How To Buy A House (STEP BY STEP)

i’m going to teach you how to buy a house

step by step it seems like everybody is in the market for a house these days especially where i live

but buying a home is a huge commitment and a potentially long term commitment at that

so in this video i’m going to walk you through buying a house

step by step in 11 easy steps let’s get right into it

okay so step number one is are you even ready to own a home so you have to really dig

deep down inside look at yourself in the mirror and ask yourself

am i in a position and am i ready and responsible enough to own a home so the first step i would recommend is having steady income and employment so if you have your regular paycheck coming in you’re able to

kind of budget and understand what your money situation is going to be this is a good thing if you know your job is stable this is a good thing if you’re in sales or if you have a unreliable

source of income you know your commissions could be up they could be down

you could be a business owner you don’t know how much money you’re going to make in a certain month

i recommend having at least six to 12 months of reserves

to at least somewhat compensate for this first point

the second point is understand your debt to income ratio

so the banks are going to base this on your gross monthly debt

obligations divided by your gross income i actually like to look at this on net income but just for the gross income basis

this should at least be under 36 percent in my opinion if you’re above 36 percent of your monthly debt

divided by your gross income that is too high of a debt to income ratio and it could actually cause some problems in underwriting when getting a mortgage

and then finally number three how is your credit have you looked at it lately if you’re a good credit score that’s only going to get you a better rate meaning the cost of borrowing money is going to be cheaper over the length of the loan

okay number two is knowing how much house you can afford

so this is probably the most important aspect of home

ownership because this will either determine if you’re living comfortably or if you’re going to be house poor so first and foremost i highly recommend if you haven’t already checking out my home affordability spreadsheet this spreadsheet alone can prevent you from making a huge financial mistake by buying too much house

so if you want to get that spreadsheet check out the link down below what this spreadsheet does is it takes you and your partner

or other sources of income and it determines what your monthly net income is

and i recommend not spending any more than 30 percent of your net income on all housing costs so not just principal and interest

but i’m talking principal interest taxes insurance

if there’s an hoa fee i incorporate utilities so you can estimate your utilities as well

i’m talking all in your housing cost shouldn’t be any more than 30 percent of your net

so with that being said check out the spreadsheet below that way you know exactly how much house you can afford okay so step number three these are your down payment and closing costs so if you don’t know what a down payment is that’s simply a percentage of the home that you’re paying for with cash

and then you’re taking a mortgage for the rest of the amount you can put anywhere from

zero to a hundred percent down hundred percent is paying cash

zero percent is using something like a va loan or a usd alone which doesn’t apply to most people watching this video on a conventional mortgage you can typically put anywhere from three to ninety nine percent down however most people typically put anywhere from three to twenty percent down

however most banks if you put less than 20 percent down you’re going to get pmi which stands for private mortgage insurance

you want to avoid pmi because this doesn’t go towards principal or interest it is literally just a monthly fee aka

insurance for the bank or the lender giving you that mortgage

so i would recommend 20 down obviously more people

more and more people are putting down less but if you do put down 20 down you do avoid the pmi okay so uh if you want to use twenty percent as an example on a hundred thousand dollar home

hundred thousand dollars times point two that just gives you

twenty thousand dollars as a down payment so when you’re going into a house purchase you’re gonna have to have a down payment of some sort

and then you’re also going to have closing costs right here so what are closing costs if you do

opt to get a mortgage you’re going to have to get involved with a bank and they’re going to

require things like appraisal title closing fees bank fees

etc etc these typically range anywhere from about one to six percent of the value of the home

if you’re smart you’ll put away about three percent for closing costs just to make sure that you have that money ready and available okay step number four is getting your mortgage pre-approval this is simply just going down the street to the bank or credit union

saying hey mr banker my partner and i we’re looking to get this house can you at least tell us what we’re pre-approved for when we are starting the mortgage process with you guys and they’ll take your information they’ll look at basically your income your debt to income ratio

your credit score your other obligations so on and so forth

and they’ll come back to you with a dollar amount that you’re essentially pre-approved for

for amount of loan aka mortgage so this will actually help allow you to budget better and you’ll know hey this is the amount of money we have down this is the amount of money we can borrow

this is the amount of money or the amount of house we can afford okay so what this helps to do is this helps you get under contract

fast if you do find a home you like so instead of trying to talk to the seller and have your real estate agent write an offer letter which we’ll talk about later in this video

