From Renting to Owning: The Six Steps to Buying a Home

Buying a house is a pretty big deal and can seem like a daunting process — especially if you’ve never done it before.

Luckily, there are plenty of house nerds out there (like me!) who are all too happy to make the process as easy and as simple to understand as possible.

So, let’s break it down, because it doesn’t have to be hard.

Step 1. Recognizing that Renting Sucks

You’re sick of it, and you want to do something about it. I hear you.

Maybe your weed-smoking neighbors are playing death metal all hours of the night, polluting your place in all kinds of unlovely ways.

Maybe you really want to paint that bedroom wall dark purple and your landlord won’t let you.

Or maybe you wish to create generational wealth, gain stability and ditch renting so you don’t get priced out of your city (hi there, San Francisco!)

All valid reasons to take more control and find a place you can truly call yours.

Step 2. Assess The Financial Requirements

You might think playing with online mortgage calculators and surfing Zillow is the way to go, but while those two activities are fun things to do, surfing Zillow is essentially just house porn.

We want to make it real, so let’s talk money (it’s not as scary as you think.)

You will need both cash and credit when it comes to buying, like:

• A Down Payment: Do you need 20% down? Nope, you can get a (slightly higher interest) loan with as little as 3 ½ % down.

• Closing Costs: Average closing costs range from 1 to 1.5 % of the home price.

• Your Credit Score: These numbers fluctuate, but at the time of writing this article, one would need a minimum of 580 for a standard FHA loan, and you could go even lower if you have more than 3 ½ % to put down. Conventional loans require a credit score of 620 or higher.

So, the bare minimum: Roughly 5% down on the purchase price of a home.

Other considerations: How much do you care about an interest rate when you have an investment that’s gaining in value?

How the market often works is that, if interest rates are low, house prices are high, and a lot of buyers are out there competing. And when interest rates climb, house prices drop as there are fewer buyers. You can always refinance a home loan and change the rate later. Do you know what can’t be changed later? The purchase price of the home.

Step 3. Not Ready? No Problem! Partner with a Realtor & Get Pre-Approved Anyway

Seriously — your ducks do not have to be all lined up in a row to get started.

Now is the time to find a realtor you like who has lender partners to help.

Realtors are here to hold your hand (metaphorically) and walk you through this process. We have resources, like lenders and loan brokers at the ready who want to help, and we can make the entire process a whole lot easier on you. Also, realtors get paid by the sellers, so we’re a free partnership to you.

The first thing your agent will do is connect you with a few trustworthy lenders to choose from.

Pre-approval with the right lender usually takes 24–48 hours. And in today’s market, you must be pre-approved (not pre-qualified) to even stand a chance at the negotiating table.

I’ve got a loan story for you. All the way back in 1992, I bought my first home in San Francisco. And boy, did I do it the hard way. Was I pre-approved? Nope. And this was the pre-commercialization of the internet — the Stone Age. I physically went from bank to bank, by foot, applying with paper and pen for loans, and I watched and waited as I got turned down over and over. How many times, you ask? Twenty-five times. That’s right: twenty-five. Bank loan application number twenty-six was a miracle.

I don’t want this for you.

When I purchased my second house, before I ever toured one single property, my realtor friend said, “Let’s get you pre-approved.”

My first thought was, “Hey, nosy!” But I did what he said, and within twenty-four hours, we were pre-approved. This meant I knew exactly what I could afford, I knew what my payments would be, and I knew the highest amount I could offer a seller, which changed my search entirely.

Now, while I would have rather waved my panties around in public than opened my finances up to a trained professional, it was worth it. Knowing what I could and couldn’t afford up front made the rest of the process — especially escrow — easy. It also kept me away from those houses out of my range that would have surely broken my heart.

So, when you partner with a skilled realtor, they will:

· Connect you to reputable, trustworthy lenders

· Hone in on your desired neighborhoods

· Reach out to other realtors to find out what’s off-market and/or what’s coming soon

· Enable email-push notifications with houses that fit so you can build that knowledgebase and they can in turn, get you more of what you want

Step 4. You’re Approved, and We’re Rolling

· You and your realtor look for houses that fit your budget both in person and online

· Your realtor will help you demystify the actual cost of the homes vs. the listing price. The current market trend is listing “teaser” prices that are considerably lower than what the house will actually sell for, and your realtor will be your guide and translator to the real costs

If you have a good realtor who goes the extra mile…

· They’ll do legwork like looking for off-market properties you don’t have access to yet

· They’ll share your requirement in their office meetings and partner with other realtors to help find your perfect house

· They’ll write letters to owners of homes on the streets you love

Step 5. You’ve Found a Home You Love!

· First thing’s first: Do your due diligence. Ask your realtor for a disclosure packet. A disclosure packet is a package put together by the home seller and their realtor covering all relevant details of the home. It likely contains inspections for the home, any pest info, and other house-related documents.

· After you’ve read the disclosures and you love and want this house, ask your realtor to help you align on a price, terms, and a strategy. Will you need your own inspections if they’ve already had them done? What will your investigation contingency look like? Your agent can help with that.

· Your agent writes up an offer and submits it to the listing agent (a good agent will pick up the phone and talk to the listing agent to personally connect and to get any important facts about the property before writing an offer.)

· After the offer is presented to the homeowner, they can either accept your offer, counter your offer, or reject it.

· If they accept your offer, that is the very moment you enter into escrow.

Step 6. The Escrow Process

For the sake of brevity, I’ve bullet-pointed the escrow process here. You can find more details in The Road to Closing: An Overview of the Escrow Process, but here’s the short version in order:

They accepted your offer, and now you’re in escrow — yay!

• LENGTH: Unless you’re buying in cash, escrow is usually 21–30 days

• DEPOSIT: You’ll need to put down a maximum of 3% of the cost of the home as your earnest money deposit the moment your offer is accepted, so be ready.

• INVESTIGATION CONTINGENCY: You stated the number of days you’d need to check the condition of the property. Next, you must satisfy those conditions on time.

• APPRAISAL CONTINGENCY: If you are not paying in cash, you’re probably getting a bank loan. A bank requires an appraisal to fund your loan. The appraisal contingency is the next to be removed and is usually complete by the 18th day.

• LOAN CONTINGENCY: This is the ‘just sitt’n around, waiting for the money’ moment. A pre-approval takes the edge off, but the bank is working behind the scenes for this one to lift this contingency.

• CLEAR TITLE: This is not your part. The title/escrow company will triple-check that the house title is free and clear and ready to be transferred to you.

• CLOSE: All your contingencies have been lifted, the loan is funded, the title is clear and transferred to you, and you get your keys!

Home-buying is a huge step for anyone, but with the right assistance and information, it doesn’t have to be a headache. Good luck!

. . . .

Wendy Newman is a full-service Realtor in the Sierra foothills (Nevada County, California) and also sells homes in San Francisco, California with her listing Partner, Liz Hirsch.Wendy’s California Real Estate License Number is DRE 02159040.

She’s excited to help you find your happy place — literally — and she’ll have your back every step of the way.

You can reach out to Wendy at WendyNewmanRealtor.com