When people are ready to buy a house they have all kinds of questions. What should my first step be? How much money do I actually need?
But one of the questions I get asked the most is, “How do I buy a house? What steps do I need to take?”
That’s a pretty loaded question so strap in as we dig in. The “too long, didn’t read” version would go like this:
1 – Ready your finances
2 – Get Pre-Approved/Pre-Qualified
3 – Shop for/Find the right house
4 – Make an Offer
5 – Get the Home Inspected
6 – The Home Gets Appraised
7 – Close on the Home
So let’s dig into each of these steps and learn more about what it takes to actually buy a house.
Table of Contents
1 – Ready your Finances (Credit and Savings)
When you want to buy a house, it can be really tempting to jump right into looking at houses on sites like HAR.
But no matter what, buying a house is going to require 2 things, a healthy credit score and some cash in your savings account.
This is why the very first step of buying a house is taking a hard look into your finances and making sure you’re actually ready to buy a house.
Without this first step, you will not be able to complete step 2! So let’s dive in!
Income and Employment
The first thing your lender is going to look at is your employment. Not only do you need to be employed to get a mortgage (d’uh right?) but you need to have some job history as well.
If you are not sure if you have the income or employment history, simply check out our recommended lenders list and give one of them a call. They are here to answer your questions and provide individualized feedback!
Debt to Income and Credit
Credit and your Debt to Income Ratio (the amount of debt you have compared to how much income you have) are important markers for lenders. And they go hand in hand.
If you have an amazing credit score but too much debt, you might not qualify for a mortgage. But on the other hand, if you have less than stellar credit but no debt, you might actually qualify!
So start off by totalling all the debt payments you make each month, then divide that by the amount of income you make each month.
For example, let’s say you have a $300 car payment, a $350 car payment, and that TV you financed at $100/month. That means your monthly debt payment would be $700/month. Divide that by your income (let’s say $4,000/month) and you get 700/4000 = 0.175 or 17.5%
Your lender will want to see that ratio under 40-50% to qualify for a mortgage.
As for Credit, Lenders will want to see a credit score of at least 580 in order to get you qualified for a mortgage. But, like everything else, this also depends on several factors too.
The best place to start is by having a conversation with one of our recommended lenders who can easily walk you through the processes.
Saving for Your First House
Saving up for your down payment and closing costs can be one of the hardest parts of buying a house.
Luckily saving up money to buy a house isn’t as hard as it used to be. So let’s break down the costs you can expect to pay when purchasing a house.
How much money do you need for a down-payment on a house?
When you are buying a house with a loan, often the lender is going to require some sort of payment up front to show you are somewhat responsible with your finances.
It is typically a good idea to aim for a down payment of 20%. If you put less than 20% down on your new home, lenders will require you to pay an extra monthly payment for Private Mortgage Insurance (or PMI for short).
PMI is typically an extra $100-$200 tacked on to the mortgage payment each month. PMI will also stick with you until 20% of the home is paid off (or longer depending on your loan).
But, for most people trying to buy a house, this is a cost they’re willing to pay in order to quit paying rent and start building their own wealth.
So what is the lowest down payment you can get away with? Well, that again depends on you and what you qualify for. It is always a good idea to talk with a lender to explore the options you qualify for.
0% Down-Payment –
There are several programs that do not require a down-payment to buy a house (and some that don’t require PMI either).
The most popular is a VA loan available to anyone who served in the military. And if you qualify for a VA loan, you also qualify for our ZeroPlus Program too which will also save you money on closing costs!
Others might qualify for 0% down programs through their credit union.
A popular program locally is the Gulf Coast Educators FCU 0% down program for teachers and administrators (you can check out here).
Is there another credit union that offers a 0% down program? Let me know in the comments!
3 – 5% Down-Payment –
Most lenders now require a down-payment between 3 and 5% to buy a house. This will vary depending on your lender and the lending program you are using.
For example, most FHA loans only require 3.5% down and most conventional loans require 5% (with some lenders being able to offer conventional loans with a 3% down payment).
How much money will you need for Closing Costs?
