Buying a home is one of the biggest decisions people make in their lives. It is also one of the things that people fear the most, as it is a serious decision you usually make only once and that decision determines the rest of our lives. Still, it doesn’t have to be that stressful. By investing care, research and time, you will be able to handle the whole process more easily and, more importantly, make a good purchase.
Even though house hunting for the first time can be quite exciting, there are many stories about various mistakes people made, and let’s not forget the recent market meltdown that can make anyone feel nervous. You don’t have to be nervous and this is why I made this list that can help you prepare for buying your home, to teach you how to protect your finances during the whole process.
1. See what you can afford
Well, this is not a surprise, but it is important to determine your price range at the very start. Create a budget for buying a house just like you would create one for pretty much anything else. Where to start? The general rule that is usually applicable is to look for home prices which are maximum two or three times higher than your annual income. This rule will protect you from getting a large mortgage commitment you cannot afford.
When it comes to mortgages, you should look to avoid payments that go over 30% of your monthly income. In case you have some other substantial costs such as college, it is generally a good idea to lower down the percentage even further. If you are uncertain with your calculations, you should consider getting help from a professional.
2. Find the right mortgage
Once you’ve finished crunching down your numbers, it is time to start looking for a good mortgage lender that has a good reputation and a quality customer service. Should you have a lot of questions? Of course you should. It is important to know how long the whole process will last, as well as some guidelines for qualifying. This is why you should find a lender that can give you good answers to all of these questions and then some.
The next thing you should do is determine the right mortgage for you. There are many different options to choose from. Still, the best two options people usually go for include a fixed rate mortgage, which has a steady interest rate during the whole duration of your loan, or you can go with an adjustable rate mortgage, where your rate changes according to the current market condition.
The length of your loan should be 30 years, or 15 if you think that you can pay off the price of your home quicker. Building equity within your home is a good way you can create wealth, but still, you should look to do this in a way that you don’t exhaust your finances too much. The whole deal can get pretty ugly if the housing market quickly declines and this is why it can be good to get a 30 year long mortgage. Try to pay it off as if you’ve taken a 15 year long one.
3. Test yourself
If you are scared of the thought of being able to pay your mortgage regularly, then you can make steps to prepare yourself with trial runs. You should start by calculating all of your monthly costs that are related to the purchase of your home. This includes project mortgage payments, home maintenance costs, insurance and tax estimates, as well as HOA fees. The purpose of this is to find out whether or not you can afford the exact fee you need to.
In case the sum of all the expenses is higher than the amount you are currently paying for housing, then you should subtract the rent from the total number. This difference is best kept in a savings account for a couple of months, in order to best simulate how much you will be paying when you get a new home.
If you are able to pull this off comfortably, then you can be certain that you will be able to handle all the expenses of becoming a brand new homeowner. But, if you are not able to take it, you should look to readjust the price until you find your maximum range.
4. Figure out your must-haves and nice-haves
Let’s make something clear right way; only a small percentage of people find their perfect homes that are within their budget. This is why it is good that you brainstorm a little, and create a list of all the must-haves in your new home, and what features would be nice to have, but aren’t really that crucial.
Some examples of the things you must have should include a reasonable distance to your office, schools, the number of bathrooms or bedrooms, etc. You can also consider a backyard, and whether or not you can move in right away. The things that should not be on this list include decorations and other small things you can do or put in all by yourself.
5. Go house hunting
It is a good idea to use valuable online resources for any options in your neighborhood first. By doing things this way, you can confirm if your must-haves and the budget you have set are realistic with the market. This is also an ideal moment to decide if you will be hiring a real estate agent, in case you haven’t done that already. You can also research some online software reviews to find a good marketing research tool that can help you find cheaper solutions. Still, an agent will give you better access to a wider set of options than you will find by yourself. Since buying a house can be emotionally exhausting, an agent will also serve as a mediator who works between a seller and you.
6. Make an offer
So, you have found a property that you like and it meets your demands, while at the same time being within the price range. This means that it’s time to make an offer. It can get tricky here, because you might ruin your offer and risk losing that home to some other buyer. The worst thing you can do is to make an unrealistically low offer and insult the seller. Still, you don’t want them to overpay for the house. So, what can you do?
The first thing you can do is to compare similar offers. Check for any other houses in that neighborhood and compare the two. Check how long this house has been on the market and, if nobody bought it for a long time, you can look to drop the price a bit.
The last thing you have to do when you conclude a deal is to create a contract with the seller, but before signing anything, you should look to check it with a professional real estate agent, to see if there are no loopholes or some parts of the contract where you have been wronged. When you are confident that everything is order, go on and sign the deal.