Steps To Buy A Home

Whether buying a home for the first time, buying a second home or considering investment property, you should take steps to protect your investment and financial health. No matter what type of property you’re eyeing, take these precautions as you navigate the purchase of any piece of real estate.

Before Shopping for Property

Take stock of your finances. Before contacting a real estate agent or window shopping for a new home, figure out what you can spend. “Taking a simple inventory of their wallet can help buyers understand their financial ability and speed up the mortgage pre-approval process,” says David Wolf, president of Related Realty in Chicago. See Buying A Home: Calculate How Much Home You Can Afford and Bank Vs. Budget: How Much House Can You Afford?

Know your credit card limits and review your usage to prevent a potential approval pitfall. According to Equifax, the closer you get to using all your available credit, the less likely you are to have a good credit score or seem like an attractive mortgage candidate to a potential lender. See 5 Things You Need To Be Pre-Approved For A Mortgage.

Start with financing. Obtaining pre-approval for a loan will make the process of negotiation and loan approval process smoother from the start, says Emery Drew Nelson, an attorney with Brinkley Walser, PLLC, in Lexington and Greensboro, NC. “Some sellers may even require you to be pre-approved before they accept an offer.” For more, see Mortgage Basics and Top Reasons To Apply For An FHA Loan.

Find a real estate agent. The seller is the one who pays the commission, so there's no reason not to get the help of an agent. There are several types. See What are the differences among a real estate agent, a broker and a realtor? and How To Find The Best Real Estate Agent.

Look for a professional who is both familiar with the area you’re considering and its home values – and who is well versed in the laws, timelines and deadlines in your state, says Chantay Bridges, a Los Angeles-based realtor at Clear Choice Realty. This can reduce the risk of losing your dream home, deposit and/or time.

Before Making an Offer

Visit the county planning department. There is a planning department in every city and county. If the home you’re interested in is within city limits, you should visit the city planning department. Homes in rural unincorporated areas will fall under the jurisdiction of county planning departments, says consumer advocate and real estate broker Alexis Moore of Blackstone Realty Group in Sacramento, Calif.

The planning department can help you investigate the neighborhood. You can learn which building applications are in the works (more homes, commercial buildings, industrial parks) and which schools your children would attend (it may not be the school nearest your prospective home). There will also be information on traffic, crime reports (which can affect auto insurance prices), and more. You can discover, for example, that the "open space" the developer's sales agent showed you is actually zoned for apartments or industrial space, explains Moore.

Keep in mind that visiting the planning department doesn’t always mean traveling. In most instances, you can dig up this information online from the comfort of your own home or office.

Review past utility bills. The monthly mortgage payment isn't all you have to worry about, cautions Nelson. “I have often times seen buyers who thought they had a payment they could afford based on their loan realize it was a hardship when all of the utilities became due."  Ask to review one year’s worth of all utility bills before putting in a purchase offer to understand how heating and cooling the house will affect your finances. Then read Ways To Slash Your Home Energy Bill.

During the Negotiation Process

Read the contract. When you’re ready to submit a purchase offer, your real estate agent should review the contract with you. If the agent moves through it swiftly, protect your rights by slowing things down so that you get an explanation of every paragraph of the contract. “Have your realtor explain in detail the circumstances in which your deposit can be withheld or kept,” says Bridges.

Make sure to read the contract completely yourself before signing it. “Ask questions about anything you aren't sure of and only sign after you have answers that satisfy all your questions,” Bridges adds.

Ask for exact dates. Your contract might state you have 10 days to conduct your inspections or 30 days to fulfill all contingencies. Ask your realtor for exact dates, not just the number of days, to make sure you don’t miss any important deadlines. This will also tell you when you’re supposed to receive documentation, such as disclosures or notices about the transaction. See Real Estate Flipping: 8 Disclosures You Must Make for situations worth asking about.

Get it in writing. If you negotiate any extras (the seller will leave furniture or items not listed in the contract, you can occupy the house the day before closing, etc.) make sure that they’re documented in writing and that all parties sign off on the extras. “I have seen buyers who thought a percentage of closing costs would be covered by the seller via a verbal agreement only to eventually be stuck paying most of the costs because [there] was not a document to verify these verbal agreements,” says Nelson.

Have a home inspection. Home inspections can spare you from a purchasing a hidden money pit. Nelson suggests having an inspection even if the property appears to be in good condition or is relatively new. “I recently had a client who, upon having an inspection of what appeared to be a well-maintained property, discovered extensive termite damage and rot that would require approximately $30,000 to repair.” Without catching this during the inspection period allowed in the contract, this pricey repair would have come out of the new owner’s pocket. See Do You Need A Home Inspection? and The 5 Most Overlooked Problems In A Home Inspection.

The Bottom Line:

Don’t go it alone. Purchasing real estate is a major financial investment. Assembling a team of knowledgeable professionals, including a lawyer to review documents and realtors to help you navigate neighborhoods, can spare you costly mistakes.