Because a home is one of the single biggest purchases a person may ever make, smart buyers will take the time to educate themselves, make careful decisions and avoid acting impulsively. Making thoughtful decisions-and relying on the advice of experts when necessary-will help make your home purchase proceed as smoothly as possible.

Evaluate Your Financial Situation

Before taking any other steps on the path to home ownership, your must first evaluate your financial situation, decide how much money you can afford to spend on a home and make sure that you'll be able to obtain a mortgage.

Ask yourself the following:

  • How much home can I afford?
  • Am I able to pay my bills and save money each month?
  • Am I financially prepared for the unexpected expenses that come with home ownership?
  • Do I have a clean credit record?
  • What kind of mortgage can I get?
  • Do I have enough cash to make a down payment?
  • Can I afford the closing costs?

Decide Whether to Use a Real Estate Agent

Home buyers are not required to use a real estate agent, but there are some advantages to using one. An agent should be knowledgeable about the area in which you want to buy a house, recommend good neighborhoods, know what homes in the neighborhood have previously sold for, and take the time and effort to find suitable homes for you to visit.

In exchange for doing this work, the agent will receive a commission-usually paid by the seller-when you buy your home. However, it's important to understand that the agent's commission is probably built into the price of the home and you are indirectly paying that cost.

Although real estate agents will do a lot of work to find you a suitable home, you should recognize that the agent may have an incentive to show you some homes, but not others. For example, your agent might not show you homes that are for sale by owner, because the seller pays no sales commission or a low commission. Or, your agent might concentrate on showing you homes where he is the listing agent, which means the agent would get 100% of the commission, rather than splitting it with another agent.

Hire an Attorney

Although a real estate agent may be very familiar with the sale process, including the home purchase agreement, your agent is not an attorney and should not offer legal advice. For this you need a real estate lawyer.

An experienced real estate attorney can help review the contract, and should point out potential legal problems or concerns. Although the contact may be fairly standardized in your area, a lawyer can help negotiate changes to that contract and write contingency clauses. If your home purchase includes related legal documents-such as a condominium declaration and bylaws, or a lease because the home is occupied by a tenant-then your lawyer can also review those documents, and flag issues that you should be aware of.

What Happens if I Change My Mind?

As you are viewing houses, avoid the instinct to act impulsively. Your agent may try to persuade you otherwise. Ignore it if you're urged to rush into a decision or make an offer quickly. Even if it means losing a potential house, remember that there will be other homes.

When you make an offer on a house, you're entering into a contract that's difficult and expensive to break. Only make an offer if you are certain you can afford the home and you can envision yourself happily living in the home for several years.

The purchase agreement should spell out conditions under which you can change your mind, break the contract and receive a refund of your earnest money. For example, if the home inspection turns up significant problems, you may be able to cancel the contract and receive a refund.

However, if you simply find a different home to buy or get cold feet, you run the risk of losing some or all of your deposit. Don't assume you can sweet talk the sellers into letting you break the contract. When home sales are slow, sellers are unlikely to allow you to escape the contract without paying a penalty. The seller is only likely to let you break the contract if they confidently feel they could find another buyer to pay more money for the home.

Questions for Your Attorney

Before entering in a real estate contract, find an experienced real estate attorney who can guide you through the process. Among the questions to consider asking your lawyer:

  • Do you have experienced representing home buyers?
  • What do your services entail?
  • Are there any red flags in the contract, loan papers, condo documents and other related paperwork?
  • How much do you charge for your services?