Given that the average person moves 11 times in their life, even if you own a home now, it’s possible that you could end up navigating the long and hard home buying process again. Buying a home is a challenging and expensive process that requires good negotiation skills and technical financial knowledge. If you go into the process without an experienced agent to go to bat for you, you could end up losing money.
Here are the eight steps that every homeowner goes through in the home buying process.
Step 1: Evaluate Your Current Financial Situation
When considering buying a house, the most important step is to figure out whether or not you can afford a home on your current income. The rule to abide by is to spend no more than 35% of your take-home pay on the cost of housing, including all the fees that go with it.
Start off by calculating how much your household income is after taxes. An online income calculator or simply looking at your pay stubs can help you figure this out. If you have multiple income streams, especially work that’s paid via freelance, ensure that you take out taxes when you’re coming up with a number to multiply by 35%
Add up all of the monthly household expenses that include bills, loan payments, as well as groceries, healthcare needs, and tuition payments. Take that number and subtract it from the remaining 65%. You should end up with something left over to use as expendable income and savings.
To get a lower payment on your mortgage, work to increase your credit rating. The higher your credit score is, the more likely you’ll be able to get a reasonable interest rate. You might also be able to put down less of a down payment so that you can save that money to spend on closing costs.
Unless you have the cash to put down on a home today, you’re going to have to look into financing options. Most lenders are going to require you to pay 20% of your home’s cost out of pocket as a down payment. If you can’t afford that amount, you’re going to have to get an additional loan or to pay for private mortgage insurance to protect your lender from default.
In general, when you’re buying a house in Kentucky, you should know that you plan to stick around for a while. While Kentucky has lots of affordable home options that other places don’t, investing in a mortgage for 10 to 30 years means you should have a strong desire to live there.
Step 2: Find a Great Kentucky Real Estate Agent
One of the best ways to find the best deal on a house in Kentucky is to start off by working with an experienced local agent who knows the market well. Working with a top-rated real estate agent in your region is going to unlock a lot of deals that other realtors might not find.
When you have an experienced local realtor, you get the chance to find out where the hottest neighborhoods and the best deals are. You’ll learn which neighborhoods are on their way up, which counties are seeing the most growth, and where you’ll be paying the highest property taxes.
Because sellers are usually responsible for paying the buyer’s agent’s commission fee, you usually get a full-service realtor on your side all for free.
Working with a Clever Partner Agent also entitles you to additional savings and rebates. When you work with Clever, you qualify for a $1,000 rebate on your closing costs.
Learn More: What Does a Real Estate Agent Do for a Buyer?
Step 3: Read Up on Local Real Estate Market Trends
While your realtor is going to be able to figure out how to help you find the best deals, knowing which month to buy can make a massive impact on the price and what’s available.
While spring is the best month for sellers, that usually means that they get the most people competing for the same home. Choosing to buy in colder months, between the end of summer and spring, can give you better deals.
At the end of summer, homes that didn’t sell during the summer months end up being discounted by the time autumn hits.
The Kentucky housing market in 2018 was almost as strong as the market was in 2017, meaning that sales should remain strong. When sales are strong, buyers are challenged to find a good deal on homes that will reward them with a strong return quickly. A seller’s market means that home prices are high and buyers might have to compete over good properties any time of the year.
The North Kentucky Tribune reports that numbers from the end of 2017 were around $137,000, while numbers from the end of 2018 fell from a three-month climb to $129,000. However, there’s no indication there won’t be fairly steady growth from here on out.
Even between counties, the numbers can vary wildly. Looking at fluctuations is the bread and butter of being a good real estate agent and your agent should be able to give you more detailed information to save you money. They’ll know when the best time to buy is in each neighborhood and negotiate for the best possible price.
Learn More: Will it Be a Buyer’s or Seller’s Market in 2019?
Step 4: Get Pre-Approved for a Mortgage
When you start looking at homes that you’re excited about, especially in a market as competitive as Kentucky, you’ll find that you’re going to be competing with other buyers. If you can prove that you’re able to afford a home at a price that you’re willing to buy it for, you can stay a step ahead of other buyers. A pre-approval letter allows you to prove that you can definitely afford the cost of the home you’re interested in.
Make sure you distinguish between pre-approval and pre-qualification. While some people use them interchangeably, they mean two different things.
