How to Buy a House: Where to Start and a Simple Framework

There are many reasons to move, but no matter what the reason it can be overwhelming to know where to begin the process. The goal of this article is to give you a simple framework for how to think about your move so that you are well-prepared and can make well-informed decisions along the way.

When thinking about your next move there are 6 core things to consider before you take any steps:

1. What do you want to spend on your new home? 
2. Do you know where you are moving to or do you need to find a new home?
3. Are there repairs/prep in your current home that should be done to improve marketability?
4. What is your ideal timeline for your sale and purchase?
5. What are you looking for in a new home? Necessities vs desires. 
6. Are you willing to do any work on your new home? 
   

To help you navigate these tough questions we’ve outlined each one below:

1. What do you want to spend on your new home? 

This may not seem like the most logical first question to ask yourself, but it is imperative!

Your time is valuable and you should not spend time looking at property until you know what you are comfortable spending. Finding a reputable lender is the first step. Your lender can take you through the process of determining what your purchasing power is for a new home and will pre-approve you for a specific purchase price. Knowing what that purchase price is will help guide your search. More importantly, you will know exactly what your monthly costs will be in terms of your PITI (“P”rincipal amount of the loan you pay each month, “I”nterest you pay on that loan, property “T”axes, and “I”nsurance). You will hear lenders refer to PITI, so it’s helpful to understand it before you start the process. 

It’s important to keep in mind there are other costs to consider with homeownership such as maintenance of systems (roof, electrical, plumbing, appliances), utilities, landscaping, and any cosmetic changes and improvements you may want to make. These costs should be considered when you start the process which is why you may not want to purchase a home at your max approval amount, as it may not leave you with a comfortable amount of money for additional  costs. A good practice here is to not stretch yourself too thin!

Do you need to sell your current home to buy? The lender will need to know the amount of equity you will be using from that sale for your purchase. A seller will typically ask their agent for a number that they think the house will sell for in order to determine their proceeds. This is often a well-educated guess. Remember that until a home is exposed to the market, there is no way to gauge buyer interest. This is one of the reasons we created Aalto, so a seller can preview their home to buyers to gauge interest and track the market without any risk. You should consider a realistic number for the equity that you will be using from that sale for your purchase.A reminder to be mindful that the market can fluctuate with just one sale, so it’s important to watch your market closely as you work through your moving process. 

It is also important to remember that rates can fluctuate. Your lender will not be able to “lock your rate” until you are in contract on a home and they have a purchase agreement in hand. You should keep your pre-approval up to date and make sure you stay in close touch with your lender so you are aware of any rate changes or lender requirements that may change.

A couple big reminders: 

• Do not start transferring funds around your accounts, make any big purchases (cars, boats), or open new credit cards while you are going through the home buying process. One new credit card that gets you a discount on that flat screen you want for your new home could impact your credit score and as a result impact your loan approval. It’s a good rule of thumb to check in with your lender before you do anything financial as you go through this process.
• Your pre-approval is based on your current employment details you provide to your lender. For example if you quit or lose your job and then find another one right away, your lender needs to know that! It can impact your loan approval. You don’t want to be in a situation a week from closing on your new home only to have to cancel the sale and potentially lose your deposit money because you didn’t disclose pertinent information with your lender.  
  

2. Do you know where you are moving to or do you need to find a new home?

Buying a new home and making a move can be one of the biggest events of a person’s life. We live in a fast paced world and the proliferation of real estate reality shows makes it seem like a piece of cake. In reality, it can be overwhelming if not approached in a well-thought out manner. So let’s get started! 

Are you renting? Great! That makes life a lot easier when you are looking to buy a new home. Not having a home to sell and being able to determine the timing of your move can be easier, as you know when your lease is up. Additionally, your landlord may give you the option to go month-to-month when your lease term has expired, which can be helpful as you look for the right home to buy. 

If you have to sell before you buy, it can add stress to your life. It is not typically the case that one has another home to conveniently move to when they sell their current home or enough cash in the bank to carry both mortgages. Most homeowners have equity in their current home that they need for the new home they are purchasing as noted previously in regards to getting pre-approved. 

You have talked to a reputable lender and are now pre-approved. What next?

The biggest mistake buyers make when they are looking is focusing solely on the home itself.

