How To Buy a House

Purchasing a house is a lot more difficult than buying a taco. The key complication comes from the fact that we have to borrow money to buy real estate. Houses are expensive--you and your lender both want to make sure that you are getting a good deal.

1. Establish your credit. Preparing to buy a house begins long before you ever think about it. In order to finance a home, you need to have proven credit, established income, and the ability to pay for a mortgage loan. To establish credit, you need to obtain debt. Get a credit card or car loan and make payments on time, all the time. After a few months, you will have a credit history and FICO credit score. Not making payments on consumer debt can eliminate your chances of purchasing a house. Most mortgage loans require a minimum credit score of 660.
2. Meet with a lender. A mortgage lender or broker will be able to tell you how much you can qualify for. They will be able to explain the true cost of buying a house, and can tell you what the bank thinks you can afford. Lenders will explain different loan products, how much money you will need for a down payment and closing costs, and the estimated time it will take to close a loan. A lender will "pre-approve" you for a loan after checking your credit and verifying your income.
3. Search home listings online. Now that you know what you can "qualify for," start viewing online homes for sale. Most homes for sale are MLS listings and can be found online. Most first-time buyers are disappointed with the quality of homes they can actually afford. If there are online home listings that do look interesting to you, go on to the next step and find a realtor.
4. Interview and hire a realtor. Not all realtors are equal. In most real estate transactions, there are two agents involved: a listing agent (the person who is hired by the seller to market and help him sell his home for the highest possible price), and a buyer's agent (a realtor who is hired by the buyer to help find the most suitable listings and negotiate the transaction). You want to hire a buyer's agent--someone who has a fiduciary duty to you and who will represent you exclusively in the real estate transaction. A good buyer's agent is always available--one who knows the local market where you will be buying, and actively works for you to find the best possible home. A good agent knows the market and won't let the best homes slip away. A good buyer's agent knows when a house is priced right and isn't going to let you get ripped off. When you find an agent you like, sign representation to use him. By committing to him, he will commit and work harder for you. The nicest thing about hiring a buyer's agent is that you don't have to pay him anything. The buyer's agent gets paid by the seller when the house closes.
5. Tour homes. First, narrow down top choices. Have your agent show you all the homes you might consider. Online photos can be deceiving and you can't get a real feel for a house until you're actually in it. On your first visit, go through homes quickly. You will be able to rule out most properties in a matter of minutes.
6. Take a second look. Go back to the homes you are still considering and do a preliminary inspection. This time take your time. Look for the negatives. Examine every crack and doorjamb. A certain house might be the least expensive, but if the roof will need to be replaced within the next year, it might not be such a good deal after all.
7. Write an offer. When one house feels right and sticks out, write an offer. This is where having a good buyer's agent is a huge advantage. In some markets, you'll want to make the offer near asking price to make sure you get the property. In other markets, where houses have been on the market for months, make the offer low. You don't know how low the seller will go unless you ask. Your agent should know the best strategy for your particular situation. In the offer, you negotiate not only the price, but items to be included, dates for inspections and closing, and contingencies where you may be able to back out without losing your earnest money (a good faith deposit showing that you're serious about the house, and you're willing to put something on the line for the seller to take their house off the market).
8. Complete inspections. Real estate purchase contracts are usually conditioned on home inspections. The most common inspections can include general inspections, termite/pest inspections, radon tests, meth test, mold tests, and lead-based paint tests. Your real estate agent will be familiar with good home inspectors and resources required to get these
   tests done. These tests must be done by the deadline set in the offer,otherwise you cannot legally back out of the contract if the tests reveal negative results. A good realtor will ensure that the necessary tests and inspections are done in time. They will also help you renegotiate terms in the event that the inspections are not satisfactory.
9. Finalize loan. For the purchase to be completed, the money must go through. Lenders want to verify that you really are qualified to buy the house. They will require documentation of your income, tax returns, letters from your employers, bank account balances, etc. The lender will arrange for an appraisal to be completed. (The purpose of the appraisal is to verify for the lender that the house is worth what you are paying for it.) Make sure your lender is on top of things and that they get all the documents to the "underwriter" in a timely manner. If your loan isn't completed on time, you can forfeit your earnest money and/or lose the house.
10. Closing. Settlement or "close in escrow" is when the loan documents are all together and you sign the documents at an escrow office or title company. Once the money goes through, and the deed is recorded at the county office, then the property actually closes and you can move into your new house. This sometimes happens several days after settlement occurred. In most states, you don't sign at the same time sellers do and might actually be using a different title company.