Buying a home is both exciting and exhausting, but it can be a stressful process if you’re not sure what to expect. Read this Home Buyers’ Guide for a step-by-step explanation of what you can expect when buying a home in Houston, Texas.
Determine If You’re Ready to Buy
This is the first and arguably the most important step in the buying process because it sets the tone for the rest of your buying experience.
There are a few questions you need to consider:
Do you have a stable source of income?
Lenders are going to assess whether you have a consistent source of income that can sustain regular mortgage payments. If you are in between employment opportunities or are unsure if you will have a source of income in the near future, then now might not be the best time to buy.
Is your credit score good enough to buy a home?
You don’t have to have amazing credit to purchase a home, but it needs to be decent. Lenders often accept minimum scores of 620-680, and they view scores of 700+ as ideal.
How much debt do you already have?
If your car payments or debts are consuming most of your income, it might not be a good time to buy. A metric your lender will consider is your Debt-to-Income Ratio (DTI). A DTI is calculated by dividing your current monthly debt by your monthly gross income. Lenders prefer to see a DTI of 36% or less.
What is your budget?
The first cost for which you should plan is your potential mortgage payments. Use a mortgage calculator to see what your monthly payments could be based on the house price, down payment size, and respective property taxes.
Other costs to consider are the down payment and closing costs. The next section will discuss these costs in more detail.
Save for a Down Payment and Closing Costs
After experimenting with a mortgage calculator, you should know your sweet spot for the down payment. A typical down payment will fall between 5% and 20% of the sale price depending on the type of mortgage you select.
Closing costs are often overlooked by potential buyers; they include legal and administrative fees. A buyer can expect to pay between 3% and 5% of the sale price for closing costs.
Prepare Your Documents
Your potential lender will request documents that show your current assets, income, and level of debt. Collecting the necessary documentation before you approach a lender will save you the headache from having to prepare them last minute.
Here are some items to have ready for the lender:
Government-issued photo ID (driver’s license, passport, etc.)
Proof of employment and income (pay stubs, W-2s, income tax returns, bank statements, etc.)
Proof of your ability to make the down payment (e.g. savings account, sale of another property, gift, etc.)
Information about any assets you own
Information about your current debt and liabilities (e.g. credit card balances, car loans or leases, lines of credit, student loans, or other obligations such as spousal/child support)
Get a Preapproval Letter
A preapproval letter is a document from a lender stating how much they are willing to lend to you (up to a certain amount). This letter lists the conditions under which they are willing to give you the loan, and it often expires after 30-60 days. A preapproval letter is important because it shows sellers that you are serious about buying and are able cover the sale price.
Find The Right Real Estate Agent
Real estate agents play a critical role in buying a home. They have experience in the home buying process, sharp negotiating skills, and knowledge of the local housing markets. Your real estate agent will help you avoid common traps and issues that buyers often face. An added benefit of a Buyer’s agent is that they don’t charge you a fee because they are compensated from commission paid by the seller.
Begin House Hunting and Make an Offer
Searching for the dream house can be overwhelming, so it is important to have a list of criteria you are looking for in a home. This step is time consuming, but it is important that you take your time since this is such a large investment. When you’ve found the home you want, work with your agent to negotiate a fair offer based on the home and the current market.
Get a Home Inspection
Your real estate agent will help you arrange for a home inspection within a few days of the seller accepting your offer. Your offer is usually contingent on the inspection results -- meaning you have the option to renegotiate or withdraw your offer without penalty if the inspection reveals significant damage.
You and the seller will receive a report from the home inspector. Your agent can help you negotiate with the seller if there are any repairs you want the seller to complete before the sale closes. If you request any repairs, you’ll have the opportunity to conduct a final walk-through to confirm that the repairs have been made.
Close the Sale
There is a lot of legal and administrative paperwork involved in buying a house, but it is your last hurdle in the buying process. Your lender will also request an appraisal for the property to protect them from potential losses (your agent will take care of this step). Once all of the paperwork is signed and you pay the closing costs, you’re officially the homeowner of the property!
Ready to Buy in Houston?
If you’ve read this entire article, then you are serious about buying. Contact Keith E. Ford at 832-788-7037 to learn more about buying in Houston!
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