The Complete Home-Buying Guide
Anyone who’s ever purchased a home can tell you – it’s no cakewalk. In fact, the path to home-buying can be extremely stressful. There’s much to keep up with, and if you miss a step, it could cost you.
So for those who need a little reassurance, this guide is for you. This home-buying guide provides you with everything you need to be assured you’re taking the proper steps to buy your home.
4 Things To Consider Before You Start Searching
Before you even start shopping for your next home, there are four things you should already know.
1. Know What You’re Looking For
When it comes to buying residential property, there are many options: single-family homes, townhouses, condominiums, co-operative, or multi-family units. It’s up to you to decide the type of home that would best fit your homeownership goals.
What are your ideal home must-haves? There are some features you can get with a single-family home that you may not get with the other options. And the same goes for each of them. So, before you start shopping, at the minimum, know your basic desires, like the number of bathrooms or bedrooms or the type of layout you would like in your kitchen. How important is a backyard to you?
Also, knowing how long you plan to live in the home is essential because if it’s a starter home, you may be planning to move in three to five years. But if it’s your forever home, it needs to have most of what’s on your list of must-haves.
2. Know What You Qualify For
It’s frustrating to spend your time looking at homes upwards of $400,000 only to learn later that the bank will only approve a loan of $200,000. So, before you get your hopes up too high, know how much of a loan you’ll qualify for. This requires getting preapproved for a loan before the search even starts. In most cases, sellers won’t even talk to a buyer who hasn’t already been preapproved. Having an authorized preapproval by a legitimate bank gives you the clout you need to make an offer on a home.
Some factors that will affect how much you qualify for include:
- Your credit score
- Your credit utilization rate
- Your debt-to-income ratio
- Your monthly income
- How long you’ve been at your current job
If you’re unhappy with the preapproval amount or are declined a preapproval, you may need to clean up one or more of the things above in order to get the preapproval you’d desire to go house shopping. Cleaning up your credit could take up to two years, depending on your unique situation.
3. Know How Much You Can Actually Afford
Even after you get preapproved, knowing how much mortgage you can afford is important. For instance, just because a bank preapproves you for a $500,000 mortgage doesn’t mean you could comfortably pay a mortgage of that amount every month. Many first-time home buyers make the mistake of borrowing up to the preapproval amount, only to realize later that they over-committed. While they may be able to afford to pay the mortgage every month, they live paycheck to paycheck to cover the mortgage and other living expenses. You don’t want to be “house-poor!”
So consider the total cost of buying a home, which goes beyond the selling price. You’ll also need to have an idea or an estimation of the:
- Property taxes in that neighborhood
- Homeowner’s Insurance
- Home improvements (if needed)
- Costs to maintain the home
- Down payment
- Closings costs
In most cases, the property tax and insurance will be added to the monthly mortgage payment, automatically increasing the estimated mortgage of the house. Down payments are ideally 20% of the price of the home but can be as low as 3%. The bigger the down payment, the less the monthly mortgage. Closing costs are expected at closing and can be 2% to 5% of the cost of the home. That means if you purchase a house for $300,000, you can expect closing costs to be between $6,000 and $15,000.
4. Do You Need a Real Estate Agent?
Contrary to what many people may believe, you do not need a real estate agent to purchase a home. However, having a real estate agent on your side could benefit you more. Knowing the value of having or not having a real estate agent can help with your decision.
Benefits of Having a Real Estate Agent
- Access to more property listings and easily find homes within your price range.
- Negotiation assistance because of their wealth of knowledge. This could result in saving you money on the purchase price.
- They’re familiar with the market and can quickly seek out the type of home you’re looking for.
- There’s a lot of paperwork involved with buying a home, and real estate agents are up-to-date with them to explain it all. This means fewer surprises for you.
What Not Having a Real Estate Agent Means For You
- You’d have to familiarize yourself with the housing market, which can be like having a full-time job = a lot more work.
- Taking care of ALL paperwork and knowing what you’re putting your name onto
- Negotiations fall on you to get the deal you want
A good real estate agent advocates for you throughout the home-buying process and can make or break your home purchase. Here are some tips for finding the right agent for you:
- Ask your preapproving lender for referrals
- Get referrals from family and friends who’ve purchased homes
- Vet any agent that’s referred to you. Check their online reviews
- Interview potential agents face-to-face before deciding to work with them
- Verify their license is up to date
Making An Offer
Based on your preapproval, the type of home you’re looking for, and your preference for a real estate agent, you’re now ready to go house shopping. Never go to an open house without your real estate agent (if you have one). If you’re on a budget, consider the potential of every home you visit. While it may not be exactly what you’re looking for, with some home improvements down the road, does it have potential? In other words, don’t let every imperfection turn you away. Trust me, though. When you find the right house, you’ll know it. Both parties agreeing on the offer could require a good-faith deposit on your part.
Once you find the right home, make the offer, but never finalize a sale without doing a home inspection. A good real estate agent will require this! The inspection should be done by a trained professional who will inspect for the home’s quality, safety, and overall condition. If the home inspection reveals issues that cannot be ignored, and especially if the seller did not disclose them, you should be able to get your good-faith deposit back or negotiate on a lesser price or for repairs to be made before closing.
Finalizing Your Mortgage
You are now getting closer to closing on your new home, and the paperwork involved in finalizing your loan is hefty. It’ll require you to turn over all types of forms dealing with your employment and income, including federal income tax returns and bank statements. There are all types of mortgage loans out there. Become familiar with them, so you’ll have an idea of the one that’s best for you. Some of them include:
- Conventional loans
- FHA loans
- VA loans
- Jumbo loans
- Renovation loans
The mortgage company will also require a home appraisal and title search to ensure no one else has claims on the property you’re buying. Closing costs are also due by you, including loan origination fees, title insurance, taxes, and credit report charges.
The Bottom Line
Buying a home can be a long but rewarding process, so we hope the above tips help you get closer to your new home! Good luck!
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