How To Buy a House in 2019: The Complete Guide

People researching the real estate market

Buying a home is a big life change with so much that goes into it.

It’s an exciting and sometimes exhausting time of wish lists for your home-to-be and learning about all your home buying options.

Doing your research before you buy a home will save you time and money.

You’ll have the confidence of being knowledgeable about one of the biggest purchases you’ll ever make.

There are so many details to the home buying process.

The goal is to get you in a house that’s affordable, fits your lifestyle, and is where you can see yourself living for the next few years.

Let’s guide you through the process and give you all the information you’ll need to make key decisions along the way.

This includes the reasons to buy a home, what financing options there are, how you begin your home search, should you use an iBuyer or a real estate agent?

And then there’s the offer, negotiating the purchase price, the paperwork you’ll need at closing and how to do your final walk-through of the home you’re buying.

There’s much to do but this will guide you through each step. It’s exciting to know that as you check things off your to do list, you’re getting ever closer to living in your new home!

Writing a to do list when buying a home

PART 1

Do Your Research Before Buying a Home

It’s easy to just jump right in and start looking at homes.

But what if you find the perfect one and you’re not prepared?

It’s disappointing to miss your dream home or worse, buy a home without doing your research and then regretting it. 19% of homeowners regretted their decision to buy their home because they rushed the decision to buy without evaluating all the options.

Let’s make sure that doesn’t happen to you.

Start by asking yourself – Should you buy a house?

Should You Buy A House?

It seems like a pretty basic question but it’s one of the most important questions you’ll ask yourself as you begin the homebuying process.

Are you at a place in life where it makes sense to buy a home instead of rent? If you plan on staying in the area the answer may be yes! If you can buy a home and pay less or the same as you would with a mortgage, it makes sense to invest in a home and build equity.

Do you need to upsize or downsize because your family’s needs have changed?

Buying a smaller home usually means less maintenance, lower monthly utilities and a lower mortgage.

Or maybe your millennial has moved back home, or you need to care for an aging parent and you suddenly need a bigger home for all of you to be happy.

When Should You Buy A House?

Investigate the Market

Timing is everything and in the housing market it means the difference not only on the front end of buying but it affects your net profit when you sell.

There’s an old saying, "You make money on your house when you buy it, not when you sell it."

What that means is if you buy your home in a buyers’ market, then you’ve made money on your house upfront because sellers are more willing to negotiate, and the prices are lower.

This is because there’s more competition to get you, as a buyer because there’s more homes for sale.

But if you buy at the peak of the market (a seller’s market), you’ll pay top dollar for your house and may get less if the market is not at another peak when you sell.

Do your research and see if it’s a seller’s market or a buyer’s market. A seller’s market means that there’s a shortage of available homes on the market and the seller can get more for their home.

If it’s a buyer’s market than, as a homebuyer, you’ll be able to dictate the terms in buying your home.

In a buyer’s market there are a lot of houses for sale which means the sellers have competition to sell their houses.

Home Buyers Market

In a buyer’s market negotiating hard for the best price is almost always to your advantage.

In a seller’s market you may need to pay the asking price or if someone else is bidding on the house, you may need to pay above asking price.

Misjudging the market or getting bad advice on what to offer a house seller can be painful.

Just ask those of us who have lost a home because they made an offer below asking price. And have someone else snatch up their dream home by offering full price.

That’s why it’s important that you know the house, the market and how much you want it before you get too far into the home buying process.

Another key question to ask yourself:

What House Can You Afford?

Yes, we all want better than what we can afford. But you’ll have to live with that monthly mortgage payment for 15 to 30 years and the property taxes that go along with it.

19% of homeowners in 2019 had regrets about their new home because their mortgage payments were too high.

17% said they paid too much for their home. 16% said their mortgage interest was too high.

That’s a high percentage of regrets all tied to home financing.

So, what can you do?

Give yourself some flexibility and buy less than what you can afford. So, when life happens, as it always does, and unexpected expenses come up, as they always do, you’ll be able to get through them without missing a mortgage payment.

