How to Buy a House: Using an Agent or Aalto's self-service real estate platform

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

There are many reasons to purchase a home and it can be overwhelming to know where to start. This article will give you a simple framework for buying a home so you are well-prepared and able to make well-informed decisions along the way.

When thinking about your home purchase, there are 4 core things to consider:

1. What are you comfortable spending on your new home and future maintenance? 
2. What are you looking for in a new home? Necessities vs desires. 
3. Who will represent you on your purchase? 
4. What is your ideal timeline to buy?

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

1. What are you comfortable spending 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. 

For more details and customized information on homeowner's insurance options and resources for making this monthly payment more affordable, we recommend doing your research and exploring various policies with an insurance agent.

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!

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. And it is fraud if you don’t disclose this to the lender. 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. What are you looking for in a new home?

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 both. 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! 

3. Who will represent you in your purchase?

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 and work on commission - so they need you to buy or sell in order to get paid. They have their license with a brokerage and in general run their business independently. Aalto's self-service real estate platform is changing all of this. The licensed advisors at Aalto are employees with an average of 12+ years experience in real estate and do not work on commission, but are evaluated on client satisfaction. They have been through rigorous training prior to representing Aalto clients. This ensures that the clients best interest is always the focus. 

Your Aalto advisor will have a solid understanding of what could work for you and their goal is to use your time efficiently. They will 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.

4. What is your ideal timeline to buy?

This is a very important question that many don’t consider at the start of their search. Even if you don’t plan on moving for a year or more, it is a great practice to start tracking the market in which you are looking to buy. This ensures you have many data points from which to make a sound financial decision.

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 on Aalto Discovery. 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 Aalto advisor, especially if you have to sell to buy as well. 

Additional things to consider when making that 'wish list'...

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. 

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!