How to Buy a House in 2011 - Consumer Research Center

Current and comprehensive advice on how to buy a house -- the right way.

The recent housing crisis taught us that first-time home buyers need to be better educated before taking the plunge. For instance, there were more home foreclosures in 2009 than any other year on record. Many of these could have been avoided, if people had simply done more research in advance. That's where this guide comes into the picture. The lessons below will teach you how to buy a house the right way, through proper research and planning.

Methodology: Each week, the Home Buying Institute receives dozens of emails from home buyers. Many of these emails ask the same questions, repeatedly. You'll find answers to these frequently asked questions below. We have also included some lesser-known topics that are vital to your success. In other words, this guide tells you what you want to know, and what we feel you need to know.

Step 1 - Analyze Your Credit

Many first-time home buyers fail to realize the importance of having good credit. Make no mistake about it -- a bad credit score can ruin your chances of getting a mortgage loan. In fact, it's one of the first things a lender will check, after you submit your loan application.

Specifically, there are two things you need to do at this stage of the game. You need to review your credit reports, to ensure there are no errors on them. And you also need to check your credit score, to see where you stand. These steps should be done early on in the process, which is why they are listed here. 

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Step 2 - Establish Your Budget

True or false. A mortgage lender can tell you how much you can afford to pay each month toward a mortgage. The answer is false. That's not their job or their responsibility -- it's yours.

The only thing a lender can tell you is how much they're willing to lend you, and what kind of interest rate you can get. The budgeting part is up to you.

Remember, this is a tutorial on how to buy a house the right way. If you want to avoid the costly mistakes that so many first-time buyers make, you need to start by putting a budget on paper. This will prevent you from overspending and becoming "house poor."

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Step 3 - Save Money for Your Housing Costs

Most home buyers are surprised by the total costs they encounter along the way. Loan application fees, down payments, home inspections, homeowners insurance -- these things can add up quickly.

In addition, most lenders will want you to have a "cash cushion" to help cover your first few mortgage payments. They even check your bank statements to verify this, most of the time.

What does this mean to you? It means you should start saving money early on in the process. The more you can save now, the better off you'll be later on.

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Step 4 - Learn About Mortgage Loans

Any lesson on how to buy a house must include a thorough discussion of mortgage loans. After all, this is where a lot of first-time buyers get themselves into trouble.

In this context, there are several things you need to research. First, you need to understand the different types of mortgage loans and how they work. You should also study the pros and cons associated with each loan, so you can choose the best one for your particular situation.

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Step 5 - Create Your Housing Profile

Continuing our lesson on how to buy a house, we need to talk about your housing profile. How much are you willing to spend for a house? How many bedrooms and bathrooms do you need? Which neighborhoods are you considering? How many square feet, at a minimum? Master bedroom upstairs or down?

What about lot size? Proximity to work, school and shopping? What things can you live without, and what do you truly need?

These are questions you should be asking yourself, long before you start house hunting. This is your "housing profile," and it will help you limit your search to those properties that best meet your needs. You can save yourself (and your agent) a lot of time by putting these items on paper.

If you can give your agent a document that specifies exactly what you're looking for, he or she will have an easier time finding it. This step also forces you to ask a lot of tough but important questions -- questions that need to be answered before you can start house hunting.

Step 6 - Get Pre-approved for a Mortgage Loan

Pre-approval is when a mortgage lender reviews your financial situation and tells you how much they are willing to lend you. They'll look at things like your credit score, your debt to income ratio, and other factors.

This helps you in several ways. First, it can help you identify any problems that might prevent you from getting a loan (bad credit, insufficient income, too much debt, etc.). Sellers will also take you more seriously, since you've already been reviewed and pre-approved by a lender. Pre-approval does not guarantee you'll actually get the loan. But it's a good sign.

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Step 7 - Hire a Real Estate Agent

If this is your first time buying a house, you really should have professional help. This means hiring a real estate agent who is familiar with the area where you want to buy.

Your agent can help you with many aspects of the buying process -- house hunting, paperwork, market research, making the offer, negotiations and more.