The rule of thumb is to have at least 3 months of mortgage payments saved to get you through some not-so-good months.

6 months’ worth of mortgage payment savings is even better.

Also, it’s exciting to be in a new house and you want to make it a beautiful home right away. But hold off on buying all those new things or doing all the renovations now.

Why?

Because you’ve just made one of the biggest purchases you’ll make in your lifetime – your home. Live in your new home a for a bit. Let the financial dust settle.

Give yourself a little breathing room before you whip out your credit card or drain your checking account on all the “would be nice stuff” for your new home.

By living in your house for 6 months or more you’ll also discover what works well for you in your house and what doesn’t.

Give it a little time and you’ll make better decisions on what you want to improve in your new home.

Then there are the requirements when buying your home.

Requirements When Buying Your Home the Loan Application

The most important requirement is finding a way to pay for your home. This usually involves a lender. But you may be paying all cash for your home (lucky you!).

Or if you use the Knock Trade-In Program, you’ll sell your house to Knock and buy your new home through Knock.

Knock will finance your home, so you won’t need a traditional lender.

But most of us will need a loan to buy our home so let’s break down the requirements for financing your home:

1 You’ll need detailed paperwork of all your finances to give to your lender.

That includes your past addresses, employment information, you’ll have to verify your current income (usually a letter from your employer), your banking information including your accounts and balances of those accounts.

You’ll need to provide information on your debts: credit card statements and current loans.

2 Next you’ll need to prove to your lender that you have enough income to make your mortgage payments for the loan you’re applying for.

Each lender uses a formula called a Qualifying Ratio. They are between 26 to 29% of your gross monthly income. It depends on whether you’re applying for a government-backed loan such as a FHA or VA or if it’s a conventional loan.

3 Pay down your debt before you apply for a mortgage loan. The first thing a lender will do is pull your credit report. You must have a certain credit rating to qualify for different loans.

The more debt you have, the less house you’ll be able to buy. They look at your debt-to-income ratio.

These ratios range from around 33 to 41%. If you have long term debt, then it will impact what amount of mortgage you can qualify for.

4 Do you pay your debts on time?

Your lender will want to know how willing you are to pay off your debts.

And that goes back to your credit score which is a part of your credit report. Your credit report will show how many times you paid your payments on time.

The lender wants to see proof of consistent payments to your creditors. Check your credit report often and especially before you apply for a mortgage.

You can request a free credit report from the 3 national credit reporting agencies once a year so take advantage of it!

There are also online free credit reports that aren’t as accurate but give you a good idea of what your credit score is. NerdWallet is an online source.

5 You’ll need a down payment.

Putting money down lets the lender know that you’re committed to the mortgage you’re applying for.

For a conventional loan it’s a 20% down payment. If you apply for a government-backed loan you can get a down payment at 3.5% of less.

Know that if you put down less than 20% as a down payment, you’ll typically be required to pay mortgage insurance which is added to your monthly mortgage payment.

PART 2

Should You Get a Real Estate Agent?

How involved do you want to be in the tons of details that go into finding, buying and moving into a new home?

If you use a real estate agent they are paid by the seller, not the buyer so you are not paying their fee.

When to Use a Real Estate Agent

You’ll want to use a real estate agent if you feel more comfortable having a nearby consultant. You’ll interview real estate agents to find the best one for you.

They will walk you through the home buying process.

They’ll also be the face of the negotiations with the seller’s real estate agent.

If you buy a home through an iBuyer, then you’ll likely be assigned an account representative that will help you through the home buying process.

The iBuying process is much quicker with a buying model that’s meant to be time efficient and easier for the home buyer.

Realtors during home sale

Why an Agent?

Real estate agents have traditionally been the only way to sell or buy a home.

They know the market because they live in it. They also have connections and can advise you on mortgage lenders and contractors to do renovations after the sale.

The internet is changing this with iBuyers becoming a competitive source for buying or selling your home.

