8 Simple Steps to Buy a Home

“I’ve been renting for more than twenty-five years,” Megan (not her real name), a new acquaintance from a holiday party, confided as we discussed the perks of living in various neighborhoods throughout the Northern Virginia area. “I’ve just always rented,” Megan explained, “because I don’t know how to buy a home.”

Flummoxed by her statement, I nodded, sipped my drink, and pondered as to why an otherwise incredibly bright individual—one who had served a full career in the military, earned a degree, and now enjoyed a lucrative contractor position—could not manage to figure out how to purchase her own home. Yes, buying a home is more complicated than renting an apartment or house, but if Megan had figured out the process and bought a house on a 30-year mortgage note when she first began renting, she would only have five years left of payments remaining!

Then again, what military assignment permits a service member the luxury of setting roots in one home and one community in order to make the lengthy investment in a forever home? Given that Megan probably moved approximately 10 times over the course of a 20-year career, buying a home likely seemed both unpractical and unwise. If Megan assumed that she would move every two years, perhaps learning how to buy a house simply did not seem worth investing the time and effort in her already hectic schedule.

Megan’s story is familiar to many military families. There are many reasons why career military folks and their families are unaware of the process of home buying, but that shouldn’t stop you from moving forward if homeownership is your dream.

Here eight simple steps to help you buy a home:

1. Review Your Financial Status

If you don’t yet keep a monthly budget, now is the time to begin tracking your expenses to see what your budget can handle in terms of a mortgage payment and any additional expenses, such as Home Owners’ Association fees, lawn maintenance fees, and any additional expenses that may come along with your new home. In MilitaryByOwner’s article “Four Simple Steps to Organizing Your Financial Life,” you can learn not only how to create a portable annual filing system that is compatible with the many moves of a military family, but also how to maintain that system over multiple years.

2. Get Qualified

Once you have your finances in check, then it’s time to contact financial institutions to see how much of a mortgage you can expect to receive. You will be thankful you have all your budgetary items in check, as some of the first questions any prospective lender will ask you include your monthly income and expenses. They will also inquire about any additional assets you may have, so keep those Thrift Savings Plan and any IRA statements on hand. The lender will then provide you with a letter known as a pre-qualification statement that you can then take to your real estate agent. This statement will explain how much money you should be able to receive as a mortgage.

3. Find a Good Real Estate Agent

Not all real estate agents are equal, and it’s important to make sure your agent has your best interests at heart. Though agents have an ethical obligation to keep a buyer’s best interests in mind throughout the home shopping and buying process, experience can create a huge difference. While “good” is a relative term, the internet fortunately provides us with the means to find out more about an agent’s experience through online reviews. To begin the process of finding a good, experienced real estate agent, MilitaryByOwner’s Business Directory provides a list of agents who are experienced in dealing specifically with the home-buying needs of military families; they understand the tight schedules of a brief 10-day home shopping leave as well as the challenges associated with beginning the home-buying processing while deployed.

Before agreeing to work with an agent, ask for at least two references, then actually contact them. The agent is not going to send you a reference who will speak ill of her services, but the level of enthusiasm that a reference conveys about her home-buying experience will provide you with a better indication of what you can expect during your own process. Do not hesitate to bring up any concerns with your agent. Remember, you are entrusting her with one of the biggest purchasing decisions of your life, so make sure she knows her business well.

4. Find a House

Two of the first questions a real estate agent will ask are for your pre-qualification amount and your pre-qualification statement from your lender. If you do not have these items, she will likely refer you immediately to one of her associates and will expect you contact that individual immediately so she can begin searching for properties on your behalf. A real estate agent in today’s post-recession market will not begin searching for homes with you unless you can show evidence that you can successfully obtain a mortgage.

Once you have your pre-qualification amount determined, then the real estate agent will have a discussion with you about your housing needs. This is the fun part! You determine how many bedrooms you need, how much space your family needs, whether you want a garage or back yard, whether granite is a necessity, and whether you have the stomach for a fixer-upper. The real estate agent will then present you with a list of houses to review together; the more houses you discard while at her office, the less houses you have to look at, which is important if you are only on a brief home shopping leave.

5. Make an Offer

Once you identify the house that best fits your family’s needs, then it’s time to make an offer on the home. The agent will write up a formal purchase offer to present to either the seller or the seller’s agent, if they are working with one. If the offer is not accepted the first time, then there is no need to fret—this is a standard part of the real estate transaction process. In this case, the negotiations begin. Your agent may have a better understanding of what the seller is likely to accept and will discuss this with you, but it’s ultimately your decision whether to continue to negotiate. If you choose to either increase your purchase price or reduce any concessions for which you requested, such as having the seller cover all closing costs, then your agent will present a new formal purchase offer to the seller. If the offer is accepted, then you will sign a real estate contract and submit a good faith amount that the seller’s agent will hold in an account known as an escrow account. The average good faith escrow deposit is $1,000, but the seller can request a higher amount. This amount is refunded in the event that either the buyer does not receive funding for the mortgage or the home does not pass inspection.

