A Step-by-Step Guide to Buying a Home

Work with your real estate agent to research the sale prices of comparable homes in the area and use those figures to help determine your initial offer.

"Actively listed comps are not accurate, as those are asking prices; make sure to look at the sold prices [for comparable properties]," says Scott Gorelick, a real estate agent and owner of California-based Concrete Real Estate agency. "Do not go back more than six months [when reviewing comps], or three months if there's a lot of real estate activity. You want the comps to represent the same market interest rates and trade prices."

Putting plenty of research and thought into your bid is particularly critical during a seller's market like we're currently experiencing amid COVID-19, as multiple buyers are typically competing for a single property given the limited inventory conditions in many places.

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"In a seller's market, buyers would do well to avoid making offers that aren't aligned with recent comparable sales in the same area," says Stephen Donaldson, founder of New. York City-based The Donaldson Law Firm, which specializes in real estate. "Making an offer in excess of the purchase price, or above all other bids can result in an accepted offer, but if the buyer is obtaining a mortgage, the subsequent appraisal of the home could identify the property's value as lower than what the buyer agreed to pay." 

When there is a discrepancy between a home's appraised value and the price bid on the home, the mortgage is not likely to get approved.

Be upfront about extras, such as curtains, light fixtures, or appliances, that you want to be included with the house. However, here again, you'll want to remember just how competitive a market it is right now.

It's also critical that all demands you and the seller have settled upon are included in the sale agreement in writing.

"While it's permissible for a buyer and seller to reach separate agreements apart from the main contract for such things as buying or selling TVs, patio furniture, and more, any demands made by a buyer and accepted by a seller must always be included in the contract of sale," says Donaldson. "Failing to reduce every aspect of the agreement in writing can leave a buyer in an unwanted position."

Depending on current market conditions, the closing date for a home purchase can be used as a negotiating point. In other words, if you're willing to close quickly, this may be helpful to a seller who needs to move on a particularly short timeline. Conversely, if you are flexible with the closing date and do not need to move in right away, this too could be an advantage, depending on the seller's needs.

A good one will cost around $300 to $600 (costs vary by provider) and can cover the cost of any major home systems or appliance repairs for a year after closing.

Every market is different, but in the Los Angeles area, it is standard for buyers to request that the seller provide a home warranty at closing, up to a certain amount," says Jennifer Okhovat, a realtor with Compass. "Home warranties can be very rewarding for buyers, especially in the first year of owning a property, when things seem to pop up that never did for previous owners. A home warranty acts as a sort of insurance to assist with the cost of repairs that may unexpectedly come up in the first year."

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Even if the seller does not want to cooperate and provide a home warranty, Okhovat suggests buyers purchase one.

"If you're an agent, this can also make a great closing gift," says Okhovat.

Ask people you know (and trust) to provide recommendations for a mortgage lender.

"One of the best ways to find the best mortgage lender is to ask for referrals from friends and family," says Kalicia Bateman, mortgages editor for Best Company, a mortgage review website. "But if that isn't an option for you, and even if it is, I would also recommend reading customer reviews for all and any mortgage lenders you might consider borrowing from. Customer reviews give you an inside look into a lender's customer service, as well as how quickly they process loans and get you to closing."

Also, consider local credit unions. They too may provide low mortgage rates if you qualify for membership.

To avoid having to buy private mortgage insurance, you need to pay at least 20 percent of the purchase price before closing costs.

Consult with both mortgage bankers and mortgage brokers to get the best interest rate.

"Once you've assessed your financial situation and mortgage needs, it's time to shop around," says Andy Taylor, general manager of Credit Karma Home. "At a minimum, look for a mortgage at two to three different financial institutions to get the lay of the land. Never take the first offer you're given. You wouldn't buy a pair of shoes online without first shopping around for the best price, but consumers often make the biggest financial decisions of their lives by going with the very first person who gets back to them. This is a huge missed opportunity because a few extra minutes of shopping around could save you tens of thousands of dollars over the course of a loan."

Starting with banks or credit unions where you already have accounts can be one way to obtain great rates (based on your current relationship with them), but make sure you're also reviewing options at additional credit unions, national banks, and local or regional banks, says Taylor.

"Getting multiple offers can give you negotiating power and help you understand your options," Taylor adds. 

Those who may be worried about multiple requests or inquiries dinging their credit score should understand that any impact to your score will be small, and you can minimize negative impacts by doing all of your shopping around during a very short period of time.

"Complete your mortgage shopping in 14 days, and when multiple lenders request your credit score within that time, it will only count as a single inquiry," says Taylor.

