a title company, moving to escrow and closing, celebrating your new home and moving in!