I want to buy a house-- what do I do?

In My Humble Opinion
1

This would be my first house, and I’d like to take a homebuyers’ education course, but it seems the only ones offered around here are for qualifying to get down payment assistance and require that you don’t exceed a certain income, which I do. Thus, wise dopers, I turn to you.

So, my girlfriend and I have been looking sort of casually, and we stumbled upon a house that we’re both absolutely in love with, so suddenly “casual saving” became “squirrel away everything possible so we can get this house before it sells.” Right now, we don’t have quite enough for 5% down, but we probably will in two or three months.

The thing is-- we really have no idea how this works. I think we know all of the basic steps, but we have no concept of what order to do things in. I know that we need to look at the house, get it inspected, get a realtor to represent us, get a loan, make an offer… I just don’t know what to do first or how soon to start. Do people normally get their loan set up first, or talk to a realtor and start looking at houses first? Do we have to pay the realtor, or is that somehow rolled into the loan? Can you start the process before you really have all the money you want to have, or should you wait until you have it all ready to go?

I’m afraid to wait too long, because the house has already been on the market since October and I’m afraid it’ll sell any minute. I know there are other houses out there, but this one is actually pretty unique, and I don’t think we would find anything like this and at this price for a long while. (Did I mention our lease is up in August, so we don’t have a long while?)

I’m just pretty overwhelmed by this whole thing and I’m both anxious to get started and hesitant to do anything while we’re still in the saving process. I just need to have a better idea of how it normally progresses before I make any moves at all.

Thanks for any help!

2

Probably the best place to start is to figure out what monthly payment you can afford and be very realistic about it. Then get all of your income documentation together, such as pay stubs, several months worth of bank statements, a few prior year tax forms and anything else you have. Then go try to get pre-approved for a mortgage loan. Prequalified isn’t the same thing and won’t mean as much to a realtor or seller. If you can’t get pre-approved for the loan, there isn’t much point in taking any other steps yet.

3

You don’t have to pay a Realtor. The seller pays the commission.

In you’re situation, what I’d do is call the Realtor who is selling the house and arrange to look at it. If, after looking at it, you decide to go through with it, then go to a bank and start talking to them about mortgages. Shop around a little and find the best rates.

Between the mortgage lender and the Realtor, they’ll walk you through the process. That’s their job. And it’s really not all that difficult.

4

OK, we’ve done that. Step 1, woo! :wink:

So the loan comes first, then. Well-- does it lock in an interest rate when you get pre-approved, or does that not happen until you actually GET the loan? Because I know that there are instances where it does lock in an interest rate, but the guarantee is only good for like 30-60 days. I know we wouldn’t be ready to close THAT quickly if we got pre-approved now, as we still need a little time to save, so should we wait until we’re a little closer?

Also, we both have great credit, so we’re not at all worried that we won’t get pre-approved. What would be the logical thing to do after that?

5

So… I don’t need my own realtor for this at all, since I’ve already found a house?

6

This is all good advice, but one more thing…

Don’t get too attached to the house - a pre-sale inspection can reveal many things, including termites, water damage, structural wear and tear, electrical and plumbing problems, etc…

I just don’t want you to get too excited, then have it come crashing down when you find out that there’s a colony of wasps chewing down the rafters…

7

This is the absolute WORST way to start the homebuying process.

Forget that house.

If you want a house, then start familiarizing yourself with how mortgages work, interest rates, etc. and do some research to determine what you can afford.

Then, after you’ve done all this research you can start saving up money. I wouldn’t even begin looking at houses until I had enough in savings to cover the down payment for a house within my budget.

Once you know your budget and have your down payment, then you can pick out a location. Figure out what area of town you want to live in and make sure that you can find a house in your budget in that area. Then lower your expectations to something more realistic and find another area.

Then go to your bank or lender of choice to get a pre-approval for just over the amount you want to spend. Do NOT assume that since you are pre-approved for more you can afford more!

Once you have your pre-approval (or pre-qualification) you can find a Realtor. Ask around. Find someone who is referred rather than just walking in and getting stuck with someone.

Spend a LOT of time looking at houses. Realize that you will never find your dream house. Ever. Even that really, really, really cute one that you just know is perfect.

