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HOW TO BUY A HOUSE

(updated 2022-11-18)



1. Research the market, and find a good real estate agent

• start a few months before you are ready to buy
  • what requirements do you have for your new house? (bedrooms, bathrooms, garage spaces, yard size, location, HOA)
  • expected price range of houses with those features?
  • how commonly available are houses with those features (should you pounce on it immediately, or ok to wait for another?)
• real estate agents can be flaky bastards
  • try lots of real estate agents until you find someone who shows up on time, answers your calls/texts immediately, and acts like a professional
  • don't go on lots of tours yet, this will just annoy your real estate agent because you're not ready to buy (a few tours are ok though)
  • just look at lots of houses online, and tour only if they seem 100% awesome

2. Get pre-approved for the mortgage loan

• talk to a few lenders, and find the best deal
  • credit unions have better interest rates, but banks are more convenient
  • different lenders have different fees and costs
• different types of mortgage loans:
  • "conventional loan" = the standard, everyone will be happy to sell to you (unless they are weirdos who only want to sell their house for pure cash)
  • "FHA loan" = government thing for poor people with bad credit, lower down payments but higher interest rates, some people will be nervous to sell to you
  • "private mortgage insurance" or "PMI" = required if you have less than 20% down (but is automatically cancelled after you reach 20% equity, if conventional loan)
  • "rate buydown" or "points" = pay an extra chunk of money, get a lower-than-normal interest rate, awesome if you can afford it and will keep this house a while
• get multiple pre-approval letters: 300k, 350k, 400k, etc
  • this helps you negotiate (only show the seller the lowest one, so they don't think you have loads of money to spend)
  • pre-approval only lasts a couple months, so don't do this too soon!
• lender will ask for paperwork:
  • 2x W-2s
  • 2x tax returns
  • 2x pay stubs
  • 2x bank statements
  • documentation for other income, rental history, and employment
  • (also they do a hard check against your credit)

3. Save money until you have enough to buy a house

• money to have on hand:
  • down payment (I did 5%)
  • closing costs (probably another 5% or so)
  • extra cash (for inspections, fees, etc)
• additional sources of money to think about:
  • 401k loan (dangerous because you have to pay it all back immediately when you quit your job, or you get major penalties)
  • home equity loan (against another house you already own)

4. Choose your house

• do lots of tours
  • multiple tours of the same house are ok!
  • bring friends to help?
• stuff to consider:
  • newer houses are built to modern standards and will need less work
  • annoyances not visible in photos (cigarette/piss/mold smell, noisy neighbors, badly installed creaky floor)
  • for appliances: gas or electric power sources available (or both)?
  • nice layout?
• easy problems to check for:
  • all faucets/toilets/showers work?
  • all light switches work?
  • all doors/cabinets/drawers work?
  • water damage on ceiling or under sinks
  • pests (termite tunnels and droppings, roaches, mice)
  • overgrown yard

5. Open escrow

• tell the real estate agent you want to move forward with this house
  • they will walk you through everything, do not worry
  • you need your pre-approval letter for this
• "opening escrow" = pay about $3000 for the seller to take the house off the market, while you finish inspecting it and doing the paperwork for your mortgage loan
  • 10-day inspection period, you can cancel escrow within those 10 days and get your money back
  • after 10 days, if you cancel then the seller gets your money
• "title company" = holds onto the escrow money for you while you negotiate
  • collects money from you and the seller, for the house purchase
  • disburses money when the purchase is complete
  • handles legal paperwork
  • probably REQUIRED to send money via wire transfer!
• "closing day" = usually a month from the day you open escrow
  • this is the day the house becomes yours, all paperwork needs to be done by then

6. Carefully inspect the house

• you have 10 days to inspect, get quotes for fixing broken shit, and ask the seller for the money to fix it
  • the seller legally can't give you the money in cash, but they can pay closing costs for you and/or reduce the house price
  • this is called "seller concessions"
  • negotiations can extend beyond 10 days, just make sure you submit your initial request within 10 days
• real estate agent will recommend inspectors for you (convenient, but possibly sketchy)
  • choose your own inspectors if you prefer, or go with the recommended
  • you have to pay for the inspectors yourself
  • give list of inspectors to real estate agent, who will schedule them for you
  • ask for all inspections to happen on the same day if possible, so you can be there to watch and ask questions
  • make everyone send you an inspection report (results of inspection) and a quote (estimated cost to fix the problems they found)
  • after inspections complete, tell your real estate agent to ask the seller for the amount of money in the quotes
  • don't ask for money to fix stupid cosmetic things, this will just annoy the seller! serious problems only!
• inspectors to hire:
  • general inspector (looks at everything, should take hours if they do it right)
  • roofer (roof and patio roof)
  • plumber (water heater, main sewage line scope with video, outdoor hoses and sprinklers, sinks/showers/tubs/toilets/laundry, water shutoff valves, any water damage, ensure no polybutylene pipes if built 1995 or earlier)
  • HVAC technician (A/C, heater, duct work, laundry and bathroom fans venting correctly to the roof and not directly into the attic)
  • electrician (main breaker box, GFCI outlets)
  • pest control (termites)

6. Problems in escrow

• if you can't agree with the seller about repairs, or encounter other problems...
  • talk to your real estate agent about getting out of escrow
  • might cost you your $3000, or might not

7. Other paperwork

• try to complete all paperwork 2-3 days BEFORE closing day, in case there are delays
  • finish getting approved for the mortgage loan
  • get home insurance (this is required by the lender)
  • decide about extra stuff, like title insurance
  • pay the rest of the down payment and closing costs into escrow
  • MAKE SURE THE LENDER AND TITLE COMPANY TALK TO EACH OTHER! communication problems can cause a huge delay!
• final walkthrough (check house hasn't been vandalized/thieved in the meantime)

8. Closing day!

• usually a month from the day you open escrow
  • CAREFULLY CHECK and sign the final paperwork (from lender and title company)! don't sign if the loan amount is wrong! instead, call and explain -- there will be a delay while they fix things, but that is better than signing the wrong paperwork
  • wait for paperwork to be recorded with the county government
  • get house keys from real estate agent
• congratulations you own a house!

9. What next?

• get any repairs done (this is easier before you move in)
  • painting
  • roofing
  • spray for bugs
  • fix things that need fixing
• sign up for utilities
  • water/sewage/trash
  • electricity
  • cable (Internet, TV, phone)
  • gas
• other basic stuff
  • clean everything
  • curtains (or just tape newspaper over the windows)
  • A/C intake filter
  • toilet paper
  • change your address with the post office, bank, workplace, and everywhere else
• MOVE IN!