6 Steps to Buying a House

Purchasing a home is a fun and exciting time, but any homeowner will tell you it is also an incredibly stressful experience. From aligning your buying power with a property that meets your needs to securing funding, making an offer, and closing the deal, there are many aspects you need to keep in mind throughout the process. Thankfully, we have a team of experts that are here to help! In this article, we will outline the key steps and considerations to remember when buying a house. The more you know, the better equipped you’ll be to buy when the time is right, so let’s get started.

Evaluate Your Financial Situation

Before you begin your search, you have to thoroughly evaluate your current financial situation. Understanding your complete financial picture allows you to understand your buying options and sets you up for a successful buying journey.

While it can be tedious to break down each area of your financial situation, it’s necessary to determine how much you can genuinely afford. Let’s look at one area at a time.

Determine Your Target Mortgage Payment

First, you need to determine what kind of mortgage payment you can afford. To calculate this, you can use the 28/36 rule that most lenders follow. According to the 28/36 rule, your total housing costs—including your future mortgage payment—should not exceed 28% of your gross monthly income, while your total monthly debt payments should stay below 36% of your gross monthly income.

Once you've confirmed your monthly income, multiply it by 0.28 to find your target mortgage payment. For example, if your monthly income equals $6,000, your target mortgage payment would equal $1,680.

Calculate Your Debt-to-Income Ratio

An important figure that lenders will look at to understand your financial situation is your debt-to-income ratio (DTI). To calculate your DTI, you first need to add up all of the debts you pay each month, including things like:

Estimated future mortgage payment
Auto loans
Personal loans
Student loans
Alimony or child support
Minimum credit card payments

In general, you should aim to keep your DTI under 36%, although some lenders may approve mortgages to borrowers with a DTI as high as 43%. Remember, this is the exception, not the rule.

Sum up your monthly debt payments and divide that figure by your gross monthly income. For example, if your monthly debts total $2,000 and your gross monthly income is $6,000, your DTI would be 33.33%.

If you calculate your DTI and find that it is greater than 36% or even 43%, you might consider making a debt paydown plan before embarking on the home-buying process. Having a high debt-to-income ratio can result in lenders offering you loans with higher interest rates, stricter loan terms, lower loan amounts, or even denial of your loan. In general, lowering your DTI ratio before applying for a mortgage can give you more favorable options and better rates.

Find the Right Real Estate Agent

6 Steps to Buying a House

Purchasing a home takes a team, and a key player on your team should be a rockstar real estate agent. A good agent should have local expertise, a strong track record, and offer skills that make the process smooth and efficient. Here are a few things to look for when searching for the right real estate agent.

Experience and Expertise in Your Market

Look for an agent with experience in the specific area or type of property you're interested in. Familiarity with the local market allows them to provide insights on pricing, neighborhood trends, and schools, as well as access to listings that may suit your criteria.

Strong Track Record and Client Reviews

An agent’s past performance and client reviews can give you insight into their ability to close deals, negotiate, and provide a positive experience. Check reviews and ask for references to get a sense of how they handle clients and whether they have a good reputation in the industry.

Communication Skills and Responsiveness

Real estate transactions are time-sensitive, so you need an agent who communicates clearly and responds quickly. Good communication ensures you’re always informed about new listings, offers, and changes in the market, which can be crucial when making decisions.

Negotiation Skills

A skilled negotiator can make a substantial difference in getting the best price, terms, and conditions. Ask prospective agents how they’ve handled past negotiations to gauge their ability to advocate for you.

Compatibility and Trustworthiness

You’ll be working closely with your agent, so having a good rapport and a sense of trust is essential. Choose someone who listens, understands your priorities, and is transparent about the process, costs, and potential challenges.

Professional Network

A well-connected agent can provide access to trusted mortgage lenders, inspectors, attorneys, and contractors, making the home-buying process smoother. Ask about their network and how they plan to leverage these contacts to support your transaction.

Credentials and Continuing Education

Real estate agents with certifications like Certified Residential Specialist (CRS) or Accredited Buyer’s Representative (ABR) have pursued additional education, which can indicate commitment and expertise. This knowledge can be especially beneficial if you’re facing unique situations, such as buying a historic home or navigating investment properties.

