What are the steps involved in buying a house?

John W. Schoen Senior Producer • Profile • E-mail

This week, Ralphy in New York is looking for some step-by-step guidance on buying a house. We've also launched a new round of video Answer Desk installments, which will appear every other Thursday for the next few months.

I want to know: what are the steps that I need to follow to buy a house?
-- Ralphy A., Bronx, N.Y.

It’s as easy as 1, 2, 3. And then 4 through 12. But here are - roughly - the steps you'll probably encounter.

Your brother-in-law may have different ideas about the order we've come up with. Your real estate agent or lawyer may add a few steps here or there. Through it all, keep in mind that while there are common milestones in most home sales, there’s no such thing as a “routine” real estate transaction. Each one usually has a few twists or turns – some little and some not so little. The basic steps are designed to protect buyer and seller from surprises that end up sending the deal badly off the rails.

You also need to take responsibility for keeping the process running smoothly. Even though you’re paying fees to an attorney and a mortgage broker – and the agent is getting a fee from the seller – these folks are working on multiple transactions and things sometime slip through the cracks.  As you proceed, ask how long each step should take. You (usually) don’t need to badger these players to keep things moving. But if you haven’t heard back at various stages along your timeline, call and find out how things are going.

We’re also assuming you gotten past the “nibbling” stage – reading the paper, maybe going to an open house or two - and you’re ready to get serious. So treat these as general guidelines.

Step 1: Go shopping for a mortgage. It may seem backwards to shop for a mortgage before you shop for the house, but there are several reasons for doing this. First, you’ll find our how much you can borrow, which has a lot to do with how much house you can buy. Be careful not to let the lender you push you into a monthly payment you don’t feel comfortable with. There are no “rules” here – only you know how much you can comfortably handle. (For more on this, check this week's Video Answer Desk.)

It’s okay to be a little stretched, at least at first. Most people “grow into” their mortgage payments. But it’s also very easy to get in over your head. Stay away from “alternative” loans – like interest only mortgages. If the value of the house goes down after you buy it (not unreasonable in today’s market) you’ll end up owing the bank more than the house is worth.

Shopping for a mortgage will also help if you can get “pre-approved” for the amount you’d like to borrow. This means the lender has looked over your credit and financial statement and agreed to lend you the money. Sellers like pre-approved buyers because there’s less risk the deal won’t go through.

Step 2: Find a good lawyer. Ask around. Check them out on the Web. Make sure you at least talk to them on the phone and ask them how much they charge: this should be a fixed fee. Ask as many questions as you can, but you probably away won’t get more than 5-10 minutes. Lawyers bill by the hour, so they don’t like to give time for free. You’re looking for someone who is honest, direct and takes the time to explain things.

Step 3: Find out what houses are selling for in your area – and how much you’ll have to pay for what you’re looking. Look at selling prices – not asking prices. You can get these from a real estate agent or from your local paper or town/county government. When you find a house roughly like the one you want, as for three “comparables” – recent sales of houses that are roughly your target house.

Step 4: Come up with a down payment – usually 15-20 percent of that price. (This is the hard part.) You may not have to put that much down (see step 1) – some lenders will go for 10 percent or even zero. But these loans are riskier and usually more expensive. Besides, without a down payment, you don’t own even a piece of the house. The bank owns the whole thing.

Step 5: Find an agent. You don’t have to have an agent, but the real estate industry has pretty much locked up the supply of houses in the hands of agents. Ask around. Check on the Web for your state's real estate licensing board to make sure they're registered and don't have any complaints or suspensions.

You’re trying to find someone you can trust, so the first time you catch them stretching the truth, find another one. Real estate agents speak their own language: what you or I would call a broken down shack becomes a “fixer-upper with charm.” (At all times, remember that the agent on both sides of the transaction is paid by the seller.)

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