A real yard… Closets bigger than your average microwave… The freedom to decorate however you wish please! Making the switch from renting to owning is exhilarating, but many rookie home buyers find the process trickier to navigate than they expected. steps to buying a home.
This is why I’ve created this 10 Steps to Buying a Home Buyer’s check list. This list will help you sidestep common mistakes, such as paying too much interest or getting stuck with the wrong house. (Yep, it happens!)
To solidify your decision to purchase a home, first, please go over these benefits of home ownership.
Introduction: 7 Reasons to Buy A Home
- Tax benefits:
The U.S. Tax Code lets you deduct the interest you pay on your mortgage, your property taxes, and some of the costs involved in buying a home.
Historically, real estate has had a long-term, stable growth in value. In fact, median single-family existing-home sale prices have increased on average 5.2 percent each year from 1972 through 2014, according to the National Association of REALTORS®. The recent housing crisis has caused some to question the long-term value of real estate, but even in the most recent 10 years, which included quite a few very bad years for housing, values are still up 7.0 percent on a cumulative basis. In addition, the number of U.S. households is expected to rise 10 to15 percent over the next decade, creating continued high demand for housing.
Money paid for rent is money that you’ll never see again, but mortgage payments let you build equity ownership interest in your home.
Building equity in your home is a ready-made savings plan. And when you sell, you can generally take up to $250,000 ($500,000 for a married couple) as gain without owing any federal income tax.
Unlike rent, your fixed-rate mortgage payments don’t rise over the years so your housing costs may actually decline as you own the home longer. However, keep in mind that property taxes and insurance costs will likely increase.
The home is yours. You can decorate any way you want and choose the types of upgrades and new amenities that appeal to your lifestyle.
Remaining in one neighborhood for several years allows you and your family time to build long-lasting relationships within the community. It also offers children the benefit of educational and social continuity.
10 Steps to Buying a Home
STEP ❶: Figure Out Your Budget
Before taking a first step to buying a home, determine how much house you can afford and want to afford. Lenders look for a total debt load of no more than 43% of your gross monthly income (called the debt-to-income ratio). This figure includes your future mortgage and any other debts, such as a car loan, student loan, or revolving credit cards.
There are plenty of calculators on the web to help you determine what you can afford. If you’re pushing the limits, start reducing your debt-to-income ratio now. To get a reality check on what you may actually be spending every month, use this worksheet.
Lenders are happy to lend you as much as your debt load allows. But will that amount make you house poor? Ask yourself, how much house do I really want to afford?
STEP ❷: Make a Down Payment Plan
Most conventional mortgages require a 20% down payment. If you can swing it, do it. You will avoid Private Mortgage Insurance or PMI – making your loan costs much less, and you’ll get a better interest rate.
If, however, you’re not quite able to save the full amount, there are many programs that can help. FHA offers loans with only a 3.5% down payment. But these programs require PMI, which will drive up your monthly payments.
The U.S. Department of Housing and Urban Development (HUD) provides a list of nonprofit home buying programs for each state – this one is for State of Virginia. Also check with credit unions; and your employer might even have an assistance program.
The Virginia Housing Development Authority (VHDA) offers loan programs tailored for first-time home buyers as well as homeowners who want to buy in Areas of Economic Opportunity.
As you’re planning your savings strategy, keep in mind that banks like you to “season” your money. That is, they like to see that you’ve had stable funds in your account for 60 to 90 days before applying for a loan. Don’t worry: You can still use a financial gift from a family member or bonus received near the time you buy.
Don’t forget about closing costs!
Closing costs are fees paid at closing and usually total 2% of the final sale price.
To learn more about closing costs and the fees that will be included in your final closing disclosure when purchasing in Northern Virginia, please click HERE.
STEP ❸: Make A List of Priorities
What’s most important in your new home? Proximity to work? A big backyard? An open floor plan? Being on a quiet street? Highly rated schools? Being near the Metro? Or maybe you are deciding between resale and new construction home?
You’ll make a much better decision on what home to buy if you focus on your priorities. If it’s a joint decision, now is the time to work out any differences to avoid frustration and wasted time. Perhaps most important: Know what trade-offs you’re willing to make.
