How to know when looking to buy a house
How To Buy A House (STEP BY STEP)
Timecodes:
hey everybody welcome back to whiteboard
finance my name is marco and i'm here to
help you
master your money and build your wealth
in today's video i'm going to teach you
how to buy a house
step by step it seems like everybody is
in the market for a house these days
especially where i live
but buying a home is a huge commitment
and a potentially long term commitment
at that
so in this video i'm going to walk you
through buying a house
step by step in 11 easy steps let's get
right into it
okay so step number one is are you even
ready to own a home so you have to
really dig
deep down inside look at yourself in the
mirror and ask yourself
am i in a position and am i ready and
responsible enough to own a home
so the first step i would recommend is
having steady income and employment
so if you have your regular paycheck
coming in you're able to
kind of budget and understand what your
money situation is going to be
this is a good thing if you know your
job is stable this is a good thing
if you're in sales or if you have a
unreliable
source of income you know your
commissions could be up they could be
down
you could be a business owner you don't
know how much money you're going to make
in a certain month
i recommend having at least six to 12
months of reserves
to at least somewhat compensate for this
first point
the second point is understand your debt
to income ratio
so the banks are going to base this on
your gross monthly debt
obligations divided by your gross income
i actually like to look at this on net
income but just for the gross income
basis
this should at least be under 36 percent
in my opinion if you're above 36 percent
of your monthly debt
divided by your gross income that is too
high of a debt to income ratio
and it could actually cause some
problems in underwriting when getting a
mortgage
and then finally number three how is
your credit have you looked at it lately
if you're a good credit score that's
only going to get you a better rate
meaning the cost of borrowing money is
going to be cheaper over the length of
the loan
okay number two is knowing how much
house you can afford
so this is probably the most important
aspect of home
ownership because this will either
determine if you're living comfortably
or if you're going to be house poor
so first and foremost i highly recommend
if you haven't already checking out my
home affordability spreadsheet
this spreadsheet alone can prevent you
from making a huge financial mistake by
buying too much house
so if you want to get that spreadsheet
check out the link down below
what this spreadsheet does is it takes
you and your partner
or other sources of income and it
determines what your monthly net income
is
and i recommend not spending any more
than 30 percent of your net income on
all housing costs so not just principal
and interest
but i'm talking principal interest taxes
insurance
if there's an hoa fee i incorporate
utilities so you can estimate your
utilities as well
i'm talking all in your housing cost
shouldn't be any more than 30 percent of
your net
so with that being said check out the
spreadsheet below that way you know
exactly how much house you can afford
okay so step number three these are your
down payment and closing costs so if you
don't know what a down payment is that's
simply a percentage of the home that
you're paying for with cash
and then you're taking a mortgage for
the rest of the amount you can put
anywhere from
zero to a hundred percent down hundred
percent is paying cash
zero percent is using something like a
va loan or a usd alone which doesn't
apply to most people watching this video
on a conventional mortgage you can
typically put anywhere from three
to ninety nine percent down however most
people typically put anywhere from three
to twenty percent down
however most banks if you put less than
20 percent down you're going to get
pmi which stands for private mortgage
insurance
you want to avoid pmi because this
doesn't go towards principal or
interest it is literally just a monthly
fee aka
insurance for the bank or the lender
giving you that mortgage
so i would recommend 20 down obviously
more people
more and more people are putting down
less but if you do put down 20
down you do avoid the pmi okay so uh if
you want to use twenty percent as an
example on a hundred thousand dollar
home
hundred thousand dollars times point two
that just gives you
twenty thousand dollars as a down
payment so when you're going into a
house purchase you're gonna have to have
a down payment of some sort
and then you're also going to have
closing costs right here so what are
closing costs if you do
opt to get a mortgage you're going to
have to get involved with a bank and
they're going to
require things like appraisal title
closing fees bank fees
etc etc these typically range anywhere
from about one to six percent of the
value of the home
if you're smart you'll put away about
three percent for closing costs just to
make sure that you have that money
ready and available okay step number
four is getting your mortgage
pre-approval this is simply just going
down the street to the bank or credit
union
saying hey mr banker my partner and i
we're looking to get this house
can you at least tell us what we're
pre-approved for when we are starting
the mortgage process with you guys
and they'll take your information
they'll look at basically your income
your debt to income ratio
your credit score your other obligations
so on and so forth
and they'll come back to you with a
dollar amount that you're essentially
pre-approved for
for amount of loan aka mortgage so
this will actually help allow you to
budget better and you'll know
hey this is the amount of money we have
down this is the amount of money we can
borrow
this is the amount of money or the
amount of house we can afford okay
so what this helps to do is this helps
you get under contract
fast if you do find a home you like so
instead of trying to talk to the seller
and have your real estate agent write an
offer letter which we'll talk about
later in this video
you can actually show the seller hey i'm