Finding an agent with these qualities can enhance your experience, reduce stress, and improve the likelihood of achieving your goals in a competitive real estate market.

Begin House Hunting

Now comes the fun part—house hunting! To help narrow down your options and get you into the home of your dreams, make a list of priorities and have a thorough understanding of the current housing inventory.

Prioritize Needs vs. Wants

Understand that no home you look at will be *exactly* what you’re looking for. To get as close to that as possible, make a list of your needs versus your wants. When you find a home that checks all the boxes under "needs," you’ll know you’re in a good spot.

Understand Current Housing Inventory

You’ll also need to take a look at the current housing inventory in your area. If you’re searching during a time of high inventory, you’ll have the luxury of being picky with your choice. On the other hand, if you're looking during a time of low stock, you’ll need to move quickly and may have to settle on a few things.

Make an Offer

Once you have found the home, it’s time to make an offer! This process can often be more complicated than expected. After all, the seller may not be willing to accept an offer that doesn’t appeal to them and it may take time and negotiation to find the right deal. To make an offer a seller can’t refuse, you’ll want to move quickly and know how to sweeten the deal.

Move Fast

In today’s market, homes are flying off the market nearly as soon as they hit. Understanding current market trends, you’ll need to know that you can’t afford to wait when making an offer. If you find a home you love, don’t hesitate to act.

Sweeten the Deal

While it’s easy to think that a higher price will be the more attractive option for sellers, that’s not always the case. Thankfully, if you're tight on budget, there are other ways to get creative and sweeten the deal.

Write a Letter to the Seller

Many sellers have a personal attachment to their home, making the selling process highly emotional. More than likely, they want to know that their home will be well cared for by the new owners.

It’s common for buyers to write a personal letter to the seller to help paint a picture of who they are as a buyer and what you plan to do with the home. These letters can tug at the heartstrings of sellers and may give you a leg up over other buyers.

Consider Inspection Contingencies

Contingencies attached to purchase agreements typically allow buyers to back out or modify an offer if the inspection reveals significant problems. If you’re confident about the home’s condition, you could forgo the contingency to make your offer more appealing.

Repair Credits

Similarly, if the home inspection reveals the need for important repairs, you can ask for a repair credit rather than requiring that the seller make repairs before the final sale. Repair credits are attractive to sellers because they help speed up the deal and they help you as a buyer by covering or defraying the cost of repairs.

Seller Concessions

If you're tight on cash for upfront costs, you can ask for seller concessions to help cover closing costs without lowering your offer price. Seller concessions can take many different forms and vary depending on the purchase agreement between buyer and seller but are attractive to both parties as they make the purchase process quicker and easier.

Get a Home Inspection

A home inspection will help you determine the overall condition of the home you’re hoping to purchase, including its major systems. A licensed inspector should assess these significant aspects of the home:

Safety features (e.g. smoke detectors)
Foundation
Roof
Plumbing
Electrical
Heating and cooling
Ventilation

In the most competitive markets, it’s more common for buyers to waive the inspection to secure the home. However, this is a very risky move and should be avoided unless you are certain the home requires no significant fixes or remediation. Typically, the inspection stage is a safeguard for buyers entering into a large and important purchasing decision and allows for the agreement to be dissolved if significant issues are uncovered.

Get a Home Appraisal

Next, you’ll need to complete a home appraisal to confirm whether the home’s value matches the agreed-upon offer. A home appraisal is necessary if you require a loan to secure funding because the home serves as collateral for the mortgage. In the worst-case scenario of foreclosure, the lender will sell the property to recoup the money it lent out.

Final Thoughts: 6 Steps to Buying a House

At this point, we hope you see that the home-buying process doesn’t have to be overwhelming. While it can be detailed and time-consuming, it should also be a process you enjoy, and with the right professionals on your team, can result in you purchasing an exciting new property!

If you are interested in purchasing a home, whether for yourself or as an investment property, consider working with Evernest as your brokerage partner! When you work with Evernest to build your real estate portfolio, you benefit from our streamlined process, unmatched expertise, and nationwide scale. We have helped countless people just like you start, expand, or complete their passive portfolio and we would be honored to do the same for you.