When you’re serious about a house, get an inspection. I know it costs like $500. Just do it.

Once you see the results of the inspection, sleep on it. Spend time weighing the pros and cons. There will be a LOT of cons.

If, after all that you still want to go for it, this is when you start negotiating. Put in an offer, but make sure you cover all the repairs that show up in the inspection (there will be plenty of them, trust me). This is where a good Realtor will earn their commission.

Eventually you will get to a point where both you and the seller can live with the terms of the deal and then you get to close. Expect to spend an entire afternoon in the title office signing paper after paper after paper after paper.

Then you get to move in and the hard work starts. :smiley:

8

First you must get a pre-approval or pre-qualification. That’s a letter from your lender basically stating they trust you enough on first glance to tentatively agree to lend you $x amount. It’s not a loan, and it’s not a guarantee of a loan, but it will show your Realtor and the buyer that you are serious and that you can likely qualify for a loan.

Once you find a house and make an offer, you will be asked to put some money down as a good faith deposit. The amount will vary based on the price of the house, I think.

You don’t lock in your interest rate until you apply for the loan, and you must close within a stipulated date to get that rate. Our closing almost got pushed back and we almost lost the interest rate we had because of it. If this happens, the buyer may be required to pay for your points (read up on points) depending on the circumstance.

There is a lot involved in applying for the loan. Usually they require a lot of documentation, including recent pay stubs, bank information, information about all of your debts, and any other income you may have. You also have to apply for insurance on the house.

Depending on the house, you may or may not be able to get insurance. This is another reason not to get too attached to a particular house. So many little things can (and will) go wrong that you really can’t be sure until you show up at signing how it’s going to turn out.

9

I would suggest popping into the nearest book store and buying a book such as “The Idiots Guide to Buying a House” or whatever. It will be $20 well spent to give you a lot of the details.

DO NOT contact the listing agent and let them walk you through the process. They work for the seller, not you. Find an agent to serve as your buyer’s agent, who will be paid out of the sales comission. Keep in mind that although they will technically be working for you, it does work out better for them that you buy a home sooner rather than later and for more rather than less, i.e. more comission.

Try not to get emotionally involved and “fall in love” with a home. You need to stay rational with so much money at stake.

Speaking of money, don’t let the down payment suck up the entirety of your savings. Besides closing costs, you will likely need/want to buy a lot of stuff for your home that you didn’t need/want for your apartment.

Generally, the order of things is get pre-approved, look for home, make an offer, make actual loan application, get inspections, fight over repairs, and finally close.

10

See above. Always be willing to walk away if something doesn’t go right. Buying a home is probably the biggest purchase you’ll every make, try your best to make the decisions with your brain and not your gut.

Don’t forget all the closing cost; fees for title transfer, etc.

Also, figure how much you’ll need to spend outside of the mortgage. You’ll need to pay taxes and homeowner’s insurance. Since you’ll be putting less down it will probably be put into escrow as part of your monthly payment. We put over 20% down so I manage it myself.

Then there’s the cost of maintainence. Do you already have a lawnmower or or you going to pay a service? Save up a bit more, cause I guarantee somethings going to break sooner or late, probably sooner. We had our pipes leak two years into our current house, that was fun.

While it can be overwhelming, there is something great about owning your own place if you can make the numbers work. And right now is a great time, there are a lot of houses on the market and interest rates are low. Just be honest about how much you can afford.

11

In my area (northeast US) you don’t do an inspection until after you have an accepted offer. I’ve never heard of it being done any other way, and I can’t see why the seller would agree to allow an inspection without an offer in hand.

12

One more thing and I’ll be quiet. Look into the cost of general repairs and be absolutely certain you can cover unexpected maintenance issues.

For example, it can cost between $5-10k to replace air conditioning units. A new roof can run you $10-20k. Gutters can cost around $1-2k. Electrical or plumbing work can easily cost thousands of dollars. Hot water heaters and toilets cost several hundred dollars to replace, while ovens and refrigerators can cost in the thousands.

While you won’t have to do all of these things at once (hopefully), chances are you will have one or two big things pop up each year. Plan to have enough extra money after paying your mortgage and other bills to cover these kinds of issues.