Start by mapping out specific things that are important to you in your move before you start touring homes:

• Are schools important for you or are they just something to consider for resale down the road? 
• What kind of commute do you need? 
• Do you want a sense of community? Is being close to restaurants, shopping, and activities important? Do you want something “away from it all”? 
• What weather do you prefer? Are you sensitive to light or dark environments? 
• What condition of home are you comfortable buying? Is a light cosmetic remodel ok or are you up for replacing major systems and reinforcing a foundation? There is a lot in between!
• List out “must have” vs “would be nice to have” in your new home. 
  

These are just some basic questions to help you get an idea of where you should start looking. Even if you are knowledgeable about an area, it’s a good idea to sit down (with your buying partner if you have one) and write out what is important to you. Make a detailed plan for your move. It also helps to make sure that you are on the same page with your partner if you have one - you would be surprised how many times we see people not on the same page when they start looking at homes! 

Once you have completed these initial steps, it’s time to start your home search. But how?

Technology has made it possible to learn a lot about current inventory. But digging into the details of that inventory can prove difficult, as traditional real estate websites don’t provide the entire overview of a home. Partnering with a knowledgeable licensed advisor will help you as you navigate the home search in regards to whether the home is a solid investment that aligns with your buying parameters, reviewing disclosures to determine any red flags, and how to structure a competitive offer. 

The most important aspect of selecting an advisor is making sure they put your best interests first. One thing to note that many buyers don’t realize is that traditional licensed real estate salespeople are independent contractors and not employees. They have their license with a brokerage and in general run their business independently. Some companies, like Aalto, are changing this structure. The licensed advisors at Aalto are employees with an average of 10+ years experience in real estate. They have been through rigorous training prior to representing Aalto clients. This ensures that the clients best interest is always the focus. 

It is a good idea to do an initial area tour with your advisor: 

• Take into account all of the things on your list
• Determine a general area to begin your search
• Tour as many homes as you can that come close to your parameters
• Drive by recent sales in your price range to get an idea of what will be used for comparative sales when you evaluate your offer price (and that appraisers will use for the appraisal if you are obtaining a loan). 
• Be mindful of list price vs sales price. If homes are selling way over the list price, you may want to consider looking at homes below your max price (this is considered a seller’s market). Conversely, in a slower market with more inventory, you may want to consider homes slightly above your max price if there is more room for negotiation (a buyer’s market). 
  

Once you do this, you will have a very clear picture of the current market. Remember that your time and energy is valuable. If you follow the steps listed above, you will not have a full schedule of open houses every weekend. Your advisor should have a solid understanding of what could work for you, and they should keep you apprised of new inventory as it becomes available to get you in as soon as possible. Even if a seller isn’t looking at offers right away, being one of the first buyers in the door will provide you with as much time as possible to make a decision and prepare an offer if it is a fit. Many great properties go into contract prior to an open house, so it is important to be ready and have a great advisor! 

3. What is your ideal timeline for your sale and purchase?

This is a very important question that many don’t consider at the start of their search. If you need to be settled in your new home by a certain time (i.e. the holidays, when school starts, when you start a job) you will want to work backwards from that date. A typical closing period is 30 days. That is the time from when you enter into a buying contract to when you are handed the keys. That can vary based on market conditions and how quickly your lender can move your loan through the process. If you are buying with all cash, this can speed up your timeline for your closing (the day you get handed the keys). 

You can get a good idea about how long your search may take by looking again at those homes that have sold recently (in the last six months is a good place to start) and then reviewing what is currently available. If you have a lot to choose from, you will have more flexibility in your timing. If inventory is very low, it could take longer to find your next home. This is a very important conversation to have with your advisor if you have to sell to buy as well. 

A unique advantage that Aalto direct marketplace has created for sellers (that are also buying) is the ability to stay in control of the process: 

• A seller is able to create a Preview for their home and begin tracking their potential buyers immediately. 
• Buyers can engage in questions, request tours when it is open to showing, and request more photos and video. 
• Many buyers are able to provide a seller a rent-back period after the closing, enabling a seller to have more time to find a home. 
• Even more appealing to a seller, many buyers are able to make offers that are contingent on the seller finding a replacement property. 
• This powers the seller to have their home in contract at a specific price. If they don’t find a replacement home in the given time frame, they can cancel the sale on their home.
• A seller can write a much stronger offer on their replacement property if their home is in contract. 
  

We will be exploring these situations in deeper detail in an upcoming blog, but please reach out with questions if you are in this situation and need guidance. 

4. What are you looking for in a new home? Necessities vs Desires 

Determining what is important to you prior to touring homes saves a lot of time. If you (and your buying partner) know there are certain features that you must have, or if there are any deal breakers, then you are able to quickly eliminate certain areas and homes in order to use your time wisely. Some people love to look at everything, and that is great too! Every home you see is a data point towards your eventual purchase, so do what works for you. 

