10 Tips to successfully buy a home and avoid home buying mistakes

In this article, I’m gonna break down the 10 steps to buying a home and why it’s important to start certain things early in the process so they don’t hurt you down the road. So keep reading.

1. Start your research early

10 steps to successfully buy a house and avoid home buying mistakes
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So when I say early, I mean three to four months early. For example, if you’re planning to move into your new house in December, then it’s recommended you start the process in August at the latest. That way, it provides you ample time to research what you need to understand, what documents you need to start organizing, and several other factors like the next step.

2. Determine your Affordability

Determine your Affordability
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So step two is to determine how much house you can afford. Before you start searching online and looking at homes, the very first thing you should do is to determine how much house you can afford. This is different than renting an apartment or a house because home ownership incorporates certain costs in the housing expense that you wouldn’t necessarily see in your rent.

The typical components of a mortgage are the mortgage itself, which is a combination of principle and interest, along with the property tax, homeowner’s insurance, and if applicable, the homeowner’s association dues or condo dues.

Now, you can calculate this yourself by using any number of online mortgage calculators out there, but it’s best to link up with a mortgage professional so that they can make sure you’re accounting for everything and calculating your affordability correctly, which leads to the very next step.

3. Get pre-approved, not pre-qualified

Get pre-approved, not pre-qualified
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So once you’ve decided that you’re ready to start your research and you understand how much house you can afford, you should contact a mortgage professional to not only calculate how much you can afford but to get pre-approved.

This is very different from a pre-qualification because a pre-qualification is only a verbal verification of your affordability based on the information you’ve provided to the mortgage professional.

A pre-approval typically requires a loan application supported with a list of documents that the lender can determine your loan approval possibility if you make an offer on a house and your offer is accepted, which basically starts the mortgage process.

During the pre-approval process, the lender’s going to run your credit, review your income, and liquid assets for the down payment and closing costs, and confirm your profile meets the loan guidelines. Additionally, most realtors, they’re not gonna even show you homes if you’re not first pre-approved.

4. Finding the right real estate agent

Finding the right real estate agent
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Before I discuss why finding the right real estate agent is important, I wanna first to clear up a big misconception. Many people have the misconception that the buyer pays the buyer’s agent. Although they work for you and act in your best interest, they typically get paid by the seller of the house.

The realtor gets paid out of the equity of the house being sold. So I recently did a podcast with one of Montgomery County’s best realtors, Kevin Grolig. And one of the topics we discussed is how to find the right real estate agent and why it’s so critical to your success in buying a home.

He mentions that 10% of the agents do 90% of the transactions and vice versa, only 90% of the agents only do 10% of the transactions. Therefore, you want to work with the top 10% because they’re more experienced and highly networked across the real estate industry.

Why is this important?

It’s important because so much happens behind the scenes that not a lot of people know about. One easy way to figure out if a realtor is in the top 10% is to look up their reviews on platforms like Google, Facebook, or Zillow.

In the modern digital age, a realtor who’s serious about their business must have reviews from their past clients or business relationships reflecting their work. Another way is to simply ask the realtor how many transactions have they completed in the last six months? All good realtors are keeping track of their numbers and would be able to share this with you right away.

5. Shop for your home

Shop for your home
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Once you’ve identified your real estate agent, it’s time to start shopping for your home, but what’s the best way to go about it? Do you look at any home that appeals to you? Do you look at homes that are just in your budget only? Well, here are some best practice questions you should ask yourself to help define your dream home.

First, does the school district matter? Next, do you mind a fixer-upper or do you need a move-in-ready home? Does the neighborhood matter? Do you want a townhouse, single-family, or condo? Do you want a multi-unit property? How long do you want the commute to be? How many bedrooms do you need? Does the home need special accommodations?

There are many more things to consider, but answering these questions will give you and your realtor a good place to start. And here’s a pro tip. Keep an open mind when deciding what you want. Look at houses outside of your desires. The house you fall in love with might not have everything you want.

6. Work with your mortgage professional to select your loan

Work with your mortgage professional to select your loan
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Selecting the right loan is so much more than a rate and credit score. The big misconception home buyers have, first time or not is that mortgage rate is primarily driven by credit score. And this is just simply wrong.

There are 11 factors that impact your mortgage interest rate, two of which you have no control over and the other nine you do control. But before I share the nine areas that you control and that impact your rate, let’s quickly discuss why the rate is something to notice but not something to focus on.

First, we can all agree that the mortgage interest rate contributes to how much your overall housing payment will be. Notice I said the interest rate contributes to your overall housing payment, but it is not your total housing payment.

This is because the housing payment is made up of the mortgage payment, which is the principle and interest, possible mortgage insurance payment if your down payment is less than 20%, property tax, homeowner’s insurance payment if you are escrowing, and lastly, homeowners association dues.

