Buying a home is usually the biggest purchase a person or family will ever make. The buying process can seem overwhelming, but like many things in life, getting a little help makes things easier. To help you understand the process and prepare you for journey, we have some handy tips to help make life easier through the entire process. Most first-time homebuyers choose to use a realtor to help them through the process. Real estate fees are normally paid by the sellers and seems to be a no brainer. Your first major decision may be to select a real estate agent. Ask friends and neighbors in the area if they know any agents they would recommend. It never hurts to interview a few agents and select one based on those meetings.
Considerations Before You Buy
One of the first thing you'll need to think about, after deciding on using a realtor, is what your long-term goals are and how home ownership fits into those plans. Some people are simply looking to transform rent payments into equity. Others see home ownership as a sign of independence and want the pride of owning a home. Narrowing down your big-picture goals will help turn your plan into reality. Here are five questions to consider:
1. What type of home best suits your needs?
You have several options when purchasing a residential property: a traditional single-family home, a duplex, a townhouse or condo, or a multi-family building with two to four units. Each option has its pros and cons, so you’ll need to decide which type of property will help you reach those goals. Do you want a move-in ready home or a fixer-upper? Before you buy a home that needs a lot of work, consider what experience you have to remodel a home, what work can you perform, how long can you live with the current condition? You may also want a backup plan in case you cannot do the work you originally planned.
2. What specific features will your ideal home have?
While it's good to retain some flexibility in this thought process, make sure your target home fits both your needs and will serve you well in the future. We suggest you make a list of the items you need in a new home, like size, the bedroom and bathroom count, location and similar items. Considering the other side of the equation, most homebuyers do not understand what to look for when evaluating a home’s condition. Always hire a home inspector to do the inspection for you.
3. How much mortgage do you qualify for?
Before you start house hunting, it's important to understand how much a lender will be willing to loan you to purchase your home. This is something you really need to know and should be done before you start looking at homes. In addition, many realtors will not spend time with clients who haven't clarified how much they can afford to spend.
This is a good time to make sure your personal finances are in order. In order to qualify for a home loan, you have to have good credit, and a history of paying your bills on time. For reference, mortgage lenders prefer to limit housing expenses (principal, interest, taxes and homeowners insurance) to about 30% of the borrowers' monthly gross income.
Before making an offer on a home, you need to get pre-approved for a loan. In many instances, sellers will not entertain an offer that’s not accompanied with a mortgage pre-approval. Basically, you do this by applying for a mortgage and completing the necessary paperwork. After a lender verifies all of the financial information provided, this includes: checking credit scores, verifying employment information, calculating debt-to-income ratios, etc.), the lender can pre-approve the borrower for a certain amount. Be aware that even if you have been pre-approved for a mortgage, your loan can fall through at the last minute if you do something to alter your credit score. This is not the time to be making large purchases, such as, automobiles, kitchen appliances, and even paying off other loans.
4. How much home can you actually afford?
Sometimes a bank will give you a loan for more house than you really want to pay for. Just because a bank says it will lend you $300,000 doesn’t mean you should actually borrow that much. Many first-time homebuyers make this mistake and end up “house-poor”! After buying a home, make sure you will still have the money for all of the essentials, like taxes, food & clothing, also, leave enough for any special plans you have made for vacations and entertainment.
We suggest you look at the house's total cost, not just the monthly mortgage payments. If you're interested in purchasing a condo, bear in mind you'll have to pay monthly maintenance costs and sometimes, a homeowner's association fee. The monthly maintenance cost covers things, like the exterior, roof, lawn and landscaping, and snow removal. I have seen the monthly maintenance fees range from $150 - $350 per month.
5. How much money do you have for a down payment?
After you qualify a loan, most conventional loans require a considerable upfront costs, like the down payment, loan closing costs, inspection and appraisal fees. So, you need to have a little money put away and easily accessible.
6. Who will help you find a home and guide you through the purchase?
You need to decide whether you want to use a real estate agent to help you through the whole home buying process. They can assist you find financing, help locate all of the potential homes that you’re your needs, they setup the appointments to see the homes, help you negotiate the price, coordinate the offer and take care of all of the paperwork involved. They basically, make the home buying process easier. A good real estate agent's expertise can protect you from any pitfalls you might encounter during the process. The typical real estate fees are normally paid by the seller, so it seems like a no brainer for the buyer to use them. The total real estate fees total between 6% - 7% of the sales price of the home.
Good luck with your home purchase and we hope you find a way to enjoy the process.
Chuck retired from an engineering management career to start a home inspection business