So my lease for my apartment is up toward the end of this year, and now that I can work remote, I’m thinking of moving somewhere less expensive and finally buying a home. Can anyone with experience give me advice on the process or resources I can use? Not only am I a total noob, but I don’t talk to my family and my friends aren’t homeowners either, so I’m not sure where to start. Googling presents me with so much info that I’m a bit overwhelmed.
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What country are you in? It might matter.
Assuming you are in the US, the process is lengthy and there’s a lot of hurry up and wait, but it’s not too bad.
- First you save up your down payment which can be as low as 3% of the purchase price (or even lower for some people, many vets pay 0% down). 20% or higher will get you a lower payment because you don’t have to buy insurance for the bank and may get you better rates.
- Next pick a lender either by manually calling around to a bunch of banks and seeing what they offer or by going through a mortgage broker who gets paid by the bank for bringing them business. When you have picked your bank you want to get pre-approval for the amount of money you wish to borrow.
- Contact a real estate agent who works for buyers. Recommendations from friends and family help a lot here. Broadly you want somebody with a lot of experience who helps a lot of people buy homes. You generally don’t want your cousin’s friend’s barber who’s starting up real estate as a side gig.
- Your real estate agent helps guide you through the local market practices. You tour houses and if you find one you like your real estate agent helps put in the offer which will likely include a payment of earnest money which you will lose if you pull out of the contract.
- If the offer is accepted you and your agent negotiate the purchase agreement with the seller including any contingencies such as passing a home inspection.
- You sign a bunch of papers with the bank, nowadays probably on a website. The title company does their work including writing a title insurance policy. This stage takes about a month.
- When everything is already you will sign the final papers and get the keys.
- After a month or two your bank will inevitably package your mortgage into a bond which is sold to one of the hilariously evil and predatory mortgage-backed security companies that are still doing the same shit they were when they ruined the world economy 15 years ago.
- Budget roughly 1-3% of the home’s value in savings per year to pay for maintenance and repairs.
Edit, addendum: hire your own lawyer to review the contracts. This will cost about $1,000. If you don’t already have a lawyer you can contact your state bar association to find one that is relevant to your needs. Don’t buy a home as co-owner with a person to whom you are not married. If you must, you will need your lawyer again to draft up a full partnership agreement that describes how to divide the asset in the event of death, disinterest, disability, disloyalty, etc. You don’t want to be half owner of a house with your deceased girlfriend’s parents who want to sell it out from under you. Pick a number as your budget and stick to it. The temptation to get a house that is a little bit nicer will always be there. This is how stupid decisions are made.
As someone who’s been through this 3 times, this all correct but I’ll add a few caveats:
- If possible, go with a credit union over a bank. The interest rates may be a little higher, but you’ll have fewer fees to deal with and generally have better service since CUs tend to be local while banks are national entities and couldn’t give less of a shit about you. You’ll have to be a member of a CU, but you can just open a savings account with as little as $5. Some CUs will also pay special extraordinary dividends each year to account holders.
- Get pre-approved for a home loan through your bank or CU and get the pre-approval for a little more than your budget. The pre-approval can help with negotiations and saves time on paperwork when your offer is actually accepted.
- If you pay less than a 20% down payment your mortgage processor will require private mortgage insurance (PMI) which will be added to your escrow. Your monthly mortgage payment will be divided into principal and interest (PI) and taxes and insurance, so you won’t have to worry about paying your property taxes or home owners insurance each year: your bank or CU will pay that for you out of your escrow account.
- You will need to pre-pay 1 year of your home owner’s insurance premium, so be prepared for that.
Buying a home can be a daunting, overwhelming, and frustrating experience, especially if you’re looking at a quick closing timeframe. Just remember: your real estate agent is there to help you every step of the way and it’s in their best interest to have your best interest at heart. Rely on them and their guidance and it’ll make the whole experience less stressful.
Oh my god, thank you so much. I admit that’s all a little overwhelming, but goodness I appreciate you taking the time to write that up.
Never trust anyone that your realtor recommends. They are more likely to ignore problems in order to push the deal through. Don’t trust your realtor, they are more likely to push you into a quick closing so they can get paid sooner. If they’re getting 3% of the sale then they don’t want you to negotiate that much. $10k off the sale means they lost $300.
Hire an attorney, even if your state doesn’t require one. Have them look over everything to make sure it’s good.
Like another commentor stated, if the inspection comes back with issues ask for a credit at closing. Don’t let the seller “fix” them. They will hire their cousins buddy to do a hackjob for cheap.
Another word of advice. Do not close until the property is vacant.
Never do a rent back. That’s where you close but rent the house back to the seller for a short amount of time. If they aren’t ready to move, don’t close unless you want to risk them having to stay indefinitely.
As close to the closing as possible do a walkthrough. If they still have boxes in the garage that they “will be back for” don’t close. They need to have the property empty and ready to move into when you close.
Make sure you have homeowners insurance when you close. I’ve seen stories where some jilted third party destroyed the place during closing.
Just to agree… our realtor recommended inspector was not very good. Not that we are unhappy buying the house but the inspection was crap.
This is a really specific thing, but GET A SEWER INSPECTION, and the sewer insurance on your homeowner’s insurance! Sewer inspections apparently aren’t a standard part of home inspections, and two of my friends bought a house recently — both had junk sewer lines that needed replacing, and one got the previous owner to pay for fixing it after it was found to have a crack, and the other friend didn’t, and had to shell out something like $10k for it just a year into living there because they didn’t have insurance for it.
This applies especially to old buildings.
I started by talking to my bank (a credit union) to get pre-qualified. I recommend it as a first step. They will tell you how much you are qualified to borrow, which is not necessarily what you can afford or would be comfortable with. Keep in mind insurance and taxes will be needed along with the monthly mortgage payment. My credit union had a first time homebuyers program which was a huge help. I can share more details about that if you’re interested. Plenty of old timer agents will jump at the opportunity to take advantage of a first time homebuyer.
Once you are pre qualified, find a real estate agent. They will help you with the rest. Do your research and be skeptical of the big local firms. I found an agent who worked in my town occasionally, but wasn’t part of the local political circlejerk (it’s small city in the south but I’m sure this is an issue everywhere).
Lot of other good advice. I will just add a few things. Buy only what you need. Houses you plan to live in are cost centers not investments. Get your financing in line first. Lot of people loose houses because their financing is not ready. It helps to get to know the area youself and go to a few open houses and drive and walk around to decide what you want in a general sense.
We actually were formally looking with a realtor 3 days when we put the offer down. That worked because we did our leg work up front and had our financing in place. In fact I found the house during one of my walks before it actually posted.
If you’re U.S. based, check out your state’s HUD (Housing and Urban Development) site, they’re likely to have guides and resources for first time home buyers as well as any state programs that are there to assist that process. If you’re looking to move states, check the target state’s information out as well as there are probably differences in how their programs are administered.
We also spoke to an advisor at our credit union when we were looking to buy our home. Your financial institution likely has someone in this kind of role as well, but the level of quality can vary widely from person to person as well as between institutions and fiduciary advice isn’t guaranteed.
