Buying a Home: Steps & Process

Instructor: Dr. Douglas Hawks

Douglas has two master's degrees (MPA & MBA) and a PhD in Higher Education Administration.

Part of the traditional 'American Dream' is home ownership. In this lesson, we'll discuss the primary steps and decisions a buyer must make when finding and purchasing a home.

An Overview of Buying a Home

Trey and Jasmine are thrilled; they are ready to start the process of buying their first home. With that excitement, however, comes uncertainty about the process and the details of such a big purchase. Buying a $200,000 house is very different than buying a $500 television. In this lesson, we'll follow Trey and Jasmine through the home buying process.

Finding a Home

When Trey and Jasmine decide they are ready to buy a house, the obvious first step is to find the home they want. That may sound easy, but it can often be one of the toughest parts of the process. Trey and Jasmine need to consider location, since location will likely determine their property tax rate, an annual tax homebuyers pay based on the value of the home they own. Location will also determine the public schools any kids they might have will attend.

With so many websites that show homes available for sale, many buyers try to find a home without using a real estate agent. While this is possible, real estate agents serve an important role. They have relationships with other agents, they understand the area, they know more details about locations than most buyers, and they can do a lot of work - saving Trey and Jasmine's time. Whether they search for a home with an agent or by themselves, Trey and Jasmine will ideally find their perfect home. Now it's time to buy it.

Negotiating the Price of a Home

When someone decides to sell their house, they decide upon a listing price. This is the price the buyers and the real estate agents see when they shop for homes. However, unless the real estate market is very strong, that's not the price the buyer usually ends up paying. In real estate transactions, both sides expect to negotiate. For an example, let's assume the home Trey and Jasmine selected has a listing price of $220,000.

In a real estate transaction, the buyer makes the first move. With the help of their real estate agent, Trey and Jasmine decide to make an offer for a home, and they offer $200,000. This offer is a legally binding document if the seller accepts it, although there are typically conditions, such as Trey and Jasmine being able to get financing and the home passing a number of inspections that might make the offer contract invalid.

Part of that offer to the seller includes a date and time the seller needs to reply by. The seller will either accept Trey and Jasmine's offer, or respond with a counter-offer. In this situation, let's make it simple and say that the seller splits the difference and sends a counter-offer of $210,000. Now Trey and Jasmine need to decide what to do.

They really like the house but are concerned that the fence is getting old and falling down. So, they send a counter-offer back to the seller that accepts the price of $210,000, but adds the condition that the fence be rebuilt. An offer can include pretty much any condition the buyer or seller wants; of course, the other party can always decline those conditions. In Trey and Jasmine's case, the seller accepts their counter-offer and they have an accepted offer to buy their house, with a new fence, for $210,000.

Financing a Home

While this lesson isn't specifically about applying for or obtaining a mortgage loan, it needs to be mentioned as part of the home buying process. Very few home buyers pay cash for a home, which means the buyers need to borrow money from a bank. This will include selecting a lender, providing verification of income and assets, allowing lenders to access credit reports, and working with a lender to identify the best financing options for the buyer.

Depending on the mortgage requirements, the lender may require the buyers to provide a down payment, which is a percentage of the total price, so the mortgage loan doesn't pay for 100% of a home. There are exceptions, depending on a number of factors, but a down payment requirement is something home buyers should plan for.

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