How To Buy A House In 2023
2023 could be remembered as the year of the correction in real estate. After two years of a pandemic-fueled, seller-friendly boom characterized by bidding wars, inventory shortages, and spiraling prices across the country, the housing market began to cool in 2022. Inflation, in general, and rapidly rising interest rates in particular, dampened buyer interest, causing sales to slow and price appreciation to slow.
These housing trends are expected to continue, making 2023 a transitional year. Because of the continued scarcity of houses, sellers continue to have an advantage in many areas, and no one expects a dramatic drop in home prices or values. Nonetheless, the frenetic pace has slowed, and many analysts see a shift toward a more balanced market, which will benefit buyers.
Regardless of the state of the real estate market, purchasing a home can be an exciting and emotional experience for the individual. Before you begin your home search, you should educate yourself on the ins and outs of home buying. This will enable you to make the best decisions for your family — and your wallet.
A step-by-step guide for buying a house
1. Understand why you want to buy a house
Buying a house is a big decision that should not be taken lightly. If you don't know why you want to buy a house, you might end up regretting your decision.
To begin, identify your personal and financial objectives. "Buyers should consider when they intend to move as well as what they want in a home — amenities, ideal location, and how long it may take them to save for a down payment," says Edwence Georges, a sales associate with RE/MAX in Westfield, New Jersey. “These are all important to help define the goals they would like to meet.”
2. Check your credit score
Your credit score will assist you in determining your financing options; lenders use it (among other things) to set loan pricing and determine if you can repay your mortgage. The better your credit history, the better your chances of obtaining financing at the best terms and rates.
To begin, you can obtain your credit report and score for free from each of the three major credit reporting agencies, Equifax, Experian, and TransUnion, once a year. Your bank or credit card company may also provide free access to your credit score or report.
3. Create a housing budget
A realistic budget for your new home will help you determine what you can afford and how much your total costs will be.
How to Begin: The purchase price is not the only consideration. Consider your other expenses carefully to determine what you can afford. "Buyers frequently overlook other costs, such as homeowners association fees and putting money aside for maintenance," says Paige Kruger, Realtor and founder of Signal Real Estate in Jacksonville Beach, Fla. “Just because you can afford a mortgage and a down payment doesn’t mean you can afford those long-term costs after you move.”
4. Save for a down payment
To avoid paying private mortgage insurance, or PMI, you must save at least 20% of the home's purchase price as a down payment. Some lenders offer no-PMI mortgages with lower down payments but expect to pay a higher interest rate.
To begin, look into the down payment requirements for the loan you want so you know exactly how much money you'll need. If a friend, relative, or employer has offered to make a down payment gift, start a conversation right away to find out how much they plan to contribute and if there will be any shortfall you'll need to make up — and get a gift letter from them as well.
5. Shop for a mortgage
Being pre-approved for a mortgage is useful when making an offer on a home because it gives you a better idea of how much you can afford.
To increase your chances of getting a low-interest rate, shop around with at least three lenders or a mortgage broker. Sign up for a Bankrate account to use our daily rate trends to determine the best time to close on your mortgage.
6. Hire a real estate agent
An experienced real estate agent can help you find your dream home and negotiate with the seller on your behalf, saving you time and money.
To begin, contact several real estate agents and request a meeting to discuss your requirements before deciding on one. "Depending on the features you want in a home, someone with knowledge of the area can tell if your budget is realistic or not," Kruger says.“They can also point you to adjacent areas in your desired neighborhood or other types of considerations to help you find a house.”
7. See multiple homes
Viewing listing photos is not a substitute for actually visiting homes and getting to know the neighborhood and its amenities.
How to Begin: Tell your real estate agent what kinds of homes you want to see, or search for them yourself online. Your agent can set up an automatic search for homes that meet your criteria in the local multiple listing service (MLS), a database of homes for sale. You may not be able to cross everything off your wish list, so prioritize what's most important to you aside from location.
8. Make an offer
Understanding how to make an appealing offer on a home can increase the likelihood that the seller will accept it, bringing you one step closer to getting those coveted keys.
When you find "the one," your real estate agent will assist you in preparing a complete offer package, which includes your offer price, preapproval letter, proof of funds for a down payment (which is helpful in competitive markets), and terms or contingencies.
9. Get a home inspection
A home inspection provides an overall picture of the mechanical and structural issues with the property. The inspection will assist you in determining how to move forward with the closing process. If you have a contract contingency, you may need to ask the seller for repairs or decide to back out of the deal.
How to Begin: You can get recommendations for home inspectors from your real estate agent, but you should also do your own research before hiring one. Depending on your contract and state of residence, you should have a home inspection completed 10 to 14 days after signing a purchase agreement. As a buyer, you're usually responsible for paying the home inspector, and while fees vary, according to HomeAdvisor, you'll pay an average of $281 to $402.
10. Negotiate repairs and credits
Your home inspection report may reveal significant or minor flaws. Major issues will almost certainly need to be resolved before your mortgage lender will finalize your loan, whereas minor issues can frequently wait until you take possession of the home.
To begin, enlist your agent's assistance in negotiating with the seller. Request that the seller either perform the repairs or provide you with a credit at closing.
11. Secure your financing
To get final loan approval, you must keep your finances and credit in order during the underwriting process. You won't want to open new credit lines or make other major purchases until the paperwork is signed when you're ready to close.
How to Begin: Respond quickly to requests for additional documentation and double-check your loan estimate to ensure all details are correct so there are no surprises later. As your lender completes the underwriting process, you may be required to submit additional paperwork, such as:
▪ Bank statements
▪ Tax returns
▪ Additional proof of income
▪ Gift letter or written statements explaining major deposits into your bank account
12. Do a final walk-through
A final walk-through allows you to inspect the property before it becomes yours. This is your final opportunity to inspect the house, ask questions, and address any outstanding issues before it becomes your responsibility.
How to Begin: Bring your home inspection checklist and other documents, such as repair invoices and receipts for any work performed by the owner, to ensure that everything was completed as agreed upon and that the home is in move-in-ready condition.
13. Close on your house
When all contingencies have been met, you are satisfied with the final walk-through, and the closing agent has given the all-clear, it is time to make it official and close on your home. In this final step, your lender will give you the status "clear to close" on your loan.
How to Begin: Three business days before your closing date, the lender will send you a closing disclosure outlining all of the details of your loan, including the monthly payment, loan type, and term, interest rate, annual percentage rate (APR), loan fees, and how much money you must bring to closing. You (the buyer) will be present at the closing, along with your real estate agent, possibly the seller's agent, the seller (in some cases), and the closing agent, who may be an escrow or title company representative or a real estate attorney. Depending on the escrow company's procedures, this is also the time to wire your closing costs and down payment.
Finally, taking the first step
Buying a home has many moving parts and complex steps, but this guide, along with the professional advice of your real estate agent and mortgage lender, can help you navigate the process smoothly. You'll have more confidence in your decision if you do your homework ahead of time, and you'll look forward to getting those coveted house keys on closing day.
Working on saving for a down payment and improving your credit before looking for a home will help you get the best mortgage terms possible. After you've laid the financial groundwork, look for a local agent whose knowledge you can rely on to help you navigate a specific market.
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