Purchasing a House - Part 2

by Brandon Cornett, Home Buying Institute, © 2009

Summary: This is a continuation of our guide to purchasing a house for the first time. You can read the first part of the article right here.

5. Find a real estate agent.

Do you need a real estate agent to purchase a home for the first time? From a legal standpoint, the answer is no. You can certainly do it yourself, if you're up for it. From a practical standpoint, however, it's wise to have professional help. Think about the amount of money you will spend when you purchase a house -- up front and over the future life of the loan -- and you can see the value of professional guidance.

Some agents specialize in helping first-time buyers. If you can find one of these agents who also has years of experience, great. Otherwise, you should err on the side of experience. Try to find a real estate professional with at least a few years of experience helping buyers. You're not going to be very familiar with the process of purchasing a house, so your agent needs to make up for this by having plenty of experience.

You'll find some tools and articles on this website to help you find a real estate agent in your area. Best of all, they are all free to use.

6. Make a list of needs and wants.

What do you need from a house? How many bedrooms and bathrooms? One story or two? How much space do you need? Do you need to be close to work, and if so, how close? Do you prefer to be in a certain school district?

Mostly, these are thing you need from a house. You need a certain number of rooms, a certain amount of space, and so on. So make sure you have these things firmly in mind as you start the house hunting process (next step). Better yet, write these items down on a checklist and take the list with you when looking at homes. The excitement really starts to build when you reach the shopping stage, so it's easy to forget things that are important to you. A checklist will keep you on track. This is one of the key concepts to purchasing a house wisely.

Just remember to separate your needs from your wants. The former are things you must have -- the latter or things you would like to have. It's rare to find a house that fulfills all of your needs and wants, so it's important to know what you can live without.

Purchasing a house for the first time is a process of elimination. You start with a large pool of potential homes, and then you start narrowing them down. You will remove certain houses from the list based on several factors -- price, location, size, appearance, etc. But you need to have a clearly defined list of needs to support this process of elimination.

7. Start house hunting.

It's tempting to jump right into the house hunting stage, because it's the most exciting part of the process. After all, this is when you put the Internet and the paperwork process aside and start looking at actual houses -- one of which may become your home. But it's important to start with steps 1 through 6 listed above. Once you complete all of the necessary research and planning, you're ready to look at houses.

We have created a house hunting checklist that will guide you through this process in more detail. The best advice I can give you here is to keep your budget in mind (the monthly spending limit you established in step #3 in part 1 of this lesson). Here are some tips to keep in mind as you view homes:

• Take your checklist of wants vs. needs with you.
• Take a digital camera along to help you recall details later on.
• If possible, bring a friend along for an objective point of view.
• Focus on the things you cannot change, such as size and location.
• Ignore the paint colors. These can be easily changed.
• Ignore the decorations and furniture. These will leave with the seller.
• Look through the décor and focus on the structure and layout.

Purchasing your first house can be an emotional experience. But you need to balance those motions with logic and common sense. It's okay to be excited when looking at potential houses. It's only natural. Just keep the big picture in mind.

8. Make a smart offer on the home.

So, you've found a house that meets all of your needs (and even some of your wants), and you're ready to make an offer. The seller is asking $255,000 for the home, and you've been pre-approved for up to $270,000. More importantly, you run the purchase price through a mortgage calculator and find that the monthly payments fall within your budget.

There's nothing left to do now but make an offer to buy house, right?

Wrong.

Just because the seller is asking 255K for the house doesn't mean it's worth that much. It may only be worth 225K in the current market. Sellers frequently list their homes above market value, due to the emotional connection they have for the property. In fact, it's not a piece of real estate property to them -- it's a home full of memories. So they often ignore their agents' advice and ask too much.

When purchasing a house, you need to remember this very important fact. It's called an "asking price" for a reason. It's the price the seller wants to get, but it may or may not be what the home is actually worth in the current market. With most real estate transactions, there are actually two numbers -- the listing price and the actual sale price. In many cases, the property will sell for less than it was listed for.

Your agent will help you evaluate the seller's asking price by reviewing recent sales in the area. This shows you what the market can support, in terms of a sale price. Remember that. The market determines what a house is worth -- the seller does not.

To learn more about this critical step in the purchasing process, check out this article on how to make a real estate offer.

9. Get a home inspection.

When you look at homes, there are certain things you can see at first glance. The number of bedrooms. The size and layout. These are things you can see as soon as you walk in the front door. But there are other things you cannot see, either because they are out of sight (like the roof) or because you don't have a trained eye.

This is where the home inspection comes in. Once your offer has been accepted by the seller, you should hire a professional home inspector to inspect the property. These people are trained to examine the house from a structural and mechanical standpoint. They inspect the roof, the foundation, plumbing, electrical and other important items. A home inspection will only cost a few hundred dollars (probably less than $500). So it's a small price to pay for the kind of thorough examination you'll receive.

Let me say it plainly. Purchasing a house without having it inspected first is foolish.

Related article:
How to Find Home Inspection Services

10. Stay on track up to the closing.

When you make it this far in the process, you've almost made it all the way. The next major step is the closing process, also referred to as settlement. This is when all of the paperwork is signed and the funds are distributed. This is also when the keys are handed over from seller to buyer.

The best thing you can do leading up to this process is to stay in touch with (A) your real estate agent and (B) the escrow agent or company. Make sure everything is on track, in terms of paperwork and funds. Keep a constant line of communication will help you avoid hiccups on closing day.

About a day before the actual closing, you should receive a finalized statement of costs to be paid. This is referred to as the HUD-1 statement or settlement statement. It shows the amount you must bring to the table, generally in the form of a cashier's check.

I hope this guide to purchasing a house helps you understand the process a little better, and I wish you well in your purchase process. Good luck.