Buying a house can seem like a daunting and complicated process. There is certainly lots to do, but with our simplified how to buy a house guide, the home buying process will seem like a breeze.
There are many steps involved in how to buy a house as well as saving up for a home and if you are a first-time homebuyer, then there can be a lot to learn about how to buy a house too. Learn how to save for a house so you can move on to learning how to buy a house even sooner.
How to Save for a House
Before you learn how to buy a house, you have to learn how to save money for a house. Saving up money will not only help cover the down payment of increasing home prices, but it will also help you get preapproved for home loans easier and can provide extra cash to go toward home appraisers and real estate agents who can help you find a home. Homes have higher prices than ever so it's more important now than ever to stay up to date on purchase prices and save up money to meet those down payment requirements.
- Build a budget with house saving in mind
- Downsize your living situation while you save
- Spend less to save more
- Get a high yield savings account that can grow
- Ask for a raise at work
- Negotiate a better salary at your next job
- Make smart investments to grow your savings
- Find ways to generate residual income
How Much Money Should I Save for a House?
Since the first step to how to buy a house is saving for a house, it helps to know how much you should save.
Typical mortgage loans will want borrowers to save at least 3% of the home purchase price as a down payment for the loan. There can be mortgage loans that borrowers can qualify for with a down payment lower than 3% or even without a down payment. But generally, a 3% down payment is considered a minimum requirement to have saved up.
If you are able to save up at least 20% of the home price as a down payment, then you won't have to necessarily pay for Private Mortgage Insurance (PMI). So saving up 20% or more for the purchase price of a home can be an even better financial goal to set. The more you are able to put down on the home price in the beginning the better interest rates you will most likely be able to qualify for as well.
Is it Cheaper to Build or Buy a House?
Whether you build a house or buy a house, you'll still end up needing to know how to buy a house. The steps for how to buy a house if you're building it vs buying it just may look a little different. For instance, the how to buy a house guide for building a house might involve buying land and hiring the right contractors.
Whether it is cheaper to build or buy a house will depend a lot on the economy, the housing market, and the prices of building materials. In general, buying an existing home tends to be less expensive than building a new home. Building a house comes with many costs and can take several months or even years to be completed. Buying an existing house can help you move into your home faster and save you money on building costs.
How Much House Can I Afford?
There are 3 basic methods for figuring out how much house you can afford when you are learning how to buy a house and how much you should save for a house. You can base your numbers on your savings, income, or monthly payments. But, as a general rule, you want to spend between 2.5 and 5 times your annual salary on a home.
To calculate based on your savings, take the amount you have saved right now and divide that amount by 20% to see what price range of home you can currently afford.
To calculate based on your income, take your gross annual income and multiply it by 2.5 or 5. Multiplied by 2.5 tells you the minimum amount of house you can afford and multiplied by 5 tells you the maximum.
To calculate based on monthly payments, use the 28/36 rule. This rule recommends that you spend only 28% of your monthly budget on housing each month and only 36% on debts.
The Simplified Guide for How to Buy a House
There are essentially 5 steps for how to buy a house. The home buying process can be more complicated than this, but these 5 steps for how to buy a house are the key tasks all home buyers will need to go through.
Step 1: Become Financially Ready to Own a Home
The very first step for how to buy a house is getting financially ready to buy and maintain a home. Owning a household goes beyond the initial costs of buying a house. You also need to be prepared to pay for the down payment, the realtor commissions, the closing costs, the home inspection, renovations and repairs, monthly mortgage and utility payments, annual property taxes, and more.
Prepare to buy a house by doing the following tasks:
- Start saving up for a down payment
- Start saving up for the closing costs
- Calculate your minimum and maximum budget for buying a house
- Calculate your minimum and maximum monthly budget for owning and maintaining your home
- Check your credit history and credit score
Step 2: Get Preapproved for a Mortgage
The next step to how to buy a house is to run the numbers and know what you can and can't afford and what money is going to go where, you can start shopping for a mortgage loan.
When buying a home, you'll want to get preapproved for a mortgage with the lender of your choice. This preapproval will then allow you to hire a real estate agent and start looking at homes. You want to get this preapproval with your bank or lender first, so you are prepared to submit offers when the right house comes along.
Step 3: Look at Homes and Submit an Offer
You are almost done with the how to buy a house process! Now that you've figured out your finances and gotten those finances preapproved with the bank, you can start house hunting!
Find yourself a real estate agent and start checking out the available homes in the area where you want to live. Here is where you'll start to consider the things you must have in a house, the things you would like to have in a house, and the things that are deal-breakers in a house.
When you find a house that feels right, you are now ready to submit an offer and see if it gets approved. This is where your real estate agent comes in to handle the negotiating and paperwork between buyers and sellers.
Step 4: Get the Home Inspected
If your offer gets approved, then congratulations! Now it's time to go through your own, more detailed approval process of the home itself.
Usually, there are certain basic conditions put into the offer a home buyer submits to a seller. These conditions include things like getting a home inspection and home appraisal before you officially close the deal.
This gives the potential buyer time to give the house a thorough look to make sure there aren't major problems with the house itself. If there are major issues, like faulty plumbing for example, then the buyer could back out or negotiate with the sellers to take those essential repairs out of the house price.
Step 5: Close the Deal
Once you are satisfied with the home buying contract the buyer and seller can sign the contract and officially close the deal. Congratulations! You are now a homeowner and can start scheduling when to move in.
Is It a Good Time to Buy a House?
How can you tell when it is a good time to buy a house and when it isn't a good time to buy a house? This depends on two things, the buyer's market and the seller's market.
The housing market is split into 2 sides—the buyer's market and the seller's market. When the buyer's market for homes is good, it's usually not the best time to sell your house and vice versa. Part of the right time to buy a house comes from how these markets are doing.
Figure out how the market is doing by looking up housing market predictions in the area you want to live. The housing market in many states has seasonal ups and downs to consider as well. Typically, the housing market will slow down in the fall and winter and speed up again in the spring and summer.
How Long Does It Take to Buy a House?
How long it takes to buy a house depends on many factors like the housing market and the kind of offers you are able to financially make on a home right now. It can take nearly any amount of time to find a home, but once a contract has been drawn up, it usually takes anywhere between 30 and 50 days to officially close on the house.
Don't let the home-buying process overwhelm you when it basically boils down to 5 simple steps—prepare yourself financially, get preapproved for a mortgage loan, submit an offer on a home, get the home inspected, and close the deal.