6. Disclosure and Inspections

There is a point in the buying process that comes between the anxiety-ridden high of an accepted offer and the moment of delight when those precious keys securely rest in your hand for the first time. It’s the least amount of fun you will experience during your first home buying adventure. A good real estate agent will capably guide you through this portion of the process, helping you understand the disclosures, appraisal, inspections, and the final approval from your lending institution.

The first least fun part is the disclosure documents. Though analyzing flood maps, geological surveys, and any known property ordinance violations or damages may not seem appealing at first, they can save a considerable amount of pain, time, and cost in the future, if properly analyzed. If a seller is aware of any problems with the property, for instance, then he must note this on his disclosure statement. If the statement clearly shows that the property has electrical issues, structural issues, that the HVAC system far exceeds its life span, the roof and windows have sprung leaks over the past year, or any other similar big-ticket item, then it’s better to have this information prior to closing. If the disclosure statement shows substantial problems, then you have the option to cancel the deal and receive your escrow deposit back, renegotiate the terms to have the seller either correct explicitly stated issues or reduce the sales price, or continue with the deal and purchase the property on an “as is” basis. A good real estate agent, however, will suggest that you select one of the first two options.

If the disclosure did not show any issues but the property inspection does, then this provides a prospective buyer with yet another opportunity to either renegotiate the terms of the sale or cancel the deal entirely. The property inspection is something a buyer pays for up front to avoid any conflict of interest should the seller offer to pay for the inspection. An inspection is essentially a buyer’s due diligence prior to making a huge investment. For just a few hundred dollars, an inspector will review all aspects of the property. Make sure to request photos of any prospective issues to keep on record in case some items do not correlate with the disclosure statements. You can find an inspector either through MilitaryByOwner’s Business Directory or ask your trusted real estate agent for a referral.

While the disclosure and inspection provide buyers with opt outs for the deal, the lending institution has the final say in whether it will agree to release funds for a mortgage. The lender must confirm two items: the appraisal value of the property and the seller’s ability to make timely payments.

For the first, the appraisal, the lender will send out an individual to inspect the property. He will compare the value of the home to comparable properties on the market to determine if the sale price meets the value of the property. A buyer or seller can contest the appraisal value, but it’s incumbent upon the real estate agent to show considerable evidence as to why the appraiser’s value proved incorrect.

Finally, during this entire process, the lender has been diligently (hopefully!) working to approve your financial status, a process which can take several weeks or more. Though the pre-qualification statement showed the amount the lender perceived you could reasonably afford, the pre-approval amount was only based on self-reporting, and the lender may have uncovered some credit items in the process that may negatively impact your debt-to-income ratio, which in turn, may limit the amount that you may borrow. Understanding your financial status serves as the first step in this process for this very reason—you do not want to go through this entire process only to that you can’t borrow enough money to cover the mortgage for the property.

7. The Walk Through

Just in case the option to opt out of a sale during disclosure and inspections didn’t provide you with enough warm and fuzzies to help you make that initial escrow commitment, one final step permits a prospective buyer the option to back out—the final walk through. The final walk through usually takes place a day or two before closing, where a buyer walks through the property with his real estate agent. The walk through provides buyers with an opportunity to inventory the appliances and systems in the property, as well as a chance to inspect that the condition of the interior and exterior of the property, including the yard, meets the terms of the contract. If any item does not meet the terms of the contract, then the agent will contact the seller’s agent to discuss overlooked items and ensure that the contract terms are met as agreed upon. Once the buyer approves the walk through, then the process moves directly to the closing.

8. Closing the Deal

Buyers will receive a copy of the HUD-1 Settlement Statement, outlining the final terms and costs of the purchase prior to entering the closing office. Most HUD statements are now sent virtually via email, providing quick access to the information and a more efficient turnaround time for closing. This statement will also outline any funds buyers will need to bring to the closing to cover closing costs.

The closing can either take place at an office in the presence of a notary, such as an attorney, or it can now take place remotely where buyers and sellers meet with notaries in their respective homes. In addition to reviewing the HUD statement and remembering to bring a cashier’s check to cover closing costs, it is also important to remember to bring photo IDs and, ideally, a strong coffee to help prepare you for approximately two hours of signing to complete the stack of requisite paperwork.

And that’s it!

Once the notary signs and seals the final paperwork, the keys to the house belong to you. Welcome to the world of homeownership!

If you are interested in becoming a homeowner, contact one of MilitaryByOwner’s partners to find a real estate agent experienced in working with military families who can help you navigate your own eight simple steps to buy a home.