For someone who has never done it before, home buying looks easy. You just pick out a nice-looking house with three bedrooms and a white picket fence, you go to the bank to borrow some money, and then you move in, right?
If only it were that easy.
What the uninformed may not realize is that buying a home is a terrifying multi-stepped process where professionals use words like escrow, PMI, pre-approved or pre-qualified, real estate transfer tax, and appraisals.
Plus, you are going into debt, more debt than you ever have before, to buy a house that hopefully will increase in value over time.
Before you drop in at your first Open House, it is smart to first do a little bit of research on the process of home ownership. Check out the eight steps to buying a house in Wisconsin.
Evaluate Your Current Financial Situation
Evaluating your finances isn’t fun, at least for most people. It’s something we do out of necessity and because we are pretending to be adults.
Before you start randomly picking homes to look at, you should have at least some idea of how much of a house you can afford? Most experts would tell you that you should be looking for a home that costs three to five times your yearly income. This amount depends on your comfort level and your lifestyle.
If you have other debt or a lifestyle that includes frequent trips to the mall, you may want to look for a home on the lower end of that price range.
Before you start the process, it would be wise to look at your credit report and your debt. Mortgage lenders are looking for a credit score of 620 or higher, even though some lenders will go below that amount.
Are there things you can do to improve your credit score? You will want the highest number possible before you seek out a loan.
Then, look at the amount in your savings account. Ideally, you will have at least 20% of the home’s value saved up for the down payment. It’s not a deal breaker if you have less than that amount, but 20% is the ideal. There are first-time home buyer mortgages and programs available for people who have not saved up the traditional 20%.
There are other financial considerations you need to take into account before buying a home. You may need to buy a refrigerator and a washer/dryer immediately. You may need to buy curtains or blinds, and of course, you will need to pay for your moving expenses as well.
Are you ready to take on the expense of dishwasher that suddenly bites the dust?
Are you ready to spend your weekends caulking your shower?
Up to now, you have been calling your landlord when the air conditioner isn’t operating, or an outlet doesn’t work. Those headaches will be yours after you sign the papers at closing.
You also need to think about your future. Will you have children in the house? If so, are the house and the neighborhood child-friendly?
Will you be in the same area several years from now? It doesn’t make sense for you to go through the process of buying a home if you aren’t planning on staying in the area for several years.
There are many things to consider, and you haven’t even gone to an Open House yet.
Find a Great Wisconsin Real Estate Agent
If this is your first time buying a house, it is crucial to find a highly experienced buyer’s agent who is familiar with your area. At first, you may feel that the buyer’s agent is just a person who unlocks doors for you during your showings, but your relationship with these professionals will become extremely important as you continue in the home buying process.
This person should point out the positive and negative aspects of each property. This is important if you are new to looking at homes. For example, did you think to look at the condition of the neighboring properties? Did you look carefully at the landscaping? Did you find out the age of the air conditioning unit? Your buyer’s agent should remind you to look at all these items instead of getting distracted by the décor of the current owners.
This person should be your negotiator to help you get the best price on the home. Your buyer’s agent should help you find a good home inspector. He or she should help you plan for closing.
Contrary to popular belief, having a buyer’s agent shouldn’t cost you anything. Most of the time, the owner of the home pays the commission for the buyer’s agent. In fact, if you work with a Clever Partner Agent, you could actually save money by qualify for a Home Buyers Rebate. This rebate will give you $1,000 to put toward your closing costs.
Read Up on Local Real Estate Market Trends
You know enough about real estate to understand that timing is essential. Is it a buyer’s or seller’s market? When is the best time to buy a house in Wisconsin?
Currently, the median home value in Wisconsin is $187,000. Prices have risen 6.7% over the last year, and experts predict they will continue to grow another 2.9% in 2019.
The real estate market in Wisconsin is very hot right now, especially in the Madison area. It is a seller’s market.
It’s challenging to analyze real estate trends for an entire state. Prices and availability tend to fluctuate on a regional level. For example, the difference in the average cost of a home in Waukesha and a house in Racine is more than $100,000.
How will you know if you are getting a good deal?
Since there is such a discrepancy of prices from cities to cities and from neighborhoods to neighborhoods, it is extremely essential to work with an experienced, local real estate agent who knows the peculiarities of the local market.
Get Pre-Approved for a Mortgage
The next step in purchasing your home is getting pre-qualified. To pre-qualify for a loan, you talk with a mortgage company or bank about your assets and debts. You self-report your income and your current credit score.
