Ah millennials. Home buying doesn’t seem to be a top priority to most of my friends and peers in this generation. I would like to formally announce that this blog will start to gear itself toward more real estate topics of the personal finance spectrum. I myself and very interested in pursuing a path in real estate as it is really what intrigues me. A lot of people are afraid of the concept of homebuying. It really seems like one of the most adult things that we can do and a foreign concept to many of us who refuse to acknowledge that we are already adults. Home Buying isn’t as scary as it seems. Here are the 8 steps of buying and closing on your first real estate property.
Step 1: Saving for a down payment/figure out how much you can afford
This is probably the hardest step. Whether you are buying an investment property or a place to live with your family you will need to pre-save before you buy the house inorder to put money down for the mortgage. For the average home investor a bank will want to see you put some skin in the game to show them you are serious about buying real estate and paying back the mortgage. The banks don’t want to make it too easy to walk away if things go wrong. The more money you put down as an investment the harder it will be to walk away from that. A home is one of the biggest investments most Americans will make in their lifetime. Most banks will require 15-20% down as well as closing costs. There are special programs that an investor can also look into such as VA or FHA loans which will require much less down, as low as 3%, but there is a special qualification process for them. This goes along with a lot of personal finance topics that we discuss in the website. Take a good look at your expenses and put saving first. You can pay your credit cards down but it is so important to prioritize saving money first.
Step 2: Find a real estate agent
It’s always good to find a real estate agent that will work with you and be on your side. What you can do is research the best agents online. They will all be hooked up to the MLS so they have a wide variety of details on many of the houses in the area that you are looking at. If you give them parameters of what you are looking for specifically they can narrow down a search for you and set you up to the listing service that will send you emails for when homes come onto the market and that will fit the criteria. This is also a good way to passively look at real estate deals and a better way to learn about the current market. The more homes you look at the more you can tell which ones are deals. You will get better acquainted to the market.
Step 3: Get pre-approved
If you are looking to close soon what you can do is go get a basic pre-approval from an online mortgage company to show the seller and agent that you are serious. Once you get a contract in place you can go to a local bank or national mortgage company and get formally approved. You will need to show the preapproval to the seller so that they will know that you are serious about buying a home.
Step 4: Finding a home
What you can do is go right to the internet. Google makes it easier than ever to find homes for sale these days. Find the best neighborhood.
-Things to keep in mind
- Appreciation/Cash Flow (if you are investing)
- Property Taxes
- Location/School district
- Mortgage payment, HOA Fees/All-In monthly costs
- Square footage, how big do you actually need. Do not overbuy or purchase something you really can’t afford.
Step: 5: Make An Offer
You will have to sign a contract and probably put down a deposit of about $2,000. I recently read a book called never split the difference by CIA operative Cris Voss. Some quick tips for making an offer. Start lower than the asking price unless the deal is fair and the market is hot.
- Use a weird number. Don’t make your offer $100,000 if they are asking $100,000. Make your offer $101,777. You’d be surprised how often this works. WHen you have a rounded number they will know you are just spitballing.
- Always go lower and negotiate. Try to go low as to open them up for negotiation. If you lowball them too much they may never come back with a counter offer. Know the market and have some bargaining chips as to why you would value the property lower.
Step 6: Home Inspection
Hire a home inspector and get under the hood of the home. See where the home needs work or if there are any structural issues with the home. Especially if you are new to buying real estate have a professional inspector walk the property with you. The last thing you want is a dud with a nice facade. Many times you will close and come to find that there are a lot of issues with the house that you never knew about with a simple walk through that could cost you thousands later on.
Step 7: Insurance And Utilities.
Shop around for different insurance agencies. Usually the first quote you get will not be the lowest and you can save a lot of money annually buy doing your homework. Make sure you contact your local utility providers and make sure you are registered as the current home owner. Know if your home is in a flood zone. If it is just understand that your annual insurance will be substantially higher if it is. You may want to get a quote before you purchase just so you know what to expect in terms of annual cost.
Step 8: Find A Lawyer/Attorney
Google attorneys in your area that will review documents and make sure that you are protected. A good way to find a reliable lawyer is referrals. If you are buying a condo make sure your lawyer goes through the HOW bylaws and rules, they will help you spot things that you should be aware of as a new home owner.
Step : Close The Deal
Get to the closing table. Usually you will close at the office of the mortgage company or the local bank. You and the seller will sit down. Iron out the details and he will hand you the keys. Shake hands and enjoy your new investment.