Even if you qualify for 0% down, you can also expect to pay some closing costs as well and this will vary depending on your loan and lender.
On average you should be ready to pay an extra 1 – 2% of the sale price of the home in fees. For example, to buy a house that is $200,000 will require your down payment and $2,000 to $4,000 in closing fees.
This includes fees charged by your lender to originate and process your loan, appraisal fees, homeowners insurance, taxes and title insurance…
BUT the good news is this is also a cost you can ask your seller to help you with (and most sellers will help you)!
Other to buy a house –
While closing is going to be your biggest expense, there are a few other things you should be ready for that you will need before closing.
After you find the right house, you need to be ready to fully inspect the home for potential issues. After all, no one wants a home that has problems hiding in the walls!
At a bare minimum, be ready to pay for a general home inspection (usually $300 – $500). I would also encourage you to have an inspector scope the sewer line for issues under ground (another $100).
You may also want a mold inspection, Radon Gas Inspection, Pest Inspection … And the list goes one and really depends on the property. But don’t worry, our agents will help you through this process and make it super simple for you.
2 – Get Pre-Approved For a Mortgage
Alright, so you are financially ready to buy a house, now what?
Most people know that before you start looking at houses, you need to get either pre-approved or pre-qualified by a mortgage lender. This will show sellers that you are not only serious about buying their home, but that you are also able.
The process of getting pre-approved takes 5-7 business days so it is better to start before falling in love with the house you want to buy.
Step 1: Get Pre-Qualified
There are 2 levels of being approved for a mortgage. The first level is getting pre-qualified.
This is a great first step for you to take as it allows the lender to get a good picture of your finances to discuss your goals and any needs regarding a mortgage. This is also a great first step for first time buyers who are thinking about buying soon and want to explore their options
Getting pre-qualified is generally pretty simple and involves filling out an application and submitting documents to a lender to look over your debts and income. This will also typically involve pulling your credit history to determine your eligibility for a loan.
After receiving a pre-qualification letter from your lender you will know how much money you are able to borrow and have a better idea of the price range you should be shopping in.
Additionally, a pre-qualification letter will allow you to start putting offers on properties that you like as it will show the seller that a lender has reviewed enough information to know that you qualify for a mortgage.
Something to keep in mind is being pre-qualified isn’t a done deal. There is still a fair amount of work that needs to be done before being approved. This work is typically done after the seller has accepted your offer unless you take the next step in the approval process.
This is why a buyer with a pre-qualification letter doesn’t carry as much weight as a buyer who has been pre-approved.
Step 2: Get Pre-Approved
Being Pre-Approved takes the whole process to the next level and is a better indication of your status as a buyer. Think of the difference as, “you should be approved” compared to “you are approved.”
Being Pre-Approved gives you an advantage over buyers who are only pre-qualified and makes your offer stand out. If a seller has multiple offers to consider, they might want to go with a buyer who has less risk of the deal falling apart due to financing issues.
When getting pre-approved for a mortgage you will be required to take several more steps and submit documents to prove your income, savings, and debts. After all documents have been received, your lender will submit them to an underwriter who will give the approval on your loan.
This process typically takes 5 to 7 business days as the underwriter reviews your file. You can also expect the underwriter to ask questions about your finances and may need additional documents to support your loan application.
After this process has been completed your loan will be approved as long as certain conditions are met. These conditions are generally no changes in your income or debts (don’t go apply for a new loan) and the house you are wanting to purchase meets certain criteria.
How to get Pre-Qualified/Pre-Approved
It is incredibly simple to get started. Most lenders will have you start off by filling out a simple online loan application.
After the lender has received your application, they will guide you through what documents they require and help answer all your questions.
Check out our list of recommended lenders to get started!
3 – Find the Right Home
Finding the right home can be a little tricky to say the least. This is going to be one of the biggest investments you make in your life! Plus you will likely be living in this home for a long time.
Sometimes this process is quick and you find the perfect house on your first day looking at houses! Sometimes it takes a few times. It all depends on what you are looking for and what is currently available.
