Buying a house is one of the biggest decisions you can make, so you'll want to be prepared and informed every step of the way. Here are some of the most important steps.
You do not need to hire a real estate agent to buy a house, but doing so will make the process much easier. In addition to showing you potential houses to buy and helping you evaluate their worth, a real estate agent will provide much of the necessary paperwork, and guide you through the entire home-buying process.
Your real estate agent will receive a commission from the sale of the house, which is paid by the seller out of the proceeds.
Hiring your own agent also avoids a “dual agency” problem. The home listing agent works mainly for the seller, not for you, and will have the seller's best interests in mind throughout the process. A real estate agent you hire will ensure that your interests are met and keep important information confidential, such as how much you’re willing to give on issues such as home price and repairs.
Each state requires real estate agents to have a license. This means the agent has learned the basics of your state's real estate laws and procedures. Nevertheless, the agent cannot give you legal advice. Some states actually require an attorney to be involved in the home sale process.
You should view many homes for sale in your area before making a final decision about which one to buy. By viewing multiple properties, you'll get a good idea of what's available in your area and how high the local real estate values are. You will also see different features that you might like or dislike and get a better idea of features you absolutely must have in your home. Consider things like whether the property is on a busy street or near a freeway, how much storage space the house has, and how much land the property covers.
Your real estate agent will have access to databases of houses for sale in your area and will arrange for you to view them, either privately or during an open house.
Before getting too far into the home-buying process, figure out how much of a down payment you can pull together and how much house you can afford to buy. Then be ready to show the home seller your financial qualifications.
It’s important to get lender preapproval for a home mortgage. You'll give your loan officer information regarding your savings, assets, income, and debts, and the loan officer will tell you whether you qualify for a mortgage and on what terms (subject to final confirmation of your finances, job, and so on).
You can then give your preapproval letter to the seller when making an offer. This lets the seller know you're serious about buying and you can afford to follow through on the offer you're making.
Depending on state law, the home seller is likely required to disclose certain information to you in writing, regarding various defects the house might have. Some sellers will provide this form to all interested parties, though this may not be technically required until the seller has accepted your offer on the house.
The filled-out disclosure form will probably cover physical, environmental, legal, and other defects related to the house and property. Some examples include whether the house contains lead-based paint, the condition of the appliances that will be included with the sale, or whether there is a utility easement across the property.
There are legal consequences for a seller who knowingly hides defects. You could potentially sue the seller for doing so and claim statutory penalties.
Review the disclosure information carefully with your real estate agent. If the defects are more than you want to deal with, you can back out of the home purchase, subject to any time limits stated within the form. Or, you could negotiate for some repairs to be done before you move in, or for the sellers to reduce the price so that you can deal with the defects after you buy the house.
The price at which a house is listed may not match the amount the seller actually expects to receive. Depending on the market and the area you are buying in, it might make sense to offer less or more than the listed price. Visit plenty of open houses to get a sense of local real estate values, and discuss this with your agent.
Also realize that a home’s “worth” is partly subjective. If you fall in love with a house (as the sellers hope you will) you may want to pay a premium for it so as to outbid other interested buyers. (Just watch out for paying too much over market value; your lender may not go along with this plan, because it needs to be able to sell the house for enough to cover your mortgage if you default.)
Once you've found a house you'd like to buy, you will submit a written offer to the seller.
Your offer will probably (depending on the custom in your state) be in the form of a written sale contract. It will include numerous provisions, such as the closing date, information on the type of mortgage you hope to obtain (with a contingency allowing you to back out of the sale if you can’t), and a contingency allowing you to conduct a home inspection.
Some states allow the buyer's offer to become the purchase agreement once both parties have agreed to and signed it. In a few states, though, either the buyer or the seller must prepare additional paperwork after an initial offer has been agreed upon.
The seller will work with the seller's real estate agent to come up with a response to your offer—either an acceptance, rejection, or counteroffer. If the seller counteroffers, then you will have an opportunity to either accept, reject, or counteroffer the seller's offer. Only when both parties have signed are you "in contract," and on your way to closing the sale.
Your real estate agent will help you prepare any necessary paperwork.
Although some eager buyers waive the home inspection contingency in their purchase contract, this is unwise unless you’re in such a hot market that it’s the only way to outbid other buyers. During a home inspection, a licensed inspector—hired and paid by you—walks through the house looking for any problems, such as a leaky roof, wood rot, or even whether the walls of the house are straight.
The inspector is sure to find issues that the seller is not even aware of. Expect the inspector to provide you with a written report at the end, and possibly let you accompany him or her during the inspection.
Depending on what the inspector finds, you have some options. You can (per the contract contingency) back out of the sale of the house. You could also negotiate for the seller to make repairs or adjust the sale price.
Once both parties have signed the purchase agreement, you enter into a period known as escrow. During this time (typically between three and six weeks), an escrow or title agency—chosen by you and the seller—will help process the closing of the sale, including running a title search and handling the exchange of money between the buyer and seller.
One of the most important parts of escrow is the title search. The escrow or title agency will comb property records to ensure that the seller legally owns the property and that there are no liens on it, such as a tax lien or an unpaid mechanics’ lien.
Your mortgage lender (if any) will require you to purchase title insurance, which will help protect you in case unforeseen issues arise concerning the property’s true owners, liens or easements, and so forth.
Your lender is also likely to require that you get the house appraised during this time. (Paid for by you.) Your appraiser will be licensed and will prepare a report stating how much the house is worth. This will be based on, among other things, the size of the house and property, the house's features (such as granite countertops), and recent sale prices of other, comparable houses in the area. If the appraisal says the house isn’t worth what you’re paying for it, you may need to renegotiate.
One of your biggest tasks during escrow is to work with your lender to process your home loan, or mortgage. Even after a preapproval, the loan officer will ask for extensive documentation of your job, assets, and more.
Once you give your loan information to the escrow agency, it will coordinate the transfer of funds to the seller. The escrow agency will make sure that all of this is done on the closing date chosen by you and the seller.
Finding a house that’s available as a short sale (meaning you would purchase it for less than what the seller owes on the mortgage) or foreclosure could look like a bargain, but there are hidden risks.
When you buy a house through a short sale or foreclosure, you ordinarily agree to buy the house "as is." This means you take it defects and all. There will be no negotiating over needed repairs before you move in. Depending on the severity of the defects or damage to the house, you may have trouble finding a lender to finance the mortgage.
Some states also have a right-to-redeem period. This means that a seller who satisfies the debt within a certain time period after the sale of the house can reclaim it.
Real estate law varies from state to state, so if you have any legal questions or concerns during this process, or are in a state where attorney participation in a home sale is required, talk to a real estate lawyer in your area.
