A Checklist for Looking at Houses
Reader question: "We are hoping to buy a home in 2011, and we've started looking at houses online. We live in an area where there are tons of properties for sale. It's a little overwhelming. What's the best way to narrow the field? What are the most important considerations when looking for a house to buy?"
There are many ways to go about it. But you can waste a lot of time if you put the steps in the wrong order. The smartest way to move forward is by starting with your budget. Next, you should get pre-approved by a lender to find out what kind of mortgage loan you can get. These two steps will prevent you from looking at houses you can't afford (i.e., wasting time).
Assumptions: I'm assuming a couple of things with this checklist. First, it assumes that you have saved enough money for your down payment and closing costs. I'll also assume that you've checked your credit reports and scores. These are preliminary steps you should complete before looking for a house to buy.
If you're ready to move forward and look for the right home, you can follow the recommended steps below.
1. Identify your financial comfort zone.
Pop quiz. How much can you comfortably afford to spend each month, toward a mortgage payment? If you can't answer this question, you're not ready to look at houses. Don't expect a lender to tell you this either. That's not their responsibility. Sure, the lender will tell you how much of a mortgage you can get. But this number is different from your own budget.
Learn more about mortgage affordability.
2. Get pre-approved for a mortgage loan.
Once you've established your own spending limit, you're ready to get pre-approved by a mortgage lender. This is where the lender examines your credit score, debt level and income situation to determine (A) if you're qualified for a loan, and (B) how much you're qualified to borrow. What does this have to do with looking at houses you ask? Plenty. Looking for a home to buy before you know what you can borrow is backward.
Learn more about the pre-approval process.
3. Find a good real estate agent.
It's always a good idea to use a real estate agent when buying a home. This is especially true when you're a first-time buyer, or if you're moving to a new area. Remember, the seller typically pays for the buyer agent's commission. So why wouldn't you use one?
When it comes to looking at houses, agents can help you in several ways. It's another set of eyes, for one thing. You'll be more likely to find the right home if you have more people searching. Real estate agents also have access to the Multiple Listing Service, or MLS. This is a huge database of homes that are for sale. Some of the properties listed on the MLS never even make it onto Realtor.com, Trulia.com and similar websites. So you want to cover your bases by using an agent when looking for a house to buy.
4. Identify your favorite neighborhoods / areas.
Did you know that home prices can vary from one neighborhood to the next, even when the houses themselves are very similar? It's true. Schools have a lot to do with this. Appearances, reputations and HOAs play a role too. Some areas are just more desirable than others. This not only affects the prices of homes, but the resale potential as well.
If you're buying a home in a place where you've lived for several years, you probably already have some neighborhoods or areas in mind. If you're buying in a new city you're not familiar with, you'll have to rely more on your agent. Be sure to tell your agent about the kind of area where you'd like to live, not just the kind of house.
If you start looking at houses before you've identified some target areas, you'll be all over the map. Literally. Your house-hunting process won't be very efficient either. It's okay to cast your net far and wide at first, when your viewing homes online. This will help you identify the areas that meet your budget and your needs. But when it comes time for the actual house hunting, you'll want to have a short list of neighborhoods or subdivisions.
5. Make a list of needs versus wants.
Your real estate agent needs to know your minimum requirements for a house. This will probably include the number of bedrooms and bathrooms, as well as the minimum square footage. But there will also be certain features you want but don't necessarily need.
For example, maybe you want to find a house that has green space behind it (instead of a third neighbor). But you'd be willing to bend on this if you found the ideal house. That's the difference between needs and wants when looking for a house to buy.
This is an important distinction we will revisit later on. For now, just put these items on paper and share it with your real estate agent. It will make your house-hunting process much more efficient.
6. Start looking at houses online.
If you haven't done so already, start viewing homes online. There are three websites I recommend using for this purpose -- Realtor.com, Zillow.com and Trulia.com. If you're up for the "adventure" of buying a foreclosure home, you should add RealtyTrac.com to the list. This website gives you access to pre-foreclosure listings, pending auctions, and bank-owned homes for sale in your area.
Looking at houses online helps you in several ways. First, it helps you set realistic expectations. Maybe you have it in your head that you'll be buying a home with 2,500 square feet, at a minimum. But then you go online and find out that most homes that size are out of your price range. It can be an eye opener.
You can also get a feel for your local real estate market by viewing properties online. Pay attention to homes that were sold in the area recently. Obviously, these are not homes that you can buy. But it will give you some insight into what people are paying for homes. This kind of research will be invaluable later on, when you're ready to make an offer on a particular house.
7. Make a short list of homes to see.
By this point, you should be building a list of homes you want to see. There's not much to say about this step in the process. I've included it just so you can keep the big picture in mind. If you've followed the prescribed steps up to this point, you should have a list of houses that...
- Fall within your personal budget
- Fall within the pre-approval amount
- Meet your minimum requirements for size and # of rooms
- Are located in an area that appeals to you
Armed with this list of candidates, you're ready to start looking at houses in person! This is the most exciting part of the process.
8. Visit potential homes to evaluate them.
Make sure you bring your list of needs and wants, when you start visiting properties for sale. Better yet, print a sheet for each house and use it as a checklist. Write the property address at the top of the page, and make notes about the pros and cons of the home. This will be a huge help later on, when you start zeroing in on a handful of contenders.
When visiting homes, you should be looking at more than the properties themselves. You should be looking at the neighborhoods and surrounding areas. Are they well maintained or run down? Is there a lot of traffic? How far is it from where you work? Is there shopping nearby? Does the house back up to a busy street? Remember, when you buy a house, you are buying into the surround area as well.
9. Focus on the features you can't change.
Have you ever watched the show House Hunters on HGTV? I always marvel at the people who obsess over the color of paint on the walls. Who cares about the colors! You can change that in a single afternoon. Forget about the wallpaper, the kitchen lighting and the general décor. These things can all be easily changed.
When looking at houses, you need to focus on the features cannot be changed. This includes:
- The size of the home. Sure, you can build an addition to the house. But it's probably not in your budget right after buying the place.
- The location of the home. Barring any Wizard-of-Oz-style tornados, there's no way to change the location of the property. So you better make sure you're happy with it.
- The neighborhood.
- The architectural style of the home.
- Distance to work, school and shopping.
- The quality of local schools.
- HOA restrictions, if there is a homeowners association.
The items above cannot be changed very easily -- or at all. So they're the most important things you should consider when you evaluate homes. You can repaint the walls any color you want. You can change the window treatments. You can update the light fixtures, bathroom faucets and cabinets. Focus on the things you can't change.
10. Evaluate the asking price by looking at comps.
So you found the ideal house, and you're ready to make an offer on it. What next? Now you need to evaluate the seller's asking price. Some homeowners price their homes realistically, based on recent sales trends. Others will set the price based on what they need to get out of the deal (to pay off their mortgage balance). And some homeowners seem to pull numbers out of thin air.
This is outside the scope of looking for a house to buy. But it's a good place to end this article -- and a great place to continue your research. You can use recent sales data to evaluate the price and support your offer. Here's how to make a smart offer.