Do you research and learn more about iBuyers and how they can help you buy your home?

The iBuying process is much quicker with a buying model that’s meant to be time efficient and easier for the home buyer.

When Should You Consider an Agent?

You should consider an agent as you’re evaluating all the sources to buy a home.

It should be a part of your process to look at all the options you have when buying your home.

Find Yourself A Good Lender

Did you know that lenders are specialized just like doctors? Most people don’t know that and it’s important to go to a lender that specializes in properties and people like you.

Just as you interviewed real estate agents or iBuyers, you’ll need to interview mortgage lenders.

Some lenders specialize in first time homebuyers. Others specialize in those with lower incomes, those with poor credit, high income, rental properties and other areas.

What if you don’t want to get a loan?

What are your alternatives?

If you don’t want to get a loan, there are other options.

Pay in cash. Lucky you!

Paying in cash will save you a lot of money in financing charges. Plus, not having a monthly mortgage payment is the ultimate luxury.

Get a loan from your family who’s got the cash. You’ll still want to sign a loan document with them to make sure everyone is covered in case of a disagreement down the road.

Go to an iBuyer that provides financing. More and more iBuyers are providing financing. Knock’s program will buy your house and you can use that money to buy your next house.

People looking for financing for new home

PART 3

Home Loans and Approvals

Types of Home Loans

So you’ve decided to get a loan. How do you know what type of home loan to get?

There are so many loans to choose from. You’ll need to see if you qualify for certain loans.

If you’re a first time home buyer then there are government subsidized programs that will get you in a home with a much smaller down payment. If you qualify, there may be no down payment needed.

Your lender will have the answers you need but it’s good to do your own research.

Here are some options:

  • If you have good credit, then you’ll be able to get a traditional loan with a low interest rate. The worse your credit is, then the higher the interest rate. So, it’s important to do everything you can to increase your credit rating.
  • You may qualify for a government backed loan as a first-time homebuyer.
  • You may be eligible for a USDA loan. USDA loans are for rural areas, but they often include suburbs so check the USDA eligibility map to see if your home location qualifies.
  • If you are a veteran, you may qualify for a VA loan where you get 100% financing with no money down.
  • You will not pay mortgage insurance, but you will pay a VA Funding fee of 2.5% which will be rolled into the mortgage.

Growing interest rate

What if you have a low income or are a first-time homebuyer?

Let’s define what First Time Home Buyers are.

They’re not just people who’ve bought their first home.

A first-time homebuyer is defined as someone who has not purchased a home within 3 years.

That’s great because there are so many government backed loan programs for low income and first time homebuyers.

Here’s a list of those types of loans:

  • HomeReady is a Fannie Mae home mortgage program with low down payments and low credit requirements. Home Possible is another Fannie Mae low income home program.
  • Fannie Mae loans or Freddie Mac loans have a 3% down payment for conventional mortgages and are make for first-time homebuyers who have good credit, with a minimum credit score of 620, but little down payment.
  • Good Neighbor Next Door will give you up to 50% of the home purchase price.
  • Habitat for Humanity builds houses for low income people.
  • Dollar Homes are owned by the FHA because owners defaulted on their mortgages are available at deeply discounted prices.

Need more choices?

  • FHA loans are government backed loans for first time homebuyers. There are also local city and state grants for first time homebuyers with restrictions on income levels.
  • These loans require 3 percent down for conventional mortgages making them ideal for first-time buyers who have strong credit but little savings for a down payment.
  • VA loans for veterans are the best loans. They have minimal closing costs; the lowest interest rates and no down payment is needed. There is a funding fee required.
  • Native American Direct Loans are loans for eligible Native American veterans who want to buy a home on federal trust land.
  • With a NADI there’s no down payment or private mortgage insurance. There is a funding fee of 1.25% to the VA.
  • An Energy-efficient mortgage is backed by FHA or VA loan programs. It’s a way to encourage homeowners to do energy-efficient upgrades to their homes.
  • You roll the energy-efficient upgrades into the mortgage without a larger down payment.
  • FHA Section 203(k) loan is a loan from the FHA that allows you to borrow the money you need for home improvement projects and add those to your primary mortgage.
  • Eagle Home Loans give home buyers with student debt up to $13,000 to pay off their student loans.

