Buyers Guide

Step 1: Check your credit. You can check your credit score using a major credit agency such as Experian, Equifax, and TransUnion. These agencies show how often you are late with payments and mention any credit problems you’ve had in the past.

A credit score is calculated by Fair Isaac and is based on the information in your credit report. You’ll have three different credit scores—one for each of your credit reports.

Make sure to get a copy of your credit reports (check Fair Isaac’s at MyFICO.com) and know your credit scores. Having a low credit score may decrease your chances for getting a good interest rate, or getting any financing at all. Also make sure to check for any errors and contact the agencies if you find any. It can take up to two or three months to correct an error.


Step 2: Create a Budget. There are different ways to determine the type of house that you can afford. You can use an online calculator or be pre-approved by a lender who looks at your debit and credit and income to help you decide a reasonable amount for a loan.

You should look for a property that costs about two-and-a-half times your gross annual salary. Aim lower if you have credit card debt or other financial obligations. Your monthly home payments should not be more than 36% of your gross monthly income.


Step 3: Line up cash. You will need to have cash prepared for your down payment and closing costs. Lenders prefer to have 20% of the home’s price as a down payment and if you are able to put down more the lender may approve a larger loan. If you aren’t able to put down 20% then you will have to find other loans that can accommodate you and may wind up having to pay for private mortgage insurance which adds about 0.5% of the total loan amount to your mortgage payments for the year.


Step 4: Find an agent. Mostsellers list their homes through an agent, either seller agent or buyer agent they will help you find your dream home faster. 


Step 5: Search for a home. Start with the neighborhood you would like to live in and search for signs of economic vitality. Check out the real estate market in the area to see if homes are selling close to or even above the asking price, which shows that the area is desirable. When searching for a house off-season (during colder months), there may be less competition and sellers may be more willing to negotiate.


Step 6: Make an offer. When you find the right home, move quickly to make your bid. Ask the broker for advice on an initial offer. Compare the house to other houses that were recently sold in the neighborhood. If you really want the house, don’t present an offer that is too low.


Step 7: Enter contract. Have your lawyer or buyer’s agent make sure the contract deal is contingent upon obtaining a mortgage and a home inspection and guarantees that you may oversee a walk-through inspection 24 hours before closing. You also need to make a good-faith deposit (ranging from 1% to 10% of the purchase price) that should be deposited into an escrow account. The seller will receive this money after the deal has closed. If the deal falls through, you will get the money back only if you or the home failed any of the contingency clauses.


Step 8: Secure a loan.Contact your mortgage broker or lender and move quickly to agree on terms. Decide to either choose a fixed rate or adjustable rate mortgage and whether to pay points. Expect to pay $50 to $75 for a credit check, and another $150 to $300 for an appraisal of the home. Most other fees will be due at the closing. Most lenders require that you have homeowner’s insurance policy in place before they’ll approve your loan, so make sure to have one.


Step 9: Get an inspection: Besides for the appraisal of your home that you will receive from your mortgage lender, you should hire your own home inspector. The price for an inspection is about $300, on average, but ranges up to $1,000 for a big job and usually takes two hours or more.


Step 10: Closing. Approximately two days before the closing date, you will receive a final HUD Settlement Statement from your lender that lists all the fess you will be required to pay at closing. Review it carefully. It will include things like the cost of title insurance that protects you and the lender from any claims someone may make regarding ownership of your property. The cost of title insurance varies greatly from state to state but usually comes in at less than 1% of the home’s price. The lender might also require you to establish an escrow account, which it can tap if you fall behind on your mortgage or property tax payments. Lenders can require deposits of up to two months’ worth of payments. The actual closing is often somewhat anticlimactic. It’s a ritual affair, with customs that differ by region. Your lawyer or real estate agent can brief you on the particulars.