STEP ❹: Get Pre-Approved for Your Loan
Majority of sellers is Arlington, Fairfax, Loudoun Counties and Washington DC, will not accept offers from buyers who are not pre-approved for a loan. Pre-approval shows that the buyers have the financial resources available to make good on their offer.
Select a lender and apply for pre-approval. Your lender will check your credit and ask for all of your financial documents: tax returns, pay stubs, bank statements, credit card statements, student and auto loans, etc.—to accurately assess your financial situation.
Keep in mind that just because you’re pre-approved for a certain amount, it doesn’t mean you can actually afford that amount. Prepare your own monthly budget to figure out what you’ll be comfortable paying.
Once you’re pre-approved, don’t make any big purchases or life changes, such as quitting your job or buying a car, that could negatively affect your credit score.
STEP ❺: Start Shopping for Your New Home
If you’re like most home buyers, you’re browsing homes for sale day and night on the Internet. Make sure to take advantage of Advanced Property Search available on my website – the properties listed, come directly from the local MRIS and have the most up to date information.
In addition, I will send you a hot list of attractive properties that haven’t hit the market yet. That way you’ll get a jump on other buyers before the new listings are advertised or held open. If you locate a “must see” property, please feel free to schedule a private showing with me.
As your agent, I will be targeting homes that meet your priorities in your price range. This way you won’t be wasting time looking at homes you can’t afford. Take as much time and tour as many homes as you need to find the right one.
Important note: the sellers pay all real estate commissions in a home sale, so working with me won’t cost you a thing!
STEP ❻: Make an Offer on a Home
Before submitting an offer, I will make sure to inquire information on a current status of the property and request instructions on offer submission.
Anticipate three common scenarios:
1) sellers will have offer-review date deadline;
2) the sellers will be open to any offers that come in and will review them as they come; or
3) the sellers have an offer/offers in hand. In a competitive conditions, most sellers will have offer-review date. For example, if the house goes on the market on Thursday, the offer deadline date might fall on Monday night; this will allow as many interested buyers as possible to see a home in person and prepare an offer. Steps to buying a home.
When you’re ready, taking into consideration the property’s status, I will help you determine how much to offer and which contingencies to include. In addition, I will provide a comparative market analysis (CMA). A CMA will show the list and final sale prices for similar homes that recently sold in that area.
The traditional Offer Package in Northern Virginia, consists of:
- Residential Sales Contract.
- Conventional, FHA or VA Financing and Appraisal Contingency Addendum.
- Home Inspection and Radon Testing Contingency.
- Buyer’s Pre-Approval Letter.
- Earnest Money Deposit (a personal check in the amount of 1% of the property’s sales price).
STEP ❼: Go Into Escrow
Once you and the sellers agree on all the terms of the offer, the contract will become Ratified, and you’ll enter the escrow – it will take 30 to 45 days from day of ratification to settlement. During this time, you’ll be in very close communication with your agent, lender, and escrow agency – also known as title company.
Follow instructions of your lender and title company, apply for a mortgage right away, and submit requested paperwork promptly.
Please download Buyers’ Escrow Checklist HERE.
STEP ❽: Get a Home Inspection
Once your offer is accepted, and a contract to purchase a home is ratified, it’s time to schedule a Home Inspection.
Do you need a Home Inspection? I always recommend to my buyers to inspect the property. The Home Inspection will not only allow you to make sure that the house you are buying has fewer defects as possible, but will also give you an opportunity to renegotiate the price offered for the home, ask the sellers to cover repairs, or even, in some cases, walk away from the deal. As your agent, I will advise you on the best course of action once the report is filed.
STEP ❾: Do a Final Walk-Through
Do a final walk-through of your new home to make sure the home is in the shape you and the seller have agreed upon. New Pre-Settlement Access to the Property Law in Virginia, allows buyers to conduct multiple walk-through inspections for a period of seven days prior to Closing.
STEP ❿ Settlement
This is a final step of home purchasing process. You will arrive to the title company’s office to sign the documents.
Please make sure to bring to closing:
- Your photo ID
- Certified or cashier’s check for the balance of your down payment plus estimated closing costs.
You will get the keys at the settlement table.
And don’t forget to transfer utilities to your name on the day of closing to ensure uninterrupted services.
That’s it. Congratulations! Steps to buying a home.