If you remember my post regarding my aspirations for this year, you know that the first thing on my list involved saving up money and buying a house. Well, we did it! As of today, we are officially homeowners. We purchased a cute cottage in a quiet Milwaukee neighborhood nestled in between the suburbs of Wauwatosa and West Allis.
It’s the cutest ever, LOOK AT IT.
I can’t wait to paint and move all of our stuff in!
This process was way more involved that I originally thought (and there are a lot of extra costs that surprised us a bit). I thought I’d take the time to inform some of you about basics of the process if you’re curious about taking on a mortgage and owning a home. This is by no means an all-inclusive list or exactly how the process will go for you (and I’m obviously not a professional), but I hope it will still be informative.
- Get pre-approved for a mortgage. Don’t even tempt yourself into looking at houses before you know how much you can afford. Although there are programs that allow smaller down payments ($0 if you’re a military vet), most banks will require at least 5% down. This is what we ended up doing.
- Find a realtor. We are lucky enough to have a friend in the business, so unfortunately I can’t offer a ton of advice on how to search for the right person. I would suggest talking to friends or relatives who have recently bought a house and ask them to suggest a realtor or realty company.
- Decide which properties you are interested in seeing. Your realtor can help you out with this by preparing a list of MLS properties based on your preferred neighborhood, must-haves, deal-breakers, and max budget. We chose a few neighborhoods around the Milwaukee area. The listing had to be for a single-family home with at least two bedrooms, 1.5 baths, a fenced yard, parking (you’d be surprised how many houses only have street parking available) and appliances included. We also excluded any properties with radiator heat, which we can’t stand. Our max budget was set to $125,000 in order to keep our mortgage about the same as our rent.
- Put in an offer. Make sure you are SERIOUS. If the seller accepts your offer, you are locked in on that particular property, so it’s important that you really, really love the house (and everything that goes along with it). Your realtor will help you draft the offer contract, which has lots of contingencies in place to protect you: inspection, appraisal, financing, etc. A contingency basically allows you to back out of the deal with no penalties should a problem arise, i.e. the house fails inspection miserably because there are major structural issues with the home. There are three things that can happen after you put in an offer: the seller will accept the offer, the seller will present you with a counteroffer, or the seller will deny the offer. If the seller accepts the offer straight away, you’ll need to put down a deposit (also called “earnest money”), which is usually about $1000. The seller can also choose to counter your offer if they feel it’s too low, which you can either accept, counter, or decline. If you put in a lowball offer, or your offer just isn’t the best one, the seller may choose to decline your offer, which means you are back to searching for properties.
- Schedule an inspection. This can cost anywhere from $300-$500. We paid $530, which included the inspection and a radon test. (I’m glad we got the radon test because our house actually failed! The seller did get a mitigation system installed, though, so we’re all good.) Make sure to allot about 2-3 hours for the inspection. A good inspector will explain what he/she is looking for and discuss any potential problems with you. If the inspector finds any major issues, you may want to spend the extra money for additional inspections (foundation, electrical, etc.).
- Schedule an appraisal. Your mortgage company will likely do this for you, since they won’t give you a mortgage for more than the value of the house. Based on sale prices of similar homes in our neighborhood, our house actually appraised for $15K less than our initial offer. The seller dropped the price to match the appraisal value (+ an additional $825 for the radon mitigation system).
- Get final loan approval. Your lender will let you know what final documents and information they will need to give you a final approval letter.
- Pay for home insurance. You will have to pay for a full year of home insurance. This ended up being a bigger cost than I thought (>$800). I assumed I could pay a down payment and do monthly payments, but I soon discovered that we would need to pay for 12 months up front before we closed. Yikes.
- Closing. This was a super smooth process for us. The lender confirmed our employment one last time, let us know how much money we’d need to bring to closing (in the form of a certified check), and asked for proof of insurance. Our closing appointment barely lasted 30 minutes, even though we basically signed our life away. I was told that the length and intensity of the closing process definitely varies from lender to lender, so you may not have such a quick closing. We also got a check to pay for this year’s property taxes, which will be have escrowed starting next year (i.e. the bank holds onto it for you every month so you don’t “accidentally” spend it and screw yourself at the end of the year). The most exciting part? Our first mortgage payment isn’t due until January 1st, and it’s $165 less than our rent. 🙂
Well, that’s it! We’re doing a ton of little projects over the weekend before we move in, so I’ll make sure to document everything I can and share it with you.
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