Buying a House

Need house buying tips? Get advice and help buying a house using this free lesson, which covers the main things you need to think about.

Introduction

By the end of this lesson, you should be able to:

  • Discuss different options for finding a place to live
  • Outline steps in the homebuying process

Can I afford a house?

toy house on top of cash

Instead of renting, you may want to consider buying a house. It's a good investment in the long term. Instead of paying a landlord, you are building up equity in your own property.

Before you jump into buying a house, ask yourself:

If you answered "no" to any of these questions, you may need to get your finances in order before you begin your house search.

Where to look

Once you have a good idea of the type of place you want, here are some places to help you start your search.

  • Real estate agency. Real estate agents can help you look for a house. You'll learn more about real estate agents later in this lesson.
  • Newspaper classifieds. You can find listings of apartments or houses on classified websites such as craigslist, or in local newspapers and their websites.
  • Housing or real estate guides. These listings can usually be found at your local grocery store.
  • Ask friends or family. They may know of a great house that is available or know of some people who are moving.
  • Websites. Some real estate agencies may have websites of their listings. Housing or real estate guides may also have websites.
  • Community bulletin boards. Homeowners wishing to sell a house may post a notice in a community center or library.
  • For-sale signs. Many real estate agencies and owners post signs in front of available property.

Finding a house

real estate agent with House for Sale sign

To find and buy a house, many people work with a real estate agent. He or she has access to data that shows which houses are for sale and at what price, as well as details such as house and lot size and number of rooms. The more detailed you are about what you want, the easier the househunting process will be.

Consider the following:

As you look for a house, consider neighborhood factors such as public schools, parks and community centers, economic centers, shopping areas, and crime rates.

Making an offer

Family in front of house with Sold sign

Once you find a house you like, your real estate agent can help you make an offer for the house, listen to the seller's counteroffer, and negotiate a price. An agent also helps with the necessary paperwork and can help you find a title company, which will check that the title on the home you are considering is clear—meaning there are no liens or other problems.

Your agent can also help you find a reputable home inspector to conduct an inspection before you sign a contract. This will typically cost you $200 to $500. Make sure the seller either fixes or compensates for any problems, which doesn't include cosmetic defects, before the final sale.

In most states, it is illegal for the seller to lie or cover up defects in the home. Ask the seller for a Seller's Disclosure report, which details all physical problems and defects of which the seller is aware. However, it is not a crime if the seller doesn't report a problem because he or she wasn't aware of it.

Visit your local library or bookstore and go online for additional research on homebuying before beginning your search.

How much does that house cost?

There are different costs and factors associated with buying a house, including earnest money, a down payment, mortgage, and closing costs. Be aware of the following:

house with sold sign

The home loan

Now that you know more about the homebuying process, consider what you'll need to do to secure a home loan or mortgage. Shop around and compare. Check your local bank or credit union, mortgage brokers, and websites.

Remember that a bank or other lending institution will check your credit history before deciding whether to offer you a loan, as well as the amount of the loan. This loan or mortgage is paid back to the bank on a monthly basis over 20 to 30 years.

A monthly mortgage payment consists of:

  • Principal: Repayment of the original amount borrowed
  • Interest: The cost of borrowing the principal amount
  • Taxes: Real estate taxes
  • Insurance: Homeowners insurance


Before approving a mortgage, your lender will also look at the comparative value for similar homes in the area where you are buying in to make sure the loan is a good investment.

Housing prices can vary significantly from location to location. Some loan programs such as Fannie Mae and HUD have strict guidelines as to the condition the house must be in before you buy it. Most loan companies also require things such as termite inspections and roof repairs if needed before approving a home loan.

There are two basic types of mortgages:

  • Fixed mortgage: A fixed term—for example, 30 years—and a fixed interest rate at the start of the mortgage; the monthly amount for the payment of principal and interest will not change during the term of the mortgage
  • Adjustable mortgage: Also known as an adjustable-rate mortgage (ARM); interest rates are adjusted up or down based on current interest rates set by the federal government; principal and interest payment goes up and down with these rate changes

How much will that house cost me? Enter the amount you want to borrow, the current interest rate, and the length of the loan—usually 15 or 30 years—to see how much the loan will cost you.

Keep in mind that your monthly payment will also include insurance, taxes, and other fees.

Living expenses

couple installing wallpaper

Living in a house usually involves dealing with more living expenses than living in an apartment. Make sure you are aware of and can afford such expenses before you take on the responsibility of homeownership. Some may be one-time costs, while others will be ongoing.

You will likely have to deal with most of the following:

  1. Moving expenses
  2. Miscellaneous expenses, such as a lawnmower, rakes, paint, ladders, and tools
  3. Appliances
  4. Furniture
  5. Repairs and maintenance
  6. Remodeling
  7. Property taxes

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