you can actually show the seller hey i’m interested in your house

this is my offer here’s our pre-approval letter great so as the seller i actually have some confidence in you

seeing the letter or the pre-approval letter from bank x

saying that you’re approved for amount y of dollars

and this helps me know that once i get into contract with you

you’re able to close quickly and you do have the funds available

okay step number five is working with a real estate agent or a realtor so this could be you know your father-in-law this could be a friend that you work with doing it on the side they can be a full-time agent the skills and skill sets of agents

vary there’s some that are really good some that are really bad

so make sure you know who you’re getting into bed with before you go on this house hunting journey okay so this person is essentially representing you in the purchase they are kind of like a lawyer representing you or your medical professional giving you advice or a financial advisor for example so their specialty is to write offers negotiate guide you through the entire process they should be your trusted advisor when looking at these homes okay you don’t necessarily need one however if you are a first time home buyer i would recommend you work with a good one

because they can kind of calm your nerves down they can walk you through the process

and they can kind of be your guide throughout this whole sales process or this sales journey

number three is that they are compensated typically in most cases by the seller

so the seller is selling their home they are working with a listing agent this is your buying agent you are purchasing the home uh typically they’re compensated anywhere from i’d say two to three percent

depending on the price of the house so you are not actually paying them anything unless you have some other sort of negotiation in place

the seller is paying both the listing and the selling agent to sell their home okay so number six is starting the house hunt or starting your search okay so the search begins number one the most important thing is establishing your criteria okay so at this point you’ve established your price the square footage that you would need the amount of bedrooms bathrooms depending on your family size or your living situation

and also most importantly your wants and your needs

if you’re doing this with a spouse or a significant other

figure out what things you align with figure out things that are wants figure out things that are needs

okay we both want a swimming pool okay we both want a gazebo we both want you know four car garage whatever i’m just making stuff

up uh make sure that you’re both on the same page because you’ll see once you start to see more and more houses this is gonna be areas for contention and argument so make sure you outline what you want in the beginning number two this is a up arrow and a down arrow it’s basically just

ranking your priorities okay so if you have a list of wants and needs make sure that you give your real estate agent who’s going to be looking at the mls for these houses for you and also you and your partner or spouse make sure that you’re ranking these priorities highest to lowest you know what can you live with what can you live without and then finally number three this is kind of just a tip from my background i’ve worked in commercial real estate on the development side

and also on the leasing side i look at everything from a dollar per square foot perspective

price per square foot so you may have two different houses

you know and let’s just say their amenities are similar okay it’s a comparable property

look at the dollar per square foot is one coming in at a hundred fifty dollars a square foot and the other one’s coming at a 185

well what is that 35 per square foot difference

so that way it kind of gives you a baseline of understanding

okay this neighborhood things seem to be going for 150 a square foot

this neighborhood things seem to be going for 250 a square foot

you know why is that am i getting a good deal or am i getting ripped off so i look at everything on a price per square foot basis

if all the amenities and upgrades are similar okay step number seven is making the offer and negotiating i can make a whole video on negotiating but that’s outside the scope of this video this we’re going to talk about actually making the offer so number one is submitting and writing

an offer you want to get everything in writing and remember everything is negotiable

so if you liked a certain statue or a piece of art or you know whatever or a piece of gym equipment or fitness equipment you can negotiate all that in writing

most likely they’ll actually let you do this outside or after the contract’s been signed

however it helps to get everything in writing uh first and foremost so basically the the offer is basically what you’re willing to pay for it any contingencies on financing or inspection things like that and once all those things are checked off you can then move on to finally

completing the offer however that will be discussed later in the video what you want to do is is humans love stories okay that’s why number two i said humans heart that’s a heart it’s not a

apple bottom jeans or a butt or whatever that looks like so humans love stories so when you’re making your offer say for example you’re a newlywed and you have a new baby on the way and your wife’s pregnant and

you know it’s lovey-dovey people love that so if you have a house that’s in a hot market

and there’s a bunch of offers coming in it may actually behoove you to cover to do a cover letter with hi i’m marco this is my wife she’s pregnant we really love the neighborhood blah blah blah blah

humans love stories they may be more inclined to sell you the house or go with your offer

even if it isn’t the best one on the table doesn’t happen all the time but i have seen it okay

number three you’ll put down earnest money so earnest money is essentially a good faith deposit that goes towards the down payment or closing costs however if you walk away from the deal you will lose that earnest money if it is indeed on