Most importantly, they can help you avoid some of the costly mistakes that first-time buyers often make. A veteran agent will know how to buy a house the right way, and you can't put a price tag on this kind of experience.

Bear in mind that all agents are not created equally. It's like any other profession in that regard -- there are some good ones, and some bad ones. The best way to find a competent professional is by getting a referral from a friend or family member. But you can also learn a lot about agents in your area by checking them out online (especially if they publish a real estate blog with frequent updates).

Step 8 - Shop for the Right Home

In steps 5 and 7, you created a housing profile and hired a real estate agent (respectively). Now it's time to put these things to use. It's time to start the house-hunting process.

This is when you start scouring the Internet and driving through neighborhoods to find a home that meets your needs. But, as with everything else in real estate, there's a right and wrong way to go about it.

The best way to save time and energy is to view properties online first. That way, you can rule out the ones that don't meet your needs -- the houses that are too small, too expensive, too far away, etc. In the articles below, you'll find additional tips for smart shopping.

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Step 9 - Evaluate the Seller's Asking Price

Here's the most important lesson to take away from this section: It's called an "asking price" for a reason. It's what the seller is asking for, but it's not necessarily what they'll get.

In reality, the market sets the value of a house -- not the homeowner. But this doesn't stop many sellers from overpricing their homes. In fact, the majority of newly listed properties are overpriced.

As a home buyer, you need to evaluate the asking price based on recent sales data. If you hire a real estate agent, as we recommended in step 7 above, he or she will do much of this for you. Your agent will pull up data for recent and comparable sales in the area (these are referred to as comps). Using this information, you can better determine if the house is worth what the seller is asking.

Step 10 - Make an Offer to Buy the House

So you've found a house that meets your needs, and you're ready to buy it. What's next? The next step is to make an offer to purchase the home. But how much do you offer, and what should you do if the seller rejects or counters your original offer?

This is a critical stage in the buying process. Get it right, and you're on your way to homeownership. Get it wrong, and the house of your dreams could slip through your fingers. We have collected some expert advice below, to help you succeed.

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Step 11 - Get the Property Inspected

This research library teaches you how to buy a house the smart way, and home inspections are certainly a smart move. After all, you're spending a lot of money on the purchase. So you want to know everything you can about the true condition of the property.

You want to know about the condition of the roof, the foundation, plumbing and electrical, etc. A professional inspector will look at all of these things and more, and he'll give you a detailed report of their condition. Based on that report (and your agent's advice), you can then decide which items you want the seller to fix -- and which ones you're comfortable accepting. 

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Step 12 - Close the Deal

When you've made it through all of the steps above, you're on the home stretch … right? Almost. There's still one very important process to get through, and that's the real estate closing (also referred to as settlement).

This is when all of the paperwork is signed, all monies are paid out, and the keys are handed over from the seller to the buyer. In other words, this is where you officially become a homeowner!

Leading up to this step, the best thing you can do is stay in touch with your agent, your lender, and your escrow agent. Most of the snags that occur at closing are the result of poor communication. This person did not talk to that person, so there was some kind of surprise on closing day. So keep in touch with all parties involved. Make sure the escrow person has all the paperwork he or she needs to close the deal. Be proactive about keeping the process on track. 

You should also refer back to step #3 above. Remember, it's important to start saving money early on, so you'll have enough to cover your closing costs. You'll get an estimate of these costs shortly after applying for a loan, but you should plan for additional "surprise" expenses along the way. The articles below will help you plan accordingly.

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We hope you have found this tutorial helpful. If you would like to learn more about how to buy a house, you can do a keyword search in the box provided at the top of this page. There are literally thousands of articles on this website, so you're bound to find the information you need. Good luck with your real estate purchase!

Disclaimer: These articles explain how to buy a house in general terms. While this guide offers comprehensive advice on a variety of topics, it's important to realize that the home-buying process varies from one buyer to another. Because of this, we strongly recommend using an experienced real estate agent to help you.