The mortgage company professional will look at the information you have given him or her and suggest mortgage products that you may qualify for later in the process. This gives you the ability to shop around for the best rates.
Once you have determined which company you would prefer to work with, you will go through the pre-approval process. There is a difference between the pre-qualifying process and the pre-approval process. During pre-approval, all the information that you previously gave the institution will be verified. They will confirm your income and credit score. Pre-approvals take time, so don’t expect that you can start the process one day and have an offer approved on a home the next day.
Buyers want to see a pre-approval letter in your hand before they accept an offer on the house in a competitive market. It is smart to have one in hand before you even look. Nothing is worse than falling in love with a home and having it slip through your hands because you weren’t ready to make a serious offer.
Start House Hunting
Finally, the fun part starts. It’s time to look at houses in your price range.
How do you pick a home?
First, determine your priorities. Do you have physical restrictions that would make living in a multi-level home difficult? Do you have to have a garage? Are you looking for a home in a specific school district?
Only look at houses in your price range. You will enjoy the process much more if you don’t have the image of a beautiful home with a pool out back and a three-car garage while looking at more affordable homes with patchy grass and less-than-new carpeting.
Finally, remember that your home is an investment. Use online tools and your buyer’s agent’s recommendation to narrow your search. Look for the least expensive home in safe neighborhoods.
Even if you don’t have kids now, you may have one or two (or three!) children before you are ready to move. Make sure the local school district has a good reputation. Your future buyers may think this is an important feature, even if it is not a determining factor for you right now.
Make an Offer
Once you have found THE house, and you are ready to make an offer, work with your buyer’s agent to draft an offer letter. Your buyer’s agent has experience in such things and should walk you through the process.
Here’s how it typically works.
First, your buyer’s agent will contact the listing agent to ascertain whether there are any other offers on the table. If there are, you may have to prepare yourself for a bidding war. You will have to ask yourself how high you are willing and able to go to purchase this particular home.
Once you and your buyer's agent have determined the amount you are willing to pay, you may need to write a check for the earnest money that will show the seller how earnest you are to make a deal. This amount is usually between 1% and 3% of the purchase price.
Your buyer’s agent will include the terms of the payment and the date that you expect to be able to close in the offer letter. You will also include a provision of who will pay for the inspections and title insurance, an arrangement to perform a last-minute review of the property, and a deadline for the offer.
Your buyer’s agent will send the offer letter, along with a prequalifying letter from your mortgage company and the earnest money to the homeowner. Then you wait to hear back to see if your preliminary offer was accepted or not.
Inspections and Negotiations
Next comes the negotiation process.
Let’s assume that the home seller has accepted the offer. While this is exciting news, don’t post it on Facebook yet. A lot of things can still go wrong.
Next, you will then hire a professional home inspector to scrutinize the home. Ask to walk through with the home inspector during the process. You can learn a lot about houses and will have a better idea of what to look for the next time you go through the process.
Chances are, the inspector may find several issues with the house. You can use this information to negotiate the price for the home with the homeowner.
For example, maybe the home inspector found that the air conditioner isn’t functioning correctly. You can point this out to the homeowner and ask for him or her to pay more of the closing costs since you will need to pay for the repairs.
Your buyer’s agent should know enough about the market and seller to determine how much to push back to get the best price. The market may be so competitive that you will not be able to ask for any concessions, especially if you were in a bidding war to get the home in the first place.
It’s Closing Time!
You are finally ready to close on your house. Your agent should be able to help you determine how much money you will need at closing.
In most states, the closing costs are pretty similar. One expense that varies from state to state is the real estate transfer tax. Lucky for you, Wisconsin sellers are required to pay the $3 per $1,000 of the house at closing.
You may be responsible for mortgage fees, escrow funds (for property taxes and home insurance), appraisal fees and inspection fees.
According to a recent study by Bankrate, the average closing costs for a buyer in the state of Wisconsin are $1,817. Other studies say to plan on spending 3% of the purchase amount on closing costs. This amount is the origination and third-party fees.
Since the price of homes fluctuates so much depending on the Wisconsin city that you are buying in, these costs can vary greatly too.
For example, if you purchase a home in Madison, 3% of the average home value of $229,400 is $6,882. If you are purchasing a property in Milwaukee, where the average home value is $107,900, you can plan on spending $3,237 during closing.
Even if you have purchased a home once or twice before, going through the process without a professional buyers agent is a mistake. Find the best agent in your area of Wisconsin by filling out our online form. Believe me, a good buyer’s agent is a valuable resource.