Feature Articles
Housing Finance Basics: How Do I Buy a Home?
Brenda Procter, M.S., State
Specialist & Instructor
Personal Financial Planning, University of
Missouri-Extension
There are so many details involved in buying a house
that it can get confusing. Always ask your realtor or
attorney to explain anything that you do not fully
understand. In general, these are the steps you will
take when you buy a house.
1. Carefully and thoughtfully examine your monthly
budget. Decide how much you can afford in principal,
interest, taxes, insurance and maintenance. Remember,
you probably want to avoid paying more for the house
than two and one-half times your annual salary and/or
keep your monthly debt payments to 35% or less of your
gross monthly income. Depending on your comfort level
with debt, you may want to think conservatively and buy
a house worth less than the "general rule" indicates.
2. After you decide how much you can spend, go house
hunting. This is the fun part. Keep in mind that
realtors usually represent the seller of a home, even if
they do spend time with you as a buyer. You can usually
arrange for a buyer's agent, who is only responsible to
you.
3. Select the home you want (and can afford) to buy.
Using a realtor or an attorney, contact the seller of
the home.
4. Give the seller a written offer of purchase price. It
is probably obvious, but never make an offer on a house
that you aren't positively sure you want to buy if your
offer is accepted. In the contract, consider including:
- Details about both the move-in date and the closing
date.
- If the seller needs to stay past the closing date, a
rental agreement (typically a triple net lease, which
requires the seller to pay property taxes, utilities,
repairs and fire insurance until they leave).
- A clause that makes the house sale contingent on your
ability to find a loan with terms (interest rate, length
of the loan, amount of the loan) which are acceptable to
you.
- A list of what sells with the house (such as window
treatments or drapes, specific appliances).
- Specifics about who has to pay if your structural
inspection reveals that there are problems with the
house (basement leaks, sagging roof, water damage, etc.)
or mechanical equipment (e.g. furnace, water heater,
appliances).
5. If the seller does not accept your first offer and
makes a counteroffer with a higher price, you can either
accept the counteroffer or come back with another offer.
This process can be repeated several times before you
and the seller can agree on the price and terms of sale.
6. You and the seller sign the agreed-upon contract, and
you make an "earnest money" deposit to show that you are
serious about your offer. Earnest money sits in an
escrow account and goes towards the purchase price at
closing. You may lose your earnest money if you back out
of the deal for reasons not allowed in the contract.
7. Go mortgage shopping if you haven't already. Many buyers actually shop for the loan before they make an offer. By getting prequalified or preapproved by the lender, you can shorten the time it takes to close on the purchase. You may also look more appealing as a potential buyer if the seller has more than one offer on the house and yours is the only one that already has loan approval.
Sources:
Israelsen, C. Consumer and Family Economics 183,
Personal and Family Finance, Winter 2003 Class Lectures,
University of Missouri, Columbia, Missouri.
Israelsen, C. & Weagley, R. Personal and Family Finance
Workbook, 3rd ed., 2002, Kendall/Hunt Publishing Co.,
Dubuque, Iowa.
Kobliner, B. Get a Financial Life: personal finance in your twenties and thirties, A Fireside Book, New York, NY, 2000.
If you'd like to learn more about this and other personal finance topics, the University of Missouri offers 'Personal & Family Finance' a correspondence course, through the Center for Distance and Independent Study (800-609-3727). Information about this course is available at http://cdis.missouri.edu/CourseInfo/DetailCourseInfo.asp?1985.
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Last update: Thursday, May 04, 2006