Pre-qualification is the first step in the mortgage process. After you’ve shared all of your financial history to your lender, they’ll pre-qualify you. This gives you an estimate of what you could qualify for.
The thing is, some of this information can be self-reported, meaning that buyers will report things that might be riddled with faulty information. They might have unintentionally forgotten about an important financial issue in their past.
Mortgage pre-approval requires verification of the information that you’re providing to your lender. When they have written and verifiable proof of your income, debts, and other assets, they’ll be able to make a more firm decision. This requires a hard inquiry on your credit report but the result leaves you with undeniable evidence of your financial status.
Step 5: Start House Hunting
House hunting can be a fun experience for a family. Finding out what’s on the market is exciting. You’ll start seeing things that you might never have realized that homes in your region had, opening up a list of possibilities that you never thought you could afford.
Using online tools allows you to figure out which neighborhoods might be best for you. Take what you find online with a grain of salt because ultimately, your agent is going to be the one who can score you the best deals.
Start off by prioritizing the location. This is going to set up some limits when it comes to how much you’re going to spend and where your agent should be looking.
Make sure that you manage your expectations based on your budget. If you’re a part-time dog walker with no other income looking for a mansion, you’re going to have to reconfigure your expectations.
Stay critical of everything that you see, but look past cosmetic problems. You can repaint a wall, but might not be able to rewire an entire home. There are lots of hidden costs that can come with buying a home like roofing issues, foundation problems, or what’s going on between the walls.
An experienced local agent is going to be your ace in the hole when it comes to hunting down the best deals. They’ll know the best places to look to give you everything that you’re looking for in a neighborhood and in a home.
Learn More: Free House Hunting Checklist
Step 6: Make an Offer
Making an offer is intimidating but unless you make your offer, but it’s important to take the leap with the help of your agent. Your agent will call the seller’s agent or the seller themselves to see whether or not they’ve accepted any offers. They’ll also let your agent know whether or not there are any offers on the table.
If there are several offers in and you’re still interested in the house, you might end up in a bidding war.
After you decide to submit an offer, you’ll write a check for what’s called “earnest money” to place a hold on that house. The amount you put down will vary between 1% and 3% of the cost of the home. You’ll also need to bring your offer letter and the preapproval to let the seller know that you’re a reliable buyer for the home.
You might not get more than one chance to submit an offer on this home, so it’s important that you choose the right price and draft a competitive letter. Having an agent with some experience who is prepared to help you find the right price is vital to getting the home you’re looking for.
Learn More: How to Make an Offer on a House
Step 7: Inspections and Negotiations
After you’ve submitted your offer, it’s important for you to get the home inspected before you make a final agreement to buy a home. While you might think everything looks good, there could be problems in places you didn’t think to look.
Your lender might also require you to have the home appraised. If there are problems with the foundation, the roof, or structural issues that could cost a lot to fix, it’s important to find out in advance. These issues will also bring the value of the home down, impacting how much you should spend on it.
Inspectors will take two to three hours to look at the entire property, including the exterior of the home, landscaping, and what’s buried underneath. The best home inspections are going to include observations of all of the inner workings, including the electrical system, HVAC, and plumbing. The findings will come to you as part of a comprehensive report.
Some of the problems might get in the way of living in the home while others might have more to do with cosmetic issues. If major problems are found, you could negotiate the price of the home down to help cover the costs of repairs.
Kentucky homeowners are legally required to disclose any problems they have knowledge of regarding most home issues. The presence of asbestos, sewer systems, and flood zones are all part of state disclosure statements.
Step 8: It’s Closing Time!
When a final price is decided upon, the closing process begins. In Kentucky, sellers don’t need to be at the final closing event. The attorneys for both parties meet together to carry out the closing together.
Closings can be fairly pricey, amounting to 2% all the way to 5% of the total sale price. Just to pay for the loan origination and third-party fees, you’re going to have to pay thousands of dollars. Bankrate’s recent data states that Kentucky closing costs amount to around $1.907 for these two fees alone.
In Kentucky, sellers pay all of the closing costs and buyers pay for the recording fees. The amount that the home sold for is recorded on the deed, which is used to calculate the cost of these two fees.
Because closing costs vary from market to market, finding an experienced local agent can ensure that you know what to expect during closing. With help from a Clever Partner Agent, you can send a representative to do all the negotiating for you so that you can get the home you’re looking for a price that you can manage.