13

A buyer’s agent might be able to help you. But, in short you need:

  1. A big pile of money ( 5% is the minimum, but you’ll need more than that because a) the banks are scared to death to lend b) you’ll have taxes and other expenses to pay). Plus, I don’t care how nice the house is, you will need to do something to it within the first 6 minths.

  2. Immpeccable credit

  3. Did I mention the big pile of money?

I have to say, I don’t think much of buying real estate when you’re not married: you may really live to regret it. I’ve seen arrangements like this end very badly.

14

I bought my first home 3 years ago.

You can get pre-approved, but the rate is not locked in until you actually take out the loan.

Good luck with this dream house, but odds are that if you are still saving to get 5%, it may be sold before you get there.

Remember, your Realtor will always try to sell you a pricier house than you ask for. After 2 trips to places that were above what I specified I was willing to pay, I found I had to question the Realtor every every single time about the asking price so I wouldn’t waste my time.

I do not have much good to say about the experience. The banks screwed things up so I almost wasn’t able to write a check on the closing date – I had to eat a $300 loan application fee and go to a mortgage broker to get things done on time. I later found out that the place I bought was bought and flipped (with a 30% price increase in 3 months) by another realtor in the same office as mine. I think I paid substantially more than I needed to, though ultimately it was within my budget and met all my criteria.

15

Keep in mind that typically “your” Realtor does not represent you. They represent the seller. There are exceptions to this (someone mentioned “buyer’s agent” above), but most people do not use these. This is easy to forget as this very likeable person is taking you to see all these houses. When the time comes to make an offer, they will have opinions as to what the seller may or may not accept. You can listen to them, but never forget they represent the seller!

16

I think that XJETGIRLX said everything that I would say. It isn’t something to be rushed into, and until you look at the details of other houses close up you don’t even start thinking about some of the less obvious potential problems. If you go through realtors each of them will offer to arrange the inspection for you. Get your own that works for you, not them.

Fixer-uppers are really only for people that either can do the work themselves or have enough to hire contractors. We can do the work ourselves and it’s a lot of fun and we got more property in the place that we wanted to be that way, but it’s not for everyone. It takes time, money for materials and the ability to put up with a lot of noise and mess from time to time.

17

I wouldn’t buy right now. Continue to save your down payment.

Prices have dropped but are not near bottom yet. It may appear, at first glance, that now is a buying opportunity but there are more reductions coming. 30% over the next couple years isn’t unrealistic. If you buy now you will almost certainly be under water (owe more than the house is currently worth) this time next year.

Your dream house has been on the market for months? You shouldn’t be interpreting that as ‘someone is going to buy it any day’. You should be thinking why this wonderful house isn’t selling. The most likely reason is that it’s overpriced.

The seller is probably waiting for the traditional spring sales increase. It won’t happen this year. You might want to check back in the summer to see if it’s still for sale, likely at a much lower price.

18

Your county or city likely has a Housing dept with scads of info for 1st time homebuyers and also quite likely a special “1st time homebuyers program”.

Here ya go:
http://www.ci.austin.tx.us/housing/default.htm

19

Usually this would be true, but not necessarily these days. Realtors around us don’t even put DOM on their fliers any more, and judging from the time signs stay up in our neighborhood, (which is in fairly good shape) it is pretty long.

One point is that if the house is still there in 3 months, it is a sign that the offer could be much lower. When we bought ours, the owners had put the house on the market and then started doing some renovation work, so DOM was very high. That kept a lot of people away and let us get a good deal.

20

Have you even been inside this house? It may look great from the outside, but inside there might be holes in the walls. Don’t laugh - a house we looked at had them.
Don’t go into a house convinced you love it, or you will become blind to its flaws. Go in skeptically, with a bias that the place is a sty, and force it to convince you otherwise. During negotiations be ready to walk, and play up its negatives even to your agent. If he or she is convinced you are dubious, the negotiations will go better. When you look at money, 5% seems trivial in the price - but it is still ten thousand bucks or more.
Even if this house falls through there are plenty of others, and kicking off a savings spree is a good thing.