Some things to consider when making this list:

• What is the max commute you are willing to have in your day? 
• Is storage important? 
• Do you need a garage?
• Are you ok being on a hill? In a flood zone? On landfill? 
• Do you need a lot of light in your home? Or is a darker lot ok? 
• What is your ideal layout? Do you want all the bedrooms on one level? Are two-stories ok? 
• Do you need a yard? Grass? Decks? Patios? 
• Think about the home you grew up in and the homes you have lived in since. What resonated with you in the spaces that made you happy? 
  

Really think about how you live now in your current home. What do you love and what is lacking that you are wanting in your daily living environment? Sometimes you walk in a home and throw the list out the window, as there can be an emotional connection that can’t be put into words. But thinking about these things as you begin your process can help guide your decisions. 

Buying a home is usually the biggest financial decision a person can make. It’s important to focus on what is going to make you happy in a home, but it is also wise to remember it is oftentimes the largest asset in your portfolio. You want to be sure you are making a sound investment that has been well-thought out and not driven purely by emotion. 

5. Are you willing to do any work on your new home? 

This is another very important question to consider prior to making an offer. Painting a few rooms is one thing, but having to reinforce a foundation is another! Analyzing the seller's disclosures and obtaining inspections from reputable inspectors will help you determine the level of work that is needed on a home. 

It is important to remember:

• There is an end of life to every material and the maintenance given to a home can determine how long things will last. 
• As an example, if a homeowner has been very attentive to the siding of their south-facing home that gets a ton of sun - sealing it as needed, repairing any sections as they begin to fail - it will last longer than the homeowner that didn’t do anything (and now has water-intrusion that is causing rot and decay that you may not even see until you remove the siding to replace it, finding you have a much bigger project than planned).  
• Determine what amount of time, budget, and planning you are willing to take on for work needed. 
• Depending on the market, construction costs can fluctuate and securing a reputable tradesperson can take time. If you have an urgent project, be sure to consider these factors. 
• If you are open to doing work, it can often expand your options and you could have the chance to design that kitchen you always dreamed of! 
  

6. Are there repairs/prep in your current home that should be done to improve marketability?

As a follow up to the last question, remember that buyers will be looking at your home the same way you will be looking at the home you are buying. So put on those buyer glasses and see what prep work you need to make to your home to make it as marketable as possible. 

We will address this topic in detail in our next blog, but here are the basics we recommend: 

• Schedule pre-sale inspections: home and pest inspections are a great place to start. Preparing a buyer with the condition of your home will reduce the chance of them backing out of the contract or trying to renegotiate the price when they discover there is a colony of termites that are enjoying the house as well. 
• Depersonalize and declutter: The wall of photos from every trip you have ever taken makes you smile daily, but it can be distracting to a buyer. They often walk out of a home remembering the Yosemite camping trip you took, but not the layout of the home. The more you can make your home feel neutral but still warm and inviting the better. Buyers want to picture themselves living there. This prep step also helps you get organized for your eventual move, making it much less hectic when the time comes. 
• Remove anything controversial: We could tell you lots of stories about buyers walking into homes and walking right out because the house had a “bad vibe.” Sometimes they find it hard to pinpoint, and sometimes it’s obvious. When the vegetarian buyer walks into a wall full of stuffed animals, it changes the tone of the tour! Be mindful and keep things neutral. 
• Virtual staging: One of the biggest shifts in real estate coming out of Covid lockdown is how buyers see the world. Virtual tours, 3D images of homes, and virtual staging are now commonplace. It is often difficult for a seller to move out and spend money on things like a temporary rental, staging fees, moving, and storage costs. Aalto offers complimentary virtual staging on all of our listings - it reduces stress, increases proceeds, and provides a major convenience for sellers. 
• Yard refresh: Your home makes an impression before a buyer even walks in. Some basic yard clean up can make a big difference. 
• Minor fixes: Are all the light bulbs working? Are there any small things you have learned to live with but should really be fixed or repaired before a buyer tours your home? That list of handy-person items you have been putting off is worth revisiting before a buyer comes over :-)
  

We hope that these initial steps have helped you think about your move in a helpful way. We will be diving deep into these topics and more in the weeks to come, so be sure to check in and let us know if there are any topics you would like us to discuss. Just a shoot us a note at: hello@aalto.com for any topics you'd like us to cover or any questions you'd like answered!