How to Adult: Home Buying Basics

Know nothing about buying a home? Me neither. And I’ve done it. Let’s learn the basics together!

Adobe Spark (10)Facebook kindly reminded me that Jake and I put the offer on our condo in a little over a year ago and I was a pretty blown away. Most days, I don’t feel old enough to not live with my parents, much less to be playing house in a place that I own with my best friend who I married. What is this life?

I moved into our tiny little condo in a super cool part of Austin in November of 2016 before Jake and I were married the following January. This place is our first home and our first giant leap into adulthood. We’re still learning a lot about taking care of it and what it means to be good stewards of a physical home and at the same time, we’re already looking ahead to home #2.

As much as we love our tiny city bungalow, Jake has a dream to follow that includes owning lots of different kinds of properties throughout the Austin area. It’s a pretty brilliant dream and if we can scramble the money to get it started, I think it’ll really work out.

He’s been reading books and listening to podcasts and learning as much as he can about real estate and even though I can say I’ve bought a home now, I’m still not entirely sure how that happened. All I know is that I basically signed my life away and they handed me keys.

For those who, like me, aren’t sure what the home buying process looks like, I’ve had Jake re-explain it to me. I feel like it’s something we should know as adult-type people so let’s learn together, shall we?*

*For the sake of clarity, this is a very easy purchase I’m describing. Things can get pretty fuzzy with negotiations so let’s just assume your first offer is accepted to make this easier on everyone.

Step 1: Have money

A standard down payment (the money you have to pay immediately upon purchase) is about 10% of the total price plus closing costs (fees for inspections and the company that manages the title transfer). For second homes and on, the down payment is typically 20%. So know what you’re price range is and start saving. Don’t know what your price range is? See Step 2!

Pro Tip from Jake: If you’re willing to manage some risk with a fixer upper, check out a 203K loan. These can lower your down payment to 4% and include the cost of renovation within your mortgage, which is usually something you cannot do.

Step 2: Get more money (Get Pre-Qualified/Pre-Approved)

This is the part where lenders (banks) and mortgage companies look at all the things in your life and tell you what you can afford and what they’re willing to loan you. When I say they look at all the things, I mean all the things. Pull out your W-2s from the last few years along with tax documents and anything you find important because they’ll probably want to see that too.

Pro Tip from Jake: You can start doing this now. Your lender’s list might not match this list exactly, but it helps to know what you’ll need ahead of time.

Step 3: Choose an agent and shop around

Having an agent isn’t technically necessary but it’s definitely helpful. Real Estate agents know the market and they can help you get into the homes you want to see. They’re also super handy to have around if you’re not sure what to offer or if you’re not sure what’s going on with price or contract negotiations. They’re your advocate throughout the buying process so find someone with a good reputation in your area and find your new home!

Step 4: Make an offer

Once you’ve found your dream home, you’ll want to make an offer. If you have an agent, they’ll probably have a good estimate in mind for what you should offer based on all the information they have stored in their noggins about the market, location/size/state of your desired property. They’ll draft a contract with the offer price and any terms that will need to be met for the transaction to be successful and legal (see where things get fuzzy?). Make sure your offer has an option period with enough time for you to schedule an inspector.

Step 5: Secure your mortgage

Once your offer has been approved, you’ll need to fill your lender in on the deets and secure your interest rate. Interest rates can be fixed (meaning you’ll pay the same amount of interest consistently the whole time you pay your mortgage) or adjustable (meaning the interest rate changes over time based on whatever’s happening with the housing market). Generally, you want a fixed interest rate that’s as low as possible.

Step 6: Inspections

As a buyer, you’ll call out someone to inspect the property to make sure there’s no crazy damage you weren’t aware of and generally give you a better idea about what you’re buying. If your inspector suggests upgrades need to be made or lets you know that there’s water damage in the ceiling, this can throw off the contract you’ve negotiated with the seller which takes time to get adjusted in a way that makes all parties happy. During this time, buyers and sellers still have the option to back out of the deal.

Pro Tip from Jake: Make sure you write down everything your inspector says. You’ll likely have things they suggest to get fixed or upgraded. And then maybe not put it off forever like we have.

Step 7: Close

Get ready for your hand to fall off because here’s where you sign your life away. But once you do, and once you hand over that nice big fat down payment check and closing fees, they hand you keys and the whole thing is over. You bought a home!

That’s not too bad to understand, right? Maybe I’ll have it down better for property #2. Have you bought a home? What was most confusing to you about the process? Most fun?