interested in your house
this is my offer here's our pre-approval
letter great so as the seller i actually
have some confidence in you
seeing the letter or the pre-approval
letter from bank x
saying that you're approved for amount y
of dollars
and this helps me know that once i get
into contract with you
you're able to close quickly and you do
have the funds available
okay step number five is working with a
real estate agent or a realtor
so this could be you know your
father-in-law this could be a friend
that you work with doing it on the side
they can be a full-time agent the skills
and skill sets of agents
vary there's some that are really good
some that are really bad
so make sure you know who you're getting
into bed with before you go on this
house hunting journey okay so this
person is essentially representing you
in the purchase they are kind of like a
lawyer representing you or your medical
professional giving you advice
or a financial advisor for example so
their specialty is to write offers
negotiate guide you through the entire
process they should be your trusted
advisor when looking at these homes
okay you don't necessarily need one
however if you are a first time home
buyer i would recommend you work with a
good one
because they can kind of calm your
nerves down they can walk you through
the process
and they can kind of be your guide
throughout this whole sales process or
this sales journey
number three is that they are
compensated typically in most cases by
the seller
so the seller is selling their home they
are working with a listing agent
this is your buying agent you are
purchasing the home uh typically they're
compensated anywhere from i'd say two to
three percent
depending on the price of the house so
you are not actually paying them
anything unless you have some other sort
of negotiation in place
the seller is paying both the listing
and the selling agent to sell their home
okay so number six is starting the house
hunt or starting your search
okay so the search begins number one the
most important thing is establishing
your criteria okay so at this point
you've established your price
the square footage that you would need
the amount of bedrooms bathrooms
depending on your family size or your
living situation
and also most importantly your wants and
your needs
if you're doing this with a spouse or a
significant other
figure out what things you align with
figure out things that are wants figure
out things that are needs
okay we both want a swimming pool okay
we both want a gazebo we both want you
know four car garage whatever i'm just
making stuff
up uh make sure that you're both on the
same page because you'll see once you
start to see more and more houses
this is gonna be areas for contention
and argument so make sure you outline
what you want in the beginning
number two this is a up arrow and a down
arrow it's basically just
ranking your priorities okay so if you
have a list of wants and needs
make sure that you give your real estate
agent who's going to be looking at the
mls for these houses for you and also
you and your partner or spouse
make sure that you're ranking these
priorities highest to lowest
you know what can you live with what can
you live without and then finally
number three this is kind of just a tip
from my background i've worked in
commercial real estate on the
development side
and also on the leasing side i look at
everything from a dollar per square foot
perspective
price per square foot so you may have
two different houses
you know and let's just say their
amenities are similar okay it's a
comparable property
look at the dollar per square foot is
one coming in at a hundred fifty dollars
a square foot and the other one's coming
at a 185
well what is that 35 per square foot
difference
so that way it kind of gives you a
baseline of understanding
okay this neighborhood things seem to be
going for 150 a square foot
this neighborhood things seem to be
going for 250 a square foot
you know why is that am i getting a good
deal or am i getting ripped off
so i look at everything on a price per
square foot basis
if all the amenities and upgrades are
similar okay step number seven is making
the offer and negotiating i can make a
whole video on negotiating but that's
outside the scope of this video
this we're going to talk about actually
making the offer so number one is
submitting and writing
an offer you want to get everything in
writing and remember everything is
negotiable
so if you liked a certain statue or a
piece of art or you know whatever
or a piece of gym equipment or fitness
equipment you can negotiate all that in
writing
most likely they'll actually let you do
this outside or after the contract's
been signed
however it helps to get everything in
writing uh first and foremost
so basically the the offer is basically
what you're willing to pay for it any
contingencies on financing or inspection
things like that and once all those
things are checked off you can then move
on to finally
completing the offer however that will
be discussed later in the video
what you want to do is is humans love
stories okay that's why number two i
said humans heart that's a heart it's
not a
apple bottom jeans or a butt or whatever
that looks like so humans love stories
so when you're making your offer say for
example you're a newlywed and you have a
new baby on the way and your wife's
pregnant and
you know it's lovey-dovey people love
that so if you have a house that's in a
hot market
and there's a bunch of offers coming in
it may actually behoove you to cover
to do a cover letter with hi i'm marco
this is my wife she's pregnant we really
love the neighborhood blah blah blah
blah
humans love stories they may be more
inclined to sell you the house or go
with your offer
even if it isn't the best one on the
table doesn't happen all the time but i
have seen it okay
number three you'll put down earnest
money so earnest money is essentially a
good faith deposit that goes
towards the down payment or closing
costs however if you walk away from the
deal you will lose that earnest money if
it is indeed on
your fault or on you for walking away
from the deal
