Scroll through our homebuying guide below.
The first step in buying a house is to figure out how much you can afford. The easiest way is to go to your local bank and get a pre-approval. This will let you know how expensive of a house you can purchase. Banks consider your income, assets, and other debt. Use the mortgage calculator below to estimate your mortgage payment. Make sure to also consider taxes, insurance, and home maintenance.
Next, understand the market. Spend time walking, driving, and visiting friends in different neighborhoods. I'd even recommend getting short term rentals in the areas that you are considering. It's a bit weird that people might only spend an hour in a house before buying their biggest purchase. Use real estate listing sites to see what has already sold.
The easiest way to see lots of houses is to visit open houses. Simply go to Realtor.com or Zillow and filter by open houses. Spend your weekends visiting open houses. It's fun and you can really get a sense of what's available and how much home's cost. You can do this without a realtor and without wasting a realtor's time.
Using a realtor. Depending on your real estate knowledge, a buyer's agent can be very useful. Recommendations are the best way to find a realtor. But note, most people involved in a real estate transactions are motivated to get a deal done. They won't get paid until the deal closes. This means that your agent might actually encourage you to spend more money or ignore some warning signs. Think of your realtor as a transaction facilitator rather than an advisor.
In addition to a realtor, seek out advice from your homeowner friends. They will be more likely to be aligned with your interests. Speak with neighbors about any issues in the neighborhood or any unique problems with that location.
Every city is different and has different concerns. Many cities have interactive maps that let you layer based on different data. For example, check for historic districts, zoning regulations, flood zones, historical aerial photos, and anything else that you can find.
Many people are surprised after buying a historic home that they might not be able to change their house. It's possible that a tiny historic home can't receive an addition or that dilapidated window can't be replaced. The goal is to find as much information as possible before buying a house.
After you buy a house, your home will be reassessed by the city. This means that your taxes will go up. To determine your new taxes, take your purchase price, divide by 2, and multiply by the millage rate in your area. For example, let's say you buy a home for $400,000 and the tax rate is 40 mills (4% of taxable value). Your new tax payment can be as high as $8,000/year (400,000/2 * 40/1000). While many cities do not reassess your home to the actual purchase price, be prepared for a large property tax increase.
If the previous owner has lived in their house for decades, it's possible that your property taxes could double or more.
|Property Tax Worksheet|
|Current Taxable Value||120,000||New Taxable Value||200,000|
|Tax Rate||40 mills|
|Previous Owner's Taxes||$4,800|
|Your Potential Taxes||$8,000|
Once you finally understand the market and have seen dozens of houses, it's time to make an offer. If you have an agent, you simply ask the agent to make an offer for the property. This will include an offer price, earnest money deposit (EMD), a closing date, and any contingencies such as inspections and financing. There is usually a timeline to remove the contingencies before you are at risk of losing your EMD.
An all cash offer closing in 2 weeks with no contingencies will obviously be attractive to the seller. I've done this before but it can be risky if you have no tolerance for unexpected repairs. You should request enough time to arrange your financing and perform any necessary inspections or appraisals.
A sewer inspection should be done. A sewer is something that nobody thinks about until there's a problem. And it's an expensive fix. Ideally, the sewer line runs from your house and connects directly to the city's main line in the street. Repairs can be expensive and sometimes the city will even require that you move your sewer line if it's located in an odd location. Many older homes have makeshift setups, so it's a good idea to get an inspection. Sewer line maps are usually not publically available, but the city should be able to provide you a map near your home.
The general home inspection should alert you to any problems with the house. Most houses have some problems so it's just a matter of what you're willing to accept and the current market competitiveness.
By this time, you should have a relationship with a bank. You will need to submit years of tax returns and a detailed report of your assets and other debt. Additionally, the bank will require an appraisal. This is basically a sanity check to make sure that the home you're buying is worth roughly what you're going to pay.
A title insurance company guarantees that nobody else has claims on your home and that the seller actually owns the property. Contractors can put liens on homes if the previous owner didn't pay a bill. They also search for easements or anything that could affect the ownership of the property.
During this process, remember that many of the parties involved are trying to get the deal done. You need to look out for your best interests. Many inspectors have relationships with real estate agents so they might be a little more lax in order to maintain their relationship with the agent. An appraisal is meant to protect the bank but it doesn't necessarily mean what your home is worth. Ultimately, you are responsible for buying the home.
Closings usually occur at the title insurance company's office. There will be a closing statement with prorations for taxes and other items. It's best to setup a few things in your new house before moving in. Switch over the cable, electricity, gas, and water. Also, make sure that your bedroom has blinds or curtains. Congrats, you're now a homeowner!