10 steps to buying a house

10 steps to buying a house

Hi, my name is Alex Keyes, #artistrealtor, and this is A Home in Seattle, a real estate project that breaks down what it takes to make a home for yourself in Seattle. As a realtor, I talk to a lot of people wondering how to get started when thinking about buying a house. And let’s face it, there’s a lot of questions to think about: 

How will I pay off a mortgage? 

What should I look for in a home?

And how the heck do you negotiate? 

While this all may be new to you, it’s not as complicated as it seems. So I wanted to go over a simple list of 10 steps to follow when buying a home.

1. Review costs

Before you get started, it’s important to understand the costs associated with buying a house, and there are a few. Everyone’s situation will be different, but here are some good estimates:

You will always have lender fees that your mortgage company charges for opening up a loan, usually quoted at a certain percentage of the loan. Budget about ½% of your purchase price. 

A home inspection can cost anywhere between $250 and $600 depending on the size of the home.

You’re going to need to put down earnest money when you write an offer, which acts as a security deposit on your contract. This isn’t anything extra and it will go towards all the other costs when you close on the house. But it insures the seller because if you back out of your purchase contract without just cause, you lose your earnest money.

You can expect to pay somewhere between ½% and 1% of the purchase price for closing costs. 

And since real estate broker commissions are usually covered by the seller, you don’t have to pay for a high quality experienced broker like me!

2.Down Payment

Next, you’ll have to save for a down payment, which is at a minimum 3% of your purchase price. If you save up any down payment that’s under 20%, you can still buy a house but you carry what is called Private Mortgage Insurance, a monthly insurance cost that covers the lender if you default on your loan. This amount varies, but you can expect ½% percentage point of the loan spread out over the year.

Now that you know all the costs, let’s run an example minimum cost to purchase on a $500,000 house. These numbers come from recent clients of mine and are totally real. 

3% down payment of 500,000 is $15,000

½% in lender fees is $2,500

Home inspection cost is $400

Closing costs work out to about $2,500

In total, you will need at minimum $20,400 in your bank to buy a $500,000 house. And this will cost you $2,900 a month inclusive of PMI, property taxes, and home insurance. 

3. Get underwritten

Before you seriously step foot in an open house or call a broker, know your options. Apply for a loan and fill out all the paperwork. It’s totally free with no obligations and it will give you a range that lets you know how much you can afford and makes your financing situation very attractive to a home seller.

But if you are looking in a competitive market like Seattle, getting pre approved before looking isn’t always enough. You also need a lender on your side who can take you a step further by getting you fully underwritten and has experience winning multiple offer situations. You’re high quality, experienced realtor can offer recommendations for you.

4. Develop a plan

Next, come up with your priorities. I like to talk to my clients about focusing on price, condition, or location, because you probably won’t get your ideal in all three categories.

If getting an affordable home is the most important thing to you, you might have to increase your commute and move to the suburbs or think about some creative strategies like a live in flip, buying as tenants in common with friends or family, house hacking, or something else that works for you.

My wife and I bought a house about a year ago for what is called a live flip. 

Right now it’s a major construction zone because we first added an apartment downstairs and are now renovating upstairs, all while living there. This gave us the option to buy an affordable project house and sell it later for profit which we can use to move into our dream neighborhood.  

On the other hand, if you want to live in the middle of the hustle and bustle and have a walkable lifestyle, you will pay for it. It’s all a compromise, but as long as you know that the perfect house doesn’t exist without putting some work in and making it your own, you’ll be alright. 

5. Look at homes

When you think of house hunting, you probably go straight to Redfin or Zillow and start searching online. But those companies get all their data from something called the Multiple Listing Service, usually referred to as the MLS. Redfin and Zillow are easy to use and great for checking while procrastinating at work, but they’re not always up to date or even accurate! 

Instead, you need to work with a real estate broker who can get you access straight from the source and set up a portal into the MLS. 

6. Submit an offer

There are so many things to cover about submitting an offer that I won’t go into too much here. 

Washington State requirements make the standard paperwork at least 45 pages, and it could easily be more. Basically, it boils down to how much do you want to pay for the house, and how many “outs”, or contingencies, do you want to have if you change your mind or something catastrophic happens (like losing your job).

7. Negotiation

Once an offer has been submitted, real estate agents confer with their clients and start the process of negotiation. There are a lot of strategies that people use depending on how much risk they want to take. You can offer a low price knowing that you’ll have to come up a little or You can offer concessions other than price like a quick closing or no contingencies. It’s a give and take process. 

Once you and the seller agree on all the terms of the offer, we call it mutual acceptance. At this point you are in a legally binding contract and if you back out without using a contingency, you have to forfeit your earnest money. 

8. Inspection period

When things get really busy in the housing market, homes sell in just a few days and people often waive inspections. This is because an inspection contingency is one of those outs we talked about, and it’s a big one. You can use this 5-10 day period to back out of the purchase for pretty much any reason. 

You don’t like the commute, you smell something funny in the basement, or the deck is about to collapse. 

Inspections are important though, and if you can get away with it, I would recommend either having an experienced eye with you during house hunting, or getting a pre inspection done before submitting an offer. 

9. Appraisal

One of the most nerve wracking steps is having an appraiser go through the house making sure it’s worth what you want to pay for it. This is one of the biggest hurdles in a hot market. People start bidding wars using escalation clauses and end up overpaying for a house, then their mortgage provider won’t give them enough money to cover the purchase. When this happens, you have to either make up the difference with cash, or try and renegotiate the purchase price with the seller. 

10. Closing

The title and escrow company takes over at this point, recording all paperwork with the courthouse, transfers ownership to you, and moves money around from your mortgage company to the seller and any other lien holders. 

In Seattle, during the busy house buying season, I always try and write offers with a 2 week closing to be more competitive, that means from the date of mutual to the day of moving in, you have two weeks do everything else. 

10 ½. What Next?

And finally, you move in! On the day of closing, paperwork usually goes through in the afternoon, but you don’t technically get possession of your keys until 9pm. But then the house is yours! And that’s 10 steps to buying a house! Once you start looking at houses, you’ll start to notice that no house is in mint condition. There’s going to be the inevitable leaky faucet or broken screen door. Don’t forget to have a little money (and time) set aside to repair those issues after you’re moved in…

Stay tuned for more home buying tips and neighborhood tours from A Home in Seattle. And if you’re interested in buying a house, send me a message and let’s chat on how to get started. Bye!

Neighborhood Tour: Ballard

Neighborhood Tour: Ballard