Buying a house is not that difficult.
In fact, I believe it should be fun and exciting, but it is important that you follow a certain sequence. A lot of the issues and the frustration that I see in the marketplace oftentimes come from people getting excited and impatient.
They don’t want to wait to complete step number four before they get into step number five and then that creates issues down the road. So today we’re talking about the correct sequence and the easy way, how to buy a house in 10 steps.
Step number one is saving up for your down payment. I’m always shocked to see how many people believe that they need to save up 20% for a down payment. In fact, only one out of four transactions in North America involve a down payment of 20% or greater.
75% of all transactions have a much smaller down payment. Generally speaking, if you have about 5% down, you’re in great shape. There’s a lot of loan programs that require even less than that, but that’s an entirely different discussion. So, if you have about 5%, which in Milwaukee on a $200,000 house is about $10,000, you’re in good shape and you’re ready to go.
Step number two is usually very quick and very easy, and that’s going to be check your credit score.
This is another area with a lot of confusion. A lot of people think that they need to have a perfect credit score in order to obtain a good home loan and get a good rate. Generally speaking, if you’re right around 700, you are in very good shape. There’s a lot of loan programs that will go down into the six hundreds and even lower. But, it is important that you check your credit and you clean up anything that you find there that might be incorrect or some debt that you want to pay off before. You can easily take care of that.
If you don’t know how to do that, I use an app that is called Credit Karma. It’s free. You can download it in your phone and check your credit.
So you’ve saved up your down payment and you’ve checked your credit score. Now it’s time to assemble your house hunting team.
The first member on your house hunting team is going to be your real estate agent. There are a lot of agents out there and it’s easy to find one, but it’s not easy to find a good one.
It matters who you work with. You want to find somebody who’s doing this full-time, who has a lot of experience, who is a professional and who is going to be an educator that guides you on your path to home ownership.
Step number four is going to be another pick for your house hunting team and that is going to be your lender. Most buyers will automatically default to the bank where they have their checking and savings account, but that is most likely not the best solution for your mortgage lending needs.
Depending on your personal set of circumstances and on the type of property that you want to buy, single family, duplex, multi-family, it is going to make a difference on who is going to be the best lender for that specific job. This is another issue where you should lean on the experience of your real estate agent. He or she should know most of the lenders in town and can guide you to the best lender for your specific and personal situation.
Once you have received your pre-approval letter, you are done with your preparations, and you are ready for the most exciting step.
Step number five is going to be find your property. It all starts with getting access to your local MLS. Your real estate agent will set you up with the log-in so you can search on a pro tool, and you don’t have to waste a bunch of time by chasing some ghost listings that may or may not be available for sale.
I personally like starting out by critiquing properties online. My clients find a few properties that they like, we just jump on a quick zoom call and I we critique them together. I tell them what I find concerning or what I find negative on the properties and that usually helps very quickly with the learning curve.
The next part is going out and looking at listings in person. That is usually a little bit of a learning curve, and I have found out that the best way I can help clients with this is trying to identify the three best listings that are currently available online.
Then, we go out and we look at them in person, back to back. These three houses then become somewhat of a benchmark, a reference point, and we can compare future listings against these three benchmark/reference point properties.
It really helps because when you find the one property that you want to make an offer on, you have something to compare to and that gives you certainty, that gives you confidence in your decision-making.
Step number six is going to be making an offer.
So you found the one. You can tell, because the idea that somebody else may get this property before you will make you feel a little bit uneasy in your stomach. You found a keeper. So before you make an offer, we need to first understand what is fair market value in comparison to the asking price of the seller. We also need to have a sense of how strong the competition is.
How many offers are they expecting? Is it just our offer or are there going to be other offers we have to compete with? Those aren’t all factors and there’s quite a bit more that goes into putting a good strategy together and submitting your offer. If all goes well, the seller is going to accept your offer and then congratulations, you are now under contract on a property.
Step number seven is going to be your home inspection.
The home inspector is another very critical pick on your house hunting team. You want to have somebody who has a lot of experience inspecting homes and is also not afraid to answer any questions that you have, point out the problem, but also give you potential solutions to the problem.
Every home inspection will discover a lot of issues, hopefully only small ones, but the home inspection is done to make sure there’s nothing majorly wrong with the home that you’re about to purchase.
Let’s say the home inspection went well. They identified a few smaller issues and the seller is going to have them professionally repaired before the closing.
Now step number eight is going to be your appraisal. Your lender wants to make sure that you are not overpaying on the house, which they’re using as collateral for the loan, so they’re going to send out a licensed appraiser who is going to determine the market value of the property based on comparables. They want to make sure that you’re not overpaying for the house. It’s kind of a built in safety for you as a buyer.
So now we’re on the home stretch and step number nine is going to be getting ready for closing. This is something that your real estate team will coordinate for you. The closing here in Wisconsin usually takes place at the office of a title company. The job of the title company is to make sure that you are going to receive a clean title at closing and they’re going to provide you with the title insurance that insures you against any defects in the title. That’s another built in safeguard for the buyer here in Wisconsin.
With a successful closing and keys in hand, congratulations, you are now officially a homeowner and you have only one step left, which is going to be moving in. Feel free to lean on your realtor for any service providers and contractors that you may need in the process. They usually have an entire ecosystem of reliable people that they have worked with in the past and they’re happy to recommend.
This was just a very high level overview about the process of buying a home. If you’re interested in more information, we have an updated guide for home buyers which you can download for free.