Pre-approval

Should you get a pre-approved loan?

Yes! And here’s why:

Going to your lender first is one of the best moves you can make in buying a home. Your lender will tell you what price house you qualify for.

That’s important because it means you’ll know the price range of houses you can afford.

And what if you find your perfect home right away but you don’t have financing?

Then most likely it’s sold to someone else before you could put an offer on it because you haven’t got your financing in place.

Lender financing home buyer

You can put an offer on the house, but it will be contingent on you getting financing. Home sellers are nervous about a buyer who doesn’t yet have financing.

If you are going through a lender to buy a home, then your first step is to get your financing act together.

If you’re in an iBuyer situation like a Knock Trade-In. You’ll use your old home to buy your new home through them and they’ll provide the financing.

So now that you have your financing in place it’s time to search for a home.

PART 4

Home Searching

Home searching has never been faster or easier. Gone are the days of driving around your favorite neighborhoods hoping to spot a for sale sign.

Then asking your realtor to call the listing agent or homeowner to let you tour the house before someone else does.

Going online to search for homes in the comfort of your own home makes finding and researching homes a breeze.

But there are so many options. Where do you begin?

Know your options and narrow them down.

There are so many types of houses to choose from. And there are so many questions to ask yourself as you put together your list of “must haves” for the house you want to find and buy.

1 The first thing you’ll want to do is narrow your search down by the price of the house. But there’s more things you’ll need to consider.

2 Where do you want to live? Which Neighborhoods? Near what schools? What’s your commute time to work? How far away from family are you willing to be?

3 What do you want your home’s style to be? You’ll find that you automatically like a certain style home.Maybe it is the clean lines of the midcentury modern homes you were brought up in.

A craftsman bungalow may be the perfect cozy place for you. Or does a Mediterranean or Modern style house make your heart skip a beat? There are so many options so it’s up to your taste, style and way that you envision yourself living.

4 What do you want your home’s structure to be? How many bedrooms and bathrooms do you need? How many square feet in size do you need? Do you want a pool? A detached or attached garage? How big or small do you need your backyard to be? How close are your neighbor’s homes?

Making a list of these "must haves" will narrow down your home search even more.

And now that you have a clear idea of what you want. It’s time to look at homes online and find some to visit.

Status of the homes

What’s the status of the homes you’re interested in visiting?

Your realtor or an iBuyer will give you information on the status of the homes you’re looking at.

You’ll see if they’re under contract (which means they’ve already accepted an offer and are under a contractual obligation to sell the house to that prospective buyer).

People negotiating house sale

You’ll find out how long the home has been on the market.

Has the home been reduced in price?

That signals that the homeowners are willing to negotiate the price lower for a quicker home sale.

You’ll also want to look at the history of what the home sold for every time it was placed on the real estate market to be sold.

That gives you a good idea of what and when renovations were done to the home to justify a big jump in price in the home’s price history.

It also tells you the market value of the home at different times in the home’s history

Do previews of the homes

So, you’ve narrowed your home search down and it’s time to see what they look like in person!

This can be either really exciting or maybe a disappointment.

We all know that photos are staged and shot in a way that makes the home look the best it can be. That special photo lens or the light at a certain time of day can make a house look amazing.

But what does the home look like in person?

You’ll know it’s one you like when you get excited about the details of the home. It’s an instant attraction or it’s not.

If you can’t stop thinking about the home after you visit it then that’s a good sign that you really like and want that home.

PART 5

Pick Your Ideal Home

Home buyer picking his home

In choosing your ideal house it’s also a question of what makes you feel happy?

You know it when you see it. Whether it’s Mid Century Modern with clean 1960’s lines, Bungalow Arts & Crafts style with gorgeous wood and stained-glass details, stylish Modern or a contemporary Mediterranean house with high ceilings and lots of light.

