Step 1: Find Out How Much You Can Afford
Your mortgage lender will look at a couple different numbers to find out. The first figure is your take-home pay. Banks like to make sure your monthly mortgage payments total no more than 28 percent of your net paycheck. They’ll also look at your other debts, like car payments and student loans. Your monthly mortgage payment plus other loan payments should equal no more than 36 percent of your take-home pay.
Step 2: Get Preapproved for a Loan
For a small fee, a lender will contact your employer, bank, and others to verify your income, assets, debts, and credit history. You’ll then get a letter stating that your mortgage is approved for a certain amount (which will help you determine your price limit), up until a certain date. This document is more for the home seller’s benefit to prove that you’re a serious buyer. There's no obligation on your part to actually get a mortgage.
Step 3: Start Searching for New Digs
You know how it works -- open up the paper and look for open houses. When that fails, get help from a realtor. You may have heard that it’s a good idea to get recommendations from friends. Well, it’s not! If your pal bought a house 50 miles away, the agent she used most likely isn’t familiar with the area you want to buy in. A good way to start is to look at advertisements of homes located in neighborhoods you might want to check out. Then see who the listing agent is -- chances are that company does a decent amount of business in the neighborhoods you’re interested in.
Step 4: Make an Offer
Once you’ve found a house you like, it’s time to get down to business. Do your own research to find out what similar homes in the area have recently sold for. You can find this information in your local newspaper, office of public records, or on zillow.com. Then choose a number for your initial offer. If it’s far below the asking price, be prepared to defend it with your research. Don’t let your real estate agent pressure you into making the first number any higher than you’re comfortable with.
Step 5: Settle on a Price
The seller will respond in one of three ways:
1. An acceptance: It’s natural to feel that you bid too high if the seller grabs your first offer -- don’t. If the number is one you’ve researched and feel comfortable with, consider yourself lucky. Any hidden problems with the home will turn up during the inspection.
2. A counter bid: This is a number somewhere between your offer and the asking price. View this as an opportunity to get information, not as a battle. Ask the seller why the home is worth more. You may find out that it has a new water heater, whereas other comparable homes don’t. Then decide to hike up your bid -- or not.
3. The original asking price: This indicates that the seller is unwilling to budge or that your initial offer was too low to even consider. Find out why the seller is digging in his heels. If you don’t get a satisfactory answer, look elsewhere.
Once you and the seller agree on a number, you’ll sign a contract. You’ll be asked to put down a “binder” or “earnest money,” which shows you’re serious. Make sure the contract specifies that you can get this money back if you withdraw your offer.
Step 6: Get an Inspection
Ask a realtor to recommend a certified inspector or check out the American Society of Home Inspectors at ashi.org to find one in your area. You’ll want an inspector to also carry out a pest inspection as well (especially to check for termite activity). Based on the square footage of your new home, the age of the house, the number of heating systems, and so on, you can expect the bill to top $250.
If there's damage, some inspectors may give you an estimate of what it might cost to fix. This will need to be turned over to the seller to decide who will handle the fees. If there's significant damage, you might decide to opt out of the contract or renegotiate the sale. If the seller is fixing the damage, arrange for another inspection after the repairs are made to take to your mortgage company.
Step 7: Close the Deal
Once the inspection is out of the way, you’ll need to contact your lender and retain the services of a lawyer to set up a closing date. Finally, go buy some champagne and celebrate that you’re going to be in debt for the next 30 years of your life!
-- Betsy Wiesendanger
See More: Buying a Home