Things they don’t teach you in school: How to buy a house
I scoured the Internet for a “how to” guide. This doesn’t really exist. It’s like a mythical rite of passage in which you must gather information from your family, friends who have already made the plunge and hopefully a good realtor. There is no easy “step by step” guide, that tells you what you need to do, what parties are involved and what fees you can expect to pay.
And so I have decided to capture my experience so that I might be able to bestow some knowledge and provide a little guidance for those who were just as lost as we once were.
Before you do anything, figure out what you want. Go to a few open houses (without intentions of buying). Get a feel for how these work. Remember, the realtor running the open house is working for the seller (not the buyer). While there may not be any conflict of interest, their primary concern is going to be getting their seller the best price.
Take lots of pictures. Knock on the foundation (if it sounds hollow, it’s not good!). Ask how old the roof is, how old the furnace/boiler is, the windows… etc. Don’t shy away from the questions because this is a massive investment and you’re going to hopefully live here for a long while!
Get yourself a realtor. Talk to friends who have purchased, and get a recommendation. Work with someone you can trust. At the end of the day, if the realtor isn’t for you, find another one. While not necessary to go in with a crystal clear list of what you want and what you can afford, having some idea is going to help. They will also walk you through the process – and you will feel a little less out of your element.
Mortgage prequalification and preapproval! If you live in a competitive market (like me), having these out of the way is going to make a difference. You can definitely go to your bank, but most likely they aren’t going to have the best interest rates (unless you bank with a credit union). Your realtor or again, your trusty friends, can probably make a recommendation.
Pre Qualification is easy. You submit what you make, have a credit score run and voila! But this isn’t guaranteed and is only a ballpark idea of what you can afford. Also, they will ask you what you want to spend. Put in the maximum amount that you are comfortable spending… because you will have to go back and get a new letter if you find something a little more expensive than your “what I would ideally like to spend but probably won’t be able to” price.
Next step is to start the pre-approval process, which means submitting literally your financial life. You’ll need a few years worth of tax returns and W2s, bank statements, retirement fund statements, pay stubs, etc. In some cases we were asked to even provide copies of checks we wrote to our landlord (front and back) for the last year. Be prepared to do a lot of digging and sharing.
Tip: And while you’re applying for a mortgage – don’t buy any big ticket items like appliances, furniture, car, etc. These should wait until after you’ve closed.
Tip: Don’t leave your job in the middle of house hunting. This could hurt your chance of getting a loan. Banks want to ensure that you’re stable. It’s a thing that makes them feel better about giving you hundreds of thousands of dollars.
Go visit houses with your realtor. More open houses! This can be the most trying part of the whole process. You see something you love, than there is something completely wrong with it (like the bedrooms won’t even fit twin beds). Or it gets swept out from underneath you. Or the 20 other people who are bidding for this property are willing to forgo an inspection. Or something. Bake cookies and bring them along with you. Try to find humor in some of the horrible places you’ll see (like the tiled floor to ceiling rooms in someone’s basement with shower heads and drains… murder rooms if you will).
You find something perfect! You’re ready to make an offer. If you are not already with your realtor, get in touch with them. They will be able to review the MLS listing, contact the seller’s agent and find out when offers are due. Your realtor will do a market analysis assessment so you can get a sense of what properties are going for in that area (and see list price vs. sale price). You can then determine your strategy and how much money you’d like to put down on the house. Your realtor will then put the offer in before the deadline. Then you must wait.
Step Five A
But while you’re waiting… make sure your mortgage broker is informed. Ask your realtor to introduce you to a real estate attorney (because you will need to procure one days after your offer is accepted) and look into setting up a home inspection.
Step Five B
Cross all your fingers and toes.
Step Five C
If someone puts in a better offer, or does something like wave the inspection (WTF!! Yes this a tactic and entirely possible it will happen), start again. Bring more cookies. Don’t stress. Be picky. Now is not the time to get desperate.
Your offer is accepted! Congratulations! Suddenly all of this information is flung at you… you need a real estate attorney, you need to find insurance, you need to secure a mortgage. Ahh! First off, if your realtor is good, they will provide you with recommendations. Within 24 hours, we were in touch with an attorney who helped us put together the Purchase & Sale. Our mortgage broker jumped into action and all that info you submitted for pre-approval is going to go a long way. Basically you’ll need to add in your most recent pay stubs and statements and you’re application is off for processing.
Step Six A
Your attorney will make suggested changes to the Purchase & Sale (also referred to as PNS or P&S). You can review and agree/disagree and they coordinate with the seller’s attorney to finalize. Once you come to an agreement, everyone signs the documents and you send a check to be put in escrow for half the amount of your down payment. Bye savings!
Step Six B
You are going to need an inspection. Work with your realtor, not the seller’s realtor, because you’re looking for someone who isn’t incentivized to “look the other way.” James and I did this a bit differently. To be competitive, we had the inspection done the day before offers were due so that we could “buy property as is” when we put in the offer. Luckily we picked a property that we could do this with, so there is definitely some risk here, but it’s an option.
Step Six C
To finalize a mortgage package, you’ll need a property appraisal. The mortgage broker should request this – but FYI in case this isn’t mentioned. The hope is that your appraisal comes in at the same price you offered (or more). If it comes in at under, then you’re paying too much. This could happen in today’s market (in Mass.) but we were lucky not to run into this issue.
Step Six D
In addition to the appraisal, you’re going to need insurance. We asked our mortgage broker for recommendations and sought out quotes. The quote is needed to finalize your mortgage application. If you live near the water, consider flood insurance. Depending on how far you are from the water, this is either required or optional. If there’s even a tiny chance of a flood, wouldn’t you prefer to have coverage?
Step Six E
Your mortgage broker will likely have a series of questions about how you’re paying for the remaining balance at closing. We did everything via checking + savings, but if you’re paying through 401k accounts or pensions, there will be further complications and I am definitely not qualified to speak to that!
Your mortgage is approved! You sign more documents. In Massachusetts there is a regulation that your appraisal must come in three days before closing. You have the right to waive that. In most cases, you’ll receive before, but just know it’s an option. If your appraisal comes within three days, it will definitely be in by closing.
Wait… and wait…. For closing day! A few things happen in between. Your insurance company must provide an insurance binder to your mortgage broker (usually the broker reaches out but may need you to) and the title needs to clear. Go to the bank and get a certified bank check for the amount due (your lawyer should be able to provide this information).
Closing Day! Before the house is officially yours, you will do a walk through with your realtor. This provides you with an opportunity to make sure the house wasn’t trashed in the time between the purchase and sale and closing day. We luckily had no issues, and were also given an opportunity to meet the sellers. Bring a list of questions – ask about preference for the vendors they used in the past (chimney sweeper, oil company, plumber, etc). They walked us around and showed us anything we might have questions on.
If all checks out on your walk through, head over to the lawyer’s offices to sign and initial your name about 50 times. (I’m not exaggerating!) In our case, we sadly weren’t able to pick up the keys until the following day, and this is apparently more common than not. That said, hold off on scheduling your movers until keys are in hand and paper is signed!
And that is it! Our house buying process was surprisingly easy and smooth. We had a GREAT realtor, easy to work with sellers and an amazing team of people who answered our questions and guided us through the process. It’s not easy, and can be incredibly stressful, which makes it even more important to have a rock star team on your side.
Questions? Just ask!