Next, does the house check all the boxes on your “must have” list? What other houses have the same amenities?

Have you looked at those houses to compare them to the one you like best?

Get to know the house. Visit the house several times at different times of the day. You’ll see the different light in the house during different times.

You’ll notice the noise and street traffic or lack of it.

Talk to neighbors and ask them about the neighborhood.

Get a feel for how good of a neighbor they’ll be if you live next door to them.

Remember, the more you research the house you want to buy, the more prepared you’ll be to live in it with no regrets.

An ideal house

Pick what fits you best.

Make a carefully thought out list of what you’re gaining and what you may be giving up and study it.

Remember there is no perfect house unless you’re building your custom home or have millions of dollars to spend on one.

You may have to compromise on some things to gain other things on your home wish list that are more important.

Make sure what you gain will be much more than what you may have to give up.

Know that buying a house is an emotional decision as well as a practical decision. So, step back and think about how you’ll feel in the home in a few years.

If it’s good, then you’re well on your way to a great relationship with your new home.

So you’ve found the house you want to buy. You’ve done your research on the home to uncover every detail you can to learn more about it.

You think it’s the home for you?

Now it’s time to make your offer.

PART 6

Make Your Offer

As you decide what you’ll offer to buy the home for, make sure it’s a fair price. Otherwise you’ll be wasting your time and the home seller’s time.

You’ve looked at homes and sales in the market and in the neighborhood. You’ve done or been given a comparative market analysis, so you know what the home prices are.

Making an offer agreement

Your financing is in place and you have the down payment ready.

Give yourself enough time to transfer any funds you’ll need so you won’t run out of time and need o push back your closing.

You’ll need to have a deposit for the home ready. It’s usually 1 to 3% of the purchase price but can be higher.

Look over the offer agreement carefully.

Especially the deposit money details, including the deposition of the money upon acceptance or rejection of the offer you make.

Negotiate

This is a time to negotiate with the seller to have them pay some of the closing costs or prepaid expenses such as taxes.

Make sure you know as much as you can about the seller.

Do they need a quick closing? Do they need longer to move? What are their circumstances that are motivating them to sell?

The more you know, the more you can tailor your offer to the sellers which means you’ll get your offer accepted quicker.

If it’s a hot market and the competition for available houses is big, consider writing a personal letter to the seller.

People negotiating at closing

By personalizing your offer, you are trying to create a connection with the seller. They’ll know you as a person and that could help persuade them to pay attention to your offer.

It is a seller’s market and they are less likely to make major repairs. Ask for a credit at closing so you can hire your own contractors and get the repairs done.

In a hot market some buyers will have an inspection done before making an offer. That way they can make a cleaner offer with less contingencies.

Remember, you can always ask and while you won’t get all the things you negotiate for, you’ll get some of them.

You’ve signed. Now what?

Once the offer is accepted it’s time to research the title of the home you’re purchasing.

As a buyer, you’ll have a title company research the chain of ownership.

During the title search you’ll discover if anyone has any claim to the property. If there are no claims to the property, then the home will have clear title.

The only guarantee of clear title is to buy title insurance which most lenders require.

PART 7

Get Home Insurance

Lenders require that the homeowner take out home insurance.

Why?

Because the lender needs to protect their investment in case something happens to the home while there is a mortgage on it.

You don’t have to insure your new home until closing but it’s best to get a policy early.

Most sales contracts are contingent on the house being insurable, so you’ll want to make sure it is before you get too far along in the buying process.

How much does home insurance cost?

The national average cost for home insurance is $1,192.

Know that the cost changes per year and historically has gone up between 1 and 6%.

Home protected by insurance company

PART 8

The Closing Process

You’re almost there. The final step in buying your home!

A lot needs to take place before the closing to ensure a smooth closing.

Let’s go through what a closing is and what you’ll need.