But it all starts with knowing what you are looking for!
Define what you are looking for
Before you go out to look at houses, it helps to know what you are looking for. And the first place to start is with location.
What I like to do when determining locations clients should be looking at is define the locations you spend the most time and put those on a map. This might include your work, family, must have schools, church, etc…
With all these locations on the map, start exploring locations that fit between your must haves (including places you haven’t thought about). This will help you explore all the options that are available to you.
Second, take a look at your current home. Let’s compare the good and the bad of your current home to help better define the home you want to purchase.
Start off by making a list of the things you like and dislike about your current home. What do you like about your kitchen, about the living areas, the yard, the whole house? What do you dislike?
After you have this list, narrow it down to the top 3 items on each list. Why 3? You will never find the “perfect” home (unless you build it yourself). Narrowing the list down to only 3 items will help you narrow the essential items from the items you can compromise on.
Set up your Search Portal/KW app
Now that you have a good mental picture of what you are looking for in a home, take a few minutes to set up an account on our client portal. You can do this by either by clicking here for the desktop version or by downloading the KW app here.
Our KW client portal is powered by Google and Nextdoor. This gives you insider access to information on houses you won’t find on sites like HAR or Zillow.
After creating your account, add the places that are most important to you to your account (so you can see drive times on each house you are looking at). To do this, simply click on your initials/picture at the top right and select “Your Account”
From there, select “Places” and add your top 3 places. Also, don’t forget to add any co-buyers you would like to share your finds with!
Now you will be able to save your favorite houses and hide ones you don’t like, ask our team questions about any house and even schedule a time to see the property either in person or tour the property virtually!
Knowing when You have found the right house
Lastly, how do you know when you have found “the one”? That can be harder to answer in a blog post because it is a deeply personal question. But here a few questions to ask when you are considering a property.
Does it meet your must have list?
Remember those top 3 things you are looking for? Does this property have those? Or at least enough positive aspects to make you overlook the missing items from your list?
Can you see yourself living there?
This can be a tricky question. When answering this question, try not to think about your current furniture. (you can always buy a new sofa if yours is too small..)
But think about the general layout of the home. Think about the neighborhood. Do you want to live here? Can you see yourself living here for 5 to 10 years?
Does the house have the potential after a few upgrades to be the home of your dreams?
Be Realistic. Can the things you don’t like be easily upgraded?
Let’s face it, no home will ever be perfect. Sometimes buyers get distracted by a home’s features that don’t line up with what they want (like granite counter-tops for example).
Look at the aspects you don’t like about a house. Then think about how much work/money it would take to customize the home to your liking.
Don’t miss out on a home you might love because it needs a few easy upgrades. Painting walls, upgrading counter-tops, most bathroom upgrades, flooring… These are all relatively inexpensive upgrades and will help you build more equity in the property.
Think about it, but not for too long though…
Buying a house is a big decision. We all know this. And you should think about it.
But you can’t think too long though. Someone else might be thinking about it too!
I can’t tell you how many times a client went away to think about it and the home went under contract later that day! It isn’t fun at all, especially if you were leaning towards buying it.
So once you start leaning toward buying the house, don’t drag your feet! Make an offer and see where you end up.
Especially in Houston, hesitation to making an offer means you are going to lose out!
4 – Make an Offer
This is where our team is going to do most of the hard work. After you decide on the right house to buy, we are going to help you craft an offer that gives you the best deal possible.
We will start off doing a deep dive to thoroughly research the neighborhood looking for similar properties that have recently sold. This information to help us craft a competitive offer.
After we know what other properties in the area are selling for, we will also do everything we can to know why the seller is selling the house and if there are any other offers that we are competing with. We can use this information to help us craft a competitive offer as well.
Lastly, while we are working on the offer/contract, we will have you write a letter to the seller. This helps us pull on the seller’s emotional strings too.
Though we will guide you through this, generally we will have you explain who you are, how much you love their home, and why you want to buy the home.
For example, consider you are selling a house and receive an offer that is $20k below asking price. Would you take it? Probably not.