your fault or on you for walking away from the deal

so this is typically you know couple grand it could be less could be more depending on the price of the house but it’s basically you putting a good faith forward or a good foot forward with the seller saying hey

i’m serious about this offer so at this point three things can happen the sellers can either accept your offer decline your offer

or they can come back with a counter offer and it can go both ways and at that point you just continue the negotiation okay step number eight is once you get the contract accepted or you’re under contract depending on the length of contract

that will give you time to get an inspection and an appraisal so these are two different things don’t get them don’t get them confused so once the property is under contract i recommend getting a home inspection

this is basically a gentleman or a woman who comes out they inspect

the roof the inside of the house you know plumbing radon

gas mold things like that anything that could be wrong

or a foreseeable issue with the property so they’re looking for problems or issues number two

the appraisal is completely different this is a certified professional that tells you or estimates the value of the home depending on comparables depending on you know the build quality the neighborhood things like that now number three i actually have ammo so ammunition

so if the inspection or the appraisal comes back say for example the inspector comes back and says

this roof is shot there’s mold in the basement there’s radon et cetera et cetera

you can use that as bargaining or negotiation ammunition

in the negotiation part and you can actually get either a credit or some money off the house depending on the amount of money it costs to remediate these issues that the inspector finds

secondly the appraisal say you’re looking at a house for easy numbers it’s a hundred grand

the appraisal comes back at 90 you can then maybe use that 10 grand to get some money off the asking price as well so inspection and appraisal super important

okay number nine is just to piggyback off of what i just said with repairs and credits very quickly as mentioned when stuff does come back you can ask for a discount off the purchase price of the home

you can ask for a credit at closing for example

or you can have the seller fix it or remediate it so by the time you do your final walk through

you can see that they fixed all the issues that you brought up in the contract

so very simply just wanted to recap this this is where you can save a lot of money so i decided to give it its own section

okay so number 10 is completing your final walk through so you want to go through the house after the seller is taking everything out all their possessions that you didn’t

negotiate on or you didn’t want or you didn’t purchase from them

basically you want to see if everything is where they left it you don’t want any beautiful fixtures taken off the wall you don’t want any damage happening after the move out

so you may even want to take you know before and after pictures that way when you go to final walkthrough you say hey what the heck happened here there’s a big gash on the wall there’s a big hole in the drywall

et cetera et cetera so do your final walkthrough make sure everything is in order

secondly have the seller show you around have them show you everything so if there’s a nice speaker system for example or there’s an alarm system or there’s automatic lights

or there’s you know a sub pump in the basement for example you want to make sure that they show you everything that way you’re not trying to reach to reach out to these people after the fact after you’ve already taken possession so make sure that you get a final walk through through the seller and make sure that they show you all the quirks and features of the house

okay so step number eleven is to close congratulations you are almost a home owner so your lending institution is going to send you a closing disclosure this is basically an

outline of things that you need to bring to the closing table

this will happen roughly you know two three four days before the actual closing date

and it’s basically just telling you what you need to bring to the closing number two is reviewing your numbers make sure that the lender

the numbers that they gave you during your pre-approval and all the mortgage disclosure documents with the principal and the interest and the amortization schedule

make sure all that stuff adds up and you are indeed getting the mortgage that you are

essentially promised to be getting from your lending institution

and then finally number three this is your settlement statement this is very important because

this is basically showing you all the closing costs the purchase of the or the purchase price of the home

the down payment amount etc etc all that good stuff

make sure all this stuff balances out to zero and you’re not paying more than you should

so congratulations you are now house poor and you’re going to be in debt for the next 30 years of your life i’m just kidding uh the one thing i want to the takeaway from this video that i want to say i’m just messing around but in all seriousness

a house is a big responsibility you got to set aside money every year for maintenance

uh you know if you’re renting right now your landlord is taking care of all that once you’re a homeowner

if the hvac goes out if the roof goes you know it gets crushed by a tree or whatever

that’s all on you as the home owner so just be cognizant of that

owning a home is awesome it’s a great source of pride

but it does come with a lot of responsibility so if you got value out of this video please give it a thumbs up share it on facebook share it on twitter share it on social media

and also don’t forget to get my home affordability spreadsheet down below it will save you a lot of money and a lot of headache

thank you so much for watching and have a prosperous day

yeah home ownership home headache just kidding it’s a place to raise a family marco

it’s a place to raise your kids.

More to read

Leave a Reply

Your email address will not be published. Required fields are marked *