so this is typically you know couple
grand it could be less could be more
depending on the price of the house
but it's basically you putting a good
faith forward or a good foot forward
with the seller saying hey
i'm serious about this offer so at this
point three things can happen
the sellers can either accept your offer
decline your offer
or they can come back with a counter
offer and it can go both ways
and at that point you just continue the
negotiation okay step number eight is
once you get the contract accepted or
you're under contract depending on the
length of contract
that will give you time to get an
inspection and an appraisal so these are
two different things don't get them
don't get them confused so once the
property is under contract i recommend
getting a home inspection
this is basically a gentleman or a woman
who comes out they inspect
the roof the inside of the house you
know plumbing radon
gas mold things like that anything that
could be wrong
or a foreseeable issue with the property
so they're looking for problems or
issues number two
the appraisal is completely different
this is a certified professional that
tells you or estimates the value of the
home depending on comparables depending
on you know the build quality the
neighborhood things like that
now number three i actually have ammo so
ammunition
so if the inspection or the appraisal
comes back say for example the inspector
comes back and says
this roof is shot there's mold in the
basement there's radon et cetera et
cetera
you can use that as bargaining or
negotiation ammunition
in the negotiation part and you can
actually get either a credit
or some money off the house depending on
the amount of money it costs to
remediate these issues that the
inspector finds
secondly the appraisal say you're
looking at a house for easy numbers it's
a hundred grand
the appraisal comes back at 90 you can
then maybe use that 10 grand to get some
money off the asking price as well
so inspection and appraisal super
important
okay number nine is just to piggyback
off of what i just said with repairs and
credits very quickly as mentioned
when stuff does come back you can ask
for a discount off the purchase price of
the home
you can ask for a credit at closing for
example
or you can have the seller fix it or
remediate it so by the time you do your
final walk through
you can see that they fixed all the
issues that you brought up in the
contract
so very simply just wanted to recap this
this is where you can save a lot of
money so i decided to give it its own
section
okay so number 10 is completing your
final walk through so you want to go
through the house after the seller is
taking everything out all their
possessions that you didn't
negotiate on or you didn't want or you
didn't purchase from them
basically you want to see if everything
is where they left it you don't want any
beautiful fixtures taken off the wall
you don't want any damage happening
after the move out
so you may even want to take you know
before and after pictures that way when
you go to final walkthrough you say hey
what the heck happened here there's a
big gash on the wall there's a big hole
in the drywall
et cetera et cetera so do your final
walkthrough make sure everything is in
order
secondly have the seller show you around
have them show you everything
so if there's a nice speaker system for
example or there's an alarm system or
there's automatic lights
or there's you know a sub pump in the
basement for example you want to make
sure that they show you everything
that way you're not trying to reach to
reach out to these people after the fact
after you've already taken possession
so make sure that you get a final walk
through through the seller and make sure
that they show you all the quirks and
features of the house
okay so step number eleven is to close
congratulations you are almost a home
owner so your lending institution is
going to send you a closing disclosure
this is basically an
outline of things that you need to bring
to the closing table
this will happen roughly you know two
three four days before the actual
closing date
and it's basically just telling you what
you need to bring to the closing
number two is reviewing your numbers
make sure that the lender
the numbers that they gave you during
your pre-approval and all the mortgage
disclosure documents with the principal
and the interest and the amortization
schedule
make sure all that stuff adds up and you
are indeed getting the mortgage that you
are
essentially promised to be getting from
your lending institution
and then finally number three this is
your settlement statement this is very
important because
this is basically showing you all the
closing costs the purchase of the or the
purchase price of the home
the down payment amount etc etc all that
good stuff
make sure all this stuff balances out to
zero and you're not paying more than you
should
so congratulations you are now house
poor and you're going to be in debt for
the next 30 years of your life
i'm just kidding uh the one thing i want
to the takeaway from this video that i
want to say i'm just messing around but
in all seriousness
a house is a big responsibility you got
to set aside money every year for
maintenance
uh you know if you're renting right now
your landlord is taking care of all that
once you're a homeowner
if the hvac goes out if the roof goes
you know it gets crushed by a tree or
whatever
that's all on you as the home owner so
just be cognizant of that
owning a home is awesome it's a great
source of pride
but it does come with a lot of
responsibility so if you got value out
of this video please give it a thumbs up
share it on facebook share it on twitter
share it on social media
and also don't forget to get my home
affordability spreadsheet down below
it will save you a lot of money and a
lot of headache
thank you so much for watching and have
a prosperous day
yeah home ownership home headache
just kidding it's a place to raise a
family marco
it's a place to raise your kids
Related queries:
what to know when looking to buy a house
how to start looking to buy a house
how far in advance should i look for a house to buy
