How to Buy a Home

What you need to know to prepare to buy a home

How to buy a home

Trying to manage your money? Your biggest sources of success will come from focusing on the "Big Three" expenses: housing, food, and transportation. 

Many people try to trim around the edges, shaving $10 here or $20 there. That's great, but it doesn't compare to the effect of buying a home for $15,000 less than what you otherwise would have paid. 

These types of moves are known as "big wins," because they drastically help you move the needle.

In this article, we'll explain the process of buying a home, which is one of the most promising sources of a "big win" for your budget.

The First Steps When Buying a Home 

Are you in the market to buy a new home? The first step is to look at your budget. Can you afford the cost of buying a home (or trading up from your current home)? 

As a rule of thumb, your home-related expenses (including utilities) should come to no more than 35 percent of your overall pay, according to Jean Chatzky's 5-category budget. 

Here's another way to look at it: all your needs – including your rent or mortgage, utilities, car payments, insurance premiums, gasoline and groceries – should come to no more than 50 percent of your income, according to Elizabeth Warren's 50-30-20 budget.

Remember that you won't only pay for the cost of a mortgage (or rent). As a homeowner, you'll pay additional costs like repairs, maintenance and renovations.

This can add a substantial chunk of money to your total out-of-pocket expenses.

Get Pre-Qualified

Once you decide that you're financially ready to take the plunge, get pre-qualified for a loan online or over the phone. A pre-qualification is a quick process that can usually be completed in about 15 minutes at no cost.

(A pre-approval, by contrast, is a much lengthier and more detailed procedure.) During your pre-qualification, you'll supply a lender with a snapshot of your income, debts and assets, and you'll learn how expensive of a home you may qualify for.

Once you have a pre-qual letter in hand, you'll know what type of price range you can look for. Remember: you don't need to buy the most expensive home for which you qualify. There's a lot of wisdom to buying "less house" than you need. 

Find a Good Agent

If you review your budget and decide you're ready to buy a home, you'll want to find a good real estate agent. However, you might be a little overwhelmed by how to find one when there are over 2 million out there.

Who will do the best job and actually search for a home according to your preferences, and not by how much commission they get? Who will dedicate enough time to making sure your house is marketed to prospective buyers?

With 88% of homebuyers using a real estate agent in their home search, it’s clearly a prudent idea to have one on your side during the process. Here’s how to find a trustworthy real estate agent that will help you find the perfect home, or sell your home quickly.

  1. Ask Friends and Family: When you use any professional, what are you likely to do? Ask for referrals, of course. Put the word out there that you’re looking for a real estate agent, and more than likely, you’ll get a few recommendations. Ask on social media, at gatherings, or search for reviews online. Do your research and be sure they’re a good fit for your situation.
  1. Make Sure They Have the Appropriate Credentials: Ask your real estate agent for proof of their license, and review your state’s guidelines so you know what answers to look for when asking if your agent is qualified. Additionally, you can get in touch with your state’s department of professional and occupational regulations to ask them what the requirements are. 
  2. Ask for Referrals: To go the extra mile, ask your potential real estate agent for a list of past clients that are welcome to answering any questions you may have. Give those clients a call to see what their experience was like. You’ll be able to get a good idea of whether or not a real estate agent is worth working with from testimonials.  
  3. Look for Hyperlocal Expertise: Once you get a hold of an agent, ask for their sales statistics. Find out how many homes they’ve sold in the past year – both in general, and in your target neighborhood - and ask them how many of those homes have sold under or above list price. Market knowledge is very valuable when selling or buying. If you have your heart set on moving to a certain neighborhood, an agent who’s familiar with the types of houses and pricing will know what points to negotiate on, and whether or not asking prices are realistic. 
  1. Make Sure They're Tech-Savvy: You want an agent that’s tech savvy. If your agent isn’t open to using a smart phone or staying connected, then working with them may be difficult. Your real estate agent (or the agency they’re affiliated with) should have a great website. Is it user-friendly? Is it easy to search the listing on there? Is information displayed well? Social media is another factor real estate agents need to be on top of. They should at least have a Facebook group and Twitter account, as those are additional avenues that can be used to share your listing. 

Be Patient

At this point, your agent and lender will walk you through the ensuing steps: selecting and touring properties, making offers, negotiating over repairs. Be patient and prepared.

The homebuying process can be lengthy. You'll deal with appraisals, inspections, and contracts that fall through. Don't allow frustration or impatience to drive you into making an offer on a home that's too high, or yielding on a negotiation that doesn't sit right with your gut. It's better to stay patient and wait for the right house at the right price.

Remember: saving money (by negotiating hard) when buying a home is one of the most effective ways to manage your money. Years of clipping coupons may not compensate for one moment of frustration that drives you into paying $10,000 or $20,000 more than necessary for a home. 

The key takeaway, again, is to remain patient with the process. You'll be in the right home before you know it.