Buying a Home: Overview

Interested in buying a house? Orient yourself to the steps ahead, from researching neighborhoods to closing the deal.

If you've decided to buy a house, you may be wondering where to begin — find a real estate agent? Go to open houses? You'll have to juggle a number of tasks simultaneously, ranging from the fun to the tedious. The preview below will alert you what's ahead and link you to other key information.

Step 1: Decide Which Community or Neighborhood You're Interested In

If you're already committed to a certain geographical area and know you can afford it, jump down to the next step.

Step 2: Get to Know the Local Housing Scene

Even before you're ready to choose a house, getting to know your local market is important — it may be very different from what you've read in the national or even regional media. Scanning the ads, both online and print, is a great way to start. Information from the Multiple Listing Service (MLS), which lists most houses for sale, is widely available on national and state real estate websites.

But ads can be misleading. Also visit open houses to see what's really available and at what list price. Visit a wide range of houses, noting the numbers of bedrooms and bathrooms, special features, and overall charm. If the seller has made pest or other inspection reports available, read them carefully, paying particular attention to the estimated cost of repairs.

Ask the agent how long the house has been on the market (a long time suggests that it's overpriced) or, if it's newly on view, how many offers are expected on the house (multiple bidders can drive up the list price, and vice versa).

Step 3: Decide What You Want in a House

Now that you've gotten a sense of what's out there, and possibly been hit with a reality check about what you can afford, it's time to draw up a list of criteria for the home you're looking for. Include both the obvious, like general location and number of bedrooms and bathrooms, but any other factors that are important to you, such as a view, an enclosed yard for pets, kids, or growing vegetables, a garage of a certain size, and so forth.

Step 4: Assemble Your Team of Professionals

Most people prefer to work with a real estate agent or a lawyer at some point in the process. (In fact, in a handful of U.S. states, a lawyer must be hired to help finalize the sale.) A mortgage broker can also be of great help in finding the right home loan.
Experienced, responsible professionals can save you time, money, and aggravation. By the same token, incompetent or unethical ones can mess matters up badly. Take the time to get referrals from friends, and meet with a few prospects before you hire anyone.

Step 5: Figure Out How You'll Pay for the House

Despite recent dips in the real estate market, the price of a house relative to the average U.S. income remains high. (Even if you buy a foreclosure, the cost of repairing it after months of neglect may be high!) So unless you're a statistical outlier, you'll probably have to save, scrounge, and borrow in order to afford your house.

There are three parts of the purchase that you'll need to prepare for: your down payment, your mortgage, and your closing costs. You'll most likely need to make a down payment of 20% or more of the purchase price in order to qualify for a loan and avoid paying private mortgage insurance (PMI).

You'll need to think about what you can afford to pay each month and how much uncertainty you're comfortable with when choosing a mortgage. The two main choices include fixed rate and adjustable rate ones. The better your credit rating, the more favorable a mortgage you'll be able to obtain.

Don't forget to factor in closing costs, too: the various fees you'll have to come up with on the day the property transfers, for things like the title or escrow company fees, your share of the year's property taxes, transfer fees and points on the mortgage, homeowners' and title insurance premiums, and so forth. These can add up to many thousands of dollars, often 2-4% of the purchase price.

Step 6: Offering to Buy the House You Want

Here's where you lay your cards on the table and present the seller with an offer to buy the house. The sellers or their real estate agent will usually require you to state your proposed purchase price, where you expect to obtain financing, what conditions or "contingencies" you're attaching to the offer, how quickly you're willing to close the deal, and more

Step 7: Dealing With the House's Physical Condition

Whether new or old, no house is in perfect condition. An important part of the homebuying process is finding out about the house's condition from the seller, investigating its condition on your own, and protecting yourself against problems that will arise in the future.

Many states' laws require sellers to tell you about many or most problems that they know of concerning the house — issues like leaks, termites, a faulty foundation, past water or fire damage, and more. No matter how informative your seller seems to be, you'll still want to have your own inspections done by at least one experienced professional — and for the sale to be contingent upon your approving the results. Neither the seller or the inspector can know everything about the house, however, problems could be lurking that they can't see, and new problems — or disasters — could arise later. For these, you'll need to buy homeowners' insurance. Your lender will most likely require proof of homeowner’s insurance before they will finalize your loan.

Step 8: Closing the Deal

After the purchase contract has been signed, events start moving very quickly. Your contract will normally contain a closing date, and all of your activities will be geared toward wrapping things up by then. You'll need to finalize your financing, review the home inspection and other reports, probably have the house appraised (most lenders require this), get title insurance, and more.

Stay focused on the big picture. Little issues will come up that need negotiating — for example, the inspection report may show a minor needed repair that you'd like the seller to pay for. If the seller refuses, he or she risks your calling off the deal. But, if you play hardball, you may lose the house over a few hundred dollars.

Republished and edited with permission – Nolo.com