When mortgage shopping, it's important to remember that the interest rate on your loan isn't the only factor to consider when calculating the costs of buying a home.

"Always pay close attention to the mortgage terms and conditions," says Jonathan Spears, founder of Spears Group, a leading real estate agency in Destin, Florida. "Oftentimes we get so caught up in obtaining the best rates that other ancillary fees are overlooked such as PMI (required mortgage insurance), points on the mortgage, and lender closing fees."

When reviewing mortgage documents and offers, pay special attention to any terms that may trigger additional expenditures, says Spears.

Sometimes a bank will let you pay upfront to lower your interest rate, but it can get expensive.

You don't need to use the inspector referred to you by your real estate agent. In fact, it may be best to avoid doing so. Instead, contact related professional organizations to find an accredited, self-employed expert who has performed at least 1,000 inspections.

"You should hire a home inspector you trust so that they are looking out for your best interests," says Bill Samuel, a Chicago, IIllinois-based real estate investor with Blue Ladder Development. "Sometimes if you use an inspector referred to you by a realtor they may not be as unbiased as someone you find on your own because the inspector might not want to upset the realtor by finding something bad that may terminate the deal."

Another important point about inspections, they are not a time to look for ways to take advantage of the seller or to try and get a better deal on the home, advises Mike Opyd, managing broker with RE/MAX Next in Chicago, Illinois.

"Focus on the major items like latent defects and safety hazards," says Opyd. "Keep in mind, an inspection is there to protect the buyer. It is in place so a buyer can know the main items they need to be concerned with and what they might need to address down the line."

Find out what the finished report will look like first. You want it to be at least 10 pages and include photographs of anything that's wrong.

Ask your real estate agent if they recommend additional inspections above and beyond the standard one. This will depend on the style of the house and when it was built.

This is your opportunity to ask questions about the infrastructure of the house. Be sure to learn about the operation and locations of the gas and water shut-off valves and the breaker box.

Your real estate agent will submit to the seller the anticipated costs of any problems found during the inspection.

You can control the quality if you schedule the repairs yourself. If you choose this route, you may want to request that the cost of any fixes be deducted from the sale price and have the work done after the purchase is final. However, you'll need to be cautious with this approach.

"Asking for a price credit is a very sensitive topic," says Okhovat, of Los Angeles, California-based Compass. "Every transaction is different, and it's important for the buyer and the buyer's broker to check the temperament of the seller and seller's broker when asking for a credit. Personally, I do not advise my buyers to request credits for any cosmetic repairs."

If a significant repair need is discovered and the seller is truly unaware, then it may be acceptable for a buyer to request a credit or repair for such items during the escrow period, says Okhovat. "In the LA market, the seller may deny the request for credit and at that point, the buyer may need to make a decision to move forward with the purchase anyway, or walk away."

To determine its value, you need an appraiser, which your lender will hire. Make sure the appraiser has a copy of the sales contract to verify what is (and isn't) being sold.

Point out where the home being appraised has been improved and how that differs from other recent sales.

You can choose the provider for this coverage, which protects you and your lender against liens. There's no discernible difference in protection, so you can go with the cheapest option. Just be sure to ask the insurer for their rating.

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"Most homebuyers don't even know that they can shop around for title insurance and choose one with the lowest rate," says Jeff Johnson, a real estate agent, and acquisition manager for Simple Homebuyers. "Before shopping around, homebuyers should search the internet to check the prevailing rates. They could use websites like closing.com, which help buyers with the process. Once you have an idea how much you can afford for rates, then go title insurance shopping." 

Some key factors to consider when shopping for title insurance include the insurance company's service, areas of coverage, and how much experience the company has.

Lawyers aren't always necessary for residential purchases, but if your situation is complicated or if you're buying a foreclosure, it's a good idea to hire one.

Do so 30 to 45 days before your close.

Besides the expense tied to your loan, you may have additional fees, such as title services and transfer taxes.

Some lenders or mortgage brokers charge for preparing documents, messengering papers, or even printing emails. It's worth asking to have these items removed from your bill.

"Spotting bogus fees is a tricky process," says Bob Scott, founder of Missouri-based Sell Land. "'Origination' and 'broker' fees are the same thing, so don't be fooled by [the] interchangeable terms. This is a common mortgage junk fee that I notice for homebuyers who are not familiar with mortgage wordings. Generally, I would advise avoiding closing costs altogether, but sometimes paying some of these fees is inevitable."

His advice? Just make sure to review all fees you're paying for—and watch out for document preparation fee, commitment fee, email fees, miscellaneous fee, and wire transfer fee in particular.

"Be vigilant on added costs to make sure you are not taken advantage of," Scott concludes.