But what if you found out that the buyer is a Vet just returning from a tour of duty… After being injured in the line of duty. And his wife is pregnant with their first child? … …
A little extreme for sure but your story has just as much emotional pull and can help you win the seller over.
What happens after you submit the offer to the seller?
Well in short we wait. Sometimes for a few hours, sometimes a few days.
After the seller receives our offer, they have 3 options. They can reject the offer out right, the can counter your offer with a different offer, or they can accept the offer as is.
It is important to note that once the offer is accepted, you will be in a legally binding contract to buy the property. Backing out of the contract may have some financial consequences if you don’t meet certain time guidelines.
But don’t worry, we will walk you through this before you sign the offer!
5 – Inspections
After the seller accepts your offer, we will have a short time period to inspect the property for issues that need to be addressed before closing. Typically this can be anywhere from 5 to 10 days after the contract is signed by all parties.
At the very least you should have a general inspection done on the property. This will cover all the basics like the roof, foundation, general plumbing and electric systems.
Your inspector will also note things that should be inspected further by an expert in that field.
For example: if there is an electrical issue in the breaker box, they might be able to tell you there is an issue but you should have a licensed electrician dig deeper to tell you exactly what is wrong (and how much it will cost to get it fixed).
On the other side of things, I have clients bring an expert in (say a master plumper) to inspect an issue found in the general inspection only to find out that it wasn’t really that big of an issue and can be easily fixed.
You can find a list of our recommended inspectors here.
Other Inspections to Consider
In addition, you should also consider inspecting a few areas that are not covered in the general inspection.
There are a few things that are fairly obvious (like a pool/spa inspection or septic system) but there are a few things you might not think about.
At the top of this list would be to scope the sewer line. This is where an inspector will run a camera through the sewer pipe looking for potential issues.
The sewer line can be a source of some major issues and can be a very costly repair.
Worst of all, it is underground so you will have no idea of the issue until your pipes back up into the house (possibly causing additional damage to your floors).
Also, if the home has been flooded before, it would be wise to get a mold inspection on the home. This will insure that the home was repaired correctly and is safe for your family.
After The Inspection
The inspection report can be scary to look at for sure (especially on older houses) as it will list EVERYTHING that does not meet present building codes.
Before you throw in the towel on the whole house, keep in mind building codes have changed over the years. There are things that are required on new buildings that were not required when the home was built.
So we will walk through the report with you and help you identify major issues from minor issues.
With the major issues in hand, we will show them to the seller and renegotiate the contract.
This usually involves having the seller hiring someone to fix the safety issues. Or we can also have the seller contribute to your closing costs so you can fix the issues after closings.
6 – The Home Appraisal
After we have done our due diligence on the property, your mortgage lender will do the same. This will include having the property appraised to make sure the property is actually worth what we have offered.
I consider the appraisal a safety net for buyers. If we offer too much for the property, the appraiser will tell us. This also means the lender will not move forward unless we renegotiate the sale price for less.
The appraisal is usually the last step for lenders to approve your mortgage.
7 – Closing
Closing is the best day of the whole process. Up to this point, as a buyer, you have done a ton of work to get pre-approved, find the right property, inspections, negotiations, more work with the lender…
And now you get to do more work (but fun work). This is where you will sign SEVERAL documents to make the house yours. This will include documents for the title of the home and documents for the lender.
But after we get all these documents signed… Well… you have to wait for the lender to approve and fund the transaction.
AND THEN…
KEYS!
Overview
As you can see, there are several steps to buying a house and it will feel like a long, tedious process. But we are here to help! Leave your questions below and we will get them answered!
If you are ready to start your home-ownership journey, give us a call so we can help you (even if you don’t live in Houston)! We are here to help you navigate every step in this crazy process and make everything as simple as possible.
But the first step is giving us a call (or a text message if you prefer) so we can talk about your goals! Even if you don’t plan on buying for another 6 months or so.
And if you don’t live in the Houston area, don’t worry, we can still help you! We have partner agents all over the country.
So, give us a call: 832-447-1231