Buying a Home—Overview

Step 1: Confirm That You Wouldn't Be Better Off Staying Put
Homeownership can be great, but it isn't for everyone, or at least not at this point in their lives. Unless you really can't stand your apartment or landlord, start by asking yourself whether your lifestyle and finances aren't better suited to continuing to rent for now.

Step 2: 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. However, if you're moving to a different state or you have an inkling that your ideal neighborhood might be out of your financial reach.

Step 3: 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 such as www.realtor.com and www.trulia.com.

But ads can be misleading. You should 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 4: 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 not only 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.

Have you decided whether you're more interested in buying an existing home or a newly built home? Don't rush out and visit them without an agent at your side or you may find you've already impliedly agreed to forego an agent's help.)

Step 5: 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 6: 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 7: Choose the House You Want
This is where many buyers falter -- they look and look, but can't commit, don't like the options in their price range, or, in the case of couples, can't agree on which house is the one. Being choosy is wise, to a point. Only you know what compromises you can live with. But, if you see that months are going by and no house ever seems right, it might be time to figure out what's going on at a deeper level.

Step 8: Offer to Buy the House You Want
Here's where you lay your cards on the table and present the seller with a written offer to buy the house. (Most states have standard contract forms that you or your real estate agent can use for this purpose and, in many cases, can be readily converted into a signed contract.) The standard offer form 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. (But this isn't true in all states -- some require only a very basic offer stating what price you're willing to pay, after which the seller does most of the contract drafting.)

Step 9: Deal With the House's Physical Condition
Whether new or old, no house is in perfect condition. An important part of the home-buying 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 and other pests, a faulty foundation, neighborhood noise, 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.

Also, when you yourself visit the house, don't just admire the views or the furniture and neglect to look for problems or signs of deferred maintenance. Examples you can spot yourself include cracked glass or tiles, stains from moisture damage, crumbling grout material between tiles, windows and doors that don't close properly, and so forth.

Neither the seller nor the inspector can know everything about the house, however. Problems could be lurking that neither they nor you can see, and new problems -- or disasters -- could arise later. For these, you'll need to buy homeowners' insurance.

Step 10: Decide How You'll Take Title
Unless you're buying solo, you'll need to decide whose name should go on the ownership papers and with what rights if one of you leaves or dies.

Step 11: Close 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 -- but the results can cause hiccups in the process), 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.

On the closing day, you probably won't meet with the seller in person. More likely you'll go to the office of your title agent, escrow agent, or attorney to sign the final documents and pick up the keys. Then they'll record the new deed in your name at a local government office, and the house is yours!

So that's the quick preview. But, to be a savvy buyer, you'll want to learn a lot more, as well as avoid the mistakes that others make.