A closing is also called a settlement or an escrow. An escrow is a contract where a 3rd party holds onto the earnest money and paperwork until the house officially is yours.

In other words, the Escrow company makes sure that all the right paperwork is done and recorded before any money is transferred.

Escrow supporting home buyer

Escrows are a good thing and protect you as the buyer.

If you do a final walk-through of your home and find that a repair wasn’t made, then the seller had to make the repair before the closing.

Escrows also protect the seller of the home. If the buyer backs out of the sale without a good reason, then the seller keeps the buyer’s earnest money.

That’s a significant amount of money at 1 to 2% of the home’s price.

1 Study your HUD-1 settlement statement carefully and really understand all the details of it.

This is critical because it will spell out your mortgage payment, your loan’s terms, your closing fees (usually 2 to 7% of the home price).

Compare this to your loan statement which your mortgage company gives you when you are approved for a loan.

They should be similar. If they don’t match, then talk to your lender and ask them for an explanation.

You’ll get your TRID (stands for TILA-RESPA Integrated Disclosure) three days before you close.

This will give you time to read and understand what you’ll be closing on.

At the closing there will be a Title Clearance. This is a title search of public records to make sure there are no liens against the property you’re buying.

Don’t worry, your Escrow Company understands all the paperwork you need and will walk you through it!

Do a final walk-through of the home you’re buying. This is usually done 24-hours before closing.

This is your final chance to make sure that any repairs that you’ve asked for have been made.

Use this time to carefully check over your home-to-be!

Make sure that any furniture or other things you’ve negotiated to be in the house as a part of the sale are there.

It’s not uncommon to request in the sales negotiations an item that you like in the home.

It may be a rug that fits the living room perfectly or a bench that’s perfect for the home’s backyard.

It never hurts to ask and most home sellers will sell or give it to you with the sale of their home.

2 Bring all your paperwork to the closing.

  • Home inspection reports.
  • A government-issued photo ID (make sure it has the correct last name if you’ve recently married).
  • A copy of your contract with the seller.
  • Anything the bank required to give you your loan.
  • Proof of homeowner’s insurance.

Closing down payment

3 Bring your down payment

Ask prior to the closing how they’ll want the down payment.

Do they want a cashier’s check or a wire transfer?

Bring your checkbook for small fees that may happen at closing.

Home Inspection

A home inspection is required by most lenders and it makes sense that they require it.

Why?

The lender is letting you borrow money for an asset.

They must make sure the home value is the same or more than the amount they’re lending you.

You’ll have a certified home inspector come to the home.

Inspecting home before closing

They will assess the structure, mechanicals, including plumbing, electric, HVAC.

They’ll give you a report that details what they’ve found in their inspection.

It’s like “pulling back the curtain” so you can see beyond the way the home looks.

These inspections are very important because they’ll alert you to any surprise costs due to repairs.

Renegotiate!

What if there are problems with the house?

You have an opportunity to get the seller to fix the problem with the house.

You can also renegotiate to take the cost to repair the problem from the selling price of the house.

After the home is inspected, you’ll negotiate with the seller to fix any problems.

When you go on your final walk-through inspection, you’ll be able to see if those problems were fixed.

This is your time to carefully inspect everything in the home so take it very seriously and take your time.

Let the seller know of any problems so that they have an opportunity to fix them.

People renegotiating terms of sale

PART 9

Finally, Move In

To get here you’ve gone through bins and boxes of family memories, papers you’ve not looked at in 5 years, old toys and treasures.

You’ve sorted and carefully packed and now it’s time to unpack them all.

You’ll forget the tedious work and nervousness of the home buying process.

Once you close your new front door, look around with a smile and amazement that this has really happened, and realize that you made this dream come true!

Simply put.

Home is a place where hearts are shared, the funniest moments created, and the sweet family memories and stories never forgotten.

We all remember our childhood home, our first apartment, our best home ever.

A home is, after all, more than a shelter. It’s a place where we find our interests and passions, clear our minds and follow our hearts.

It’s home.

Home buyer moving in newly bought house