Now that we got that cleared up, here are the nine areas that you control that impact your mortgage interest rate: Property types such as single family, townhouse, and condo.

Occupancy types such as primary homes, vacation homes, or investment properties. Mortgage term that you desire. Loan products such as conventional, FHA, VA, et cetera. Credit score. Down payment amount. How many days do you need to lock the rate? The number of units for the property and the property location.

With this information, more professionals will run some scenarios for you and provide you with some options to discuss and eventually select the program that best fits your situation.

7. Make an offer

Make an offer
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Once you’ve selected your mortgage loan with your mortgage professional and you have pre-approved for that loan, the lender will provide you a pre-approval letter to share with your realtor if the lender has not done so already directly with them. With this in hand and after you found a home, you’re going to wanna make an offer.

But before doing so, here are some things you should consider with your realtor. What are the current market conditions? What terms are you going to offer? Are there other offers on the property? Why is the owner selling? How long has the property been on the market? What is your budget? What are the property’s taxes and insurance payments? Can you afford an appraisal gap or do you have an appraisal gap strategy in place with your lender?

In addition to considering these as you’re drafting up your offer, here are some terms the seller is thinking about as they receive the offer. What type of financing are the buyers using? How long will it take to close? Can the buyer accommodate closing quickly? What contingency does the buyer have? How much is the offer price? Are there any seller concessions or credits?

Obviously, there are other terms that the seller will be considering, but this is a brief overview.

8. Home Inspection and Appraisal

Home Inspection and Appraisal
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Get a home inspection and have the home appraised. Now, once your offer is accepted, you’ve reached an incredible first milestone so congratulations. Now, depending on the current market conditions, typically, the very next action item is to order your home inspection. An inspection is not a necessary part of the home buying process, but it is strongly encouraged and recommended.

An inspection is a review of the home by a licensed professional. Their report will detail all the defects and maintenance on the home. Now be warned that this report typically makes the home seem worse than it is. Your realtor will review the report with you and provide some advice on what you should push back to be repaired and what’s better to leave alone.

In general, cosmetic defects can be left alone. However, structural deficiencies should be addressed, okay? So all this depends on the market conditions, the listing agent, the seller, the seller’s situation, and how many offers are on this property.

The home inspection is intended to protect you from walking into tens of thousands of dollars in repairs. It’s not intended to give you an “out” over a loose screw. Now, the appraisal is almost always required to obtain home financing. The appraisal is a report created by a licensed professional that provides fair market value for the subject property.

The appraisal value could be higher or lower than the purchase price. If the appraisal amount is higher, congratulations, you just got some extra equity. If the appraisal value is lower, this may need to be addressed if you didn’t waive your appraisal contingency.

Either you can make up the difference between the purchase price and the value of the property, the seller can agree to lower the sales price all the way or a little bit, and then you make up the rest. And sometimes if you feel the comps used were not the right comps, a new appraisal can be requested.

Appraisers are not perfect, okay? So they make mistakes too. If there is anything that causes concern, the mortgage professional can always request an appeal.

9. Coordinate the paperwork

Coordinate the paperwork
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By the time the purchase contract is ratified and depending on how long it took to have your offer accepted, there may be some outdated documents that need to be updated. Typically, you would need to provide some updated pay stubs and bank statements.

From that point, your mortgage professional will be hard at work submitting your file to underwriting and waiting for your loan application to receive its conditional approval.

Most of the time, if the mortgage professional is thorough at the beginning, the only conditions would be providing proof your earnest money deposit is clearing, waiting for the appraisal to be completed, and ordering your homeowner’s insurance policy. From there, you should be straight on your way to clear to close.

10. Close the sale

Close the sale
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Once you’ve received your clear to close or you’re around this time, you’ll have scheduled your final walkthrough for your new home. This is typically done the morning of the closing or the evening before. The purpose of this is to ensure that the property is in the same condition as the contract stipulates.

Be on the lookout for the following. No major damages have occurred. The house is clean. The seller is packed up and ready to leave. The fixtures, utilities, and appliances are working still. The seller did not take anything that was supposed to be left behind.

Separately, make sure to call the utility companies and give them your move-in date. You’ll wanna do this at least a week prior to closing so the companies have adequate time to set it up.

On the big day of closing, there are a few things that you’ll need to know prior to showing up. When you get to a settlement, there’s gonna be a stack of documents for you to sign. The closing agent is usually a notary or an attorney and they’re gonna review the documents with you and answer any questions you may have.

Make sure you bring the following with you: First, bring two different forms of ID just in case. It’s gonna be government-issued IDs. Second, make sure you’ve wired the necessary funds to the closing agent or bring an acceptable payment form such as a cashier’s check. Once you’ve signed everything, you’ll receive your keys to your new home so congratulations. I hope you got some value from this article.

Disclaimer: The views presented in this article are only for informative and educational reasons. The article is not meant to give expert advice or suggestions for a specific security or product.

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