Where to Start When Buying A Home?
Congratulations on your decision to purchase your new home. Buying a new home can be both exciting and confusing, so here are 10 tips to help you get started:
1. Calculate how much you can afford:
Rule of thumb is that you should not spend more than 28% of your gross income. Also, think about what you have been paying out in rent each month. Has this been a struggle, or has it been easy for you; are you able to pay all your bills on time? There is a lot of things to consider in your finances; you just want to make sure that you are comfortable with what you can afford. You want to live in a home where you can enjoy it and not worry month to month.
2. Consider your down payment.
Most conventional loans offer PMI for down payments ranging from 5 percent to 15 percent and FHA a minimum of 3.5%; however, I have learned that nothing is cookie-cutter. FHA loans and VA loans differ. Then some loans may require little to zero down payment; much of this depends on your credit score or loan type (your lender will know which one is best for you). Keep in mind the more that you can put down, the less your mortgage is. Your lender will be able to guide you on the exact amounts that you will need, which brings us to #3 talking with a lender.
3. Talk with a lender.
You will need to talk with a specialist about a loan, and they will step you through the process (unless you are paying cash). The process can often be started online, and then the lender will reach out or simply call them.
Note: You will not want to make ANY large charges after being preapproved. Some individuals rush out and buy new furniture, drapes, and appliances for their homes and charge them. This changes the debt/ income ratio the loan officer has put in and could keep you from getting your loan closed. Remember, you are only preapproved for a loan, and the deal has not closed yet. Also, if your income changes… you lose your job, you change jobs, or you get furloughed; this changes that ratio as well and will affect your loan; therefore, you would need to contact your lender immediately. If you are already working with a real estate agent, you will need to let them know about any changes so that they can assist you with the next steps in purchasing a home.
4. Get a Realtor:
Once you are preapproved for a loan, you will want to get a Realtor. (Although some individuals opt to get a Realtor before getting preapproved, there is no need, as you cannot make an offer on a home if you are not preapproved.) Having a real estate agent on your side is to your benefit. Not only do they have access to an unlimited amount of homes, they will be able to quickly narrow down the search for you and what you are looking for and save you a tremendous amount of time. Realtors also are very good at negotiations and getting you the best price, not to mention the paperwork….. there is always a lot of paperwork to decipher. Then there are times home-buyers will come across problems they did not anticipate, which could hold up the process or even break the deal if not handled quickly, and this is where your agent will be able to clear this up for you and usually faster. For example, there may be a lean on the home, which must be cleared up to close the deal. There may be a defective inspection report or a low appraisal, all of which an agent can assist you with. There are also disclosures that you will want to be aware of, such as lead-based paint in a home or previous water damage that you may not become aware of if you decide to solo the situation. Having a professional on your side just makes sense.
5. Make an Offer:
When you have found your home, you will decide on an offer, and your Realtor will write the contract. Once the contract is accepted and signed, then your agent will collect the earnest money from you, which just lets the seller know that you are a serious buyer. Earnest money is usually not a large payment but typically varies from 1% - 5% depending on the price of the home. The earnest money will be subtracted from the total of the mortgage price at closing. (it's like paying a little off the principal of the home)
6. Order a home inspection:
Although this is not a requirement, it is always a good idea to hire a professional home inspector to look at all the details for you. Home inspectors are professionals that will often find things that you will not see.
7. Repairs:
Any repairs that need to be addressed during this time will be sent to your Realtor, and then you will decide which way you desire to go in purchasing the home.
For example, You may choose to do the repairs yourself (maybe a simple repair), or you may wish for the seller to repair the home before closing)
8. Final Walk-through:
The final walk-through is usually completed 1-2 days before closing with your agent and gives you, the buyer, a chance to make sure that repairs were completed or that there have been no changes in the home.
9. Closing:
Be ready to sign….. as stated previously, there is a lot of paperwork that you will be looking over during closing and signing. Take your time and read them even if you feel you don’t have the time. The closing agency will go over the fees and mortgage information, and if you have any questions, now is the time to ask before you become the homeowner. Each state varies concerning closing. Some states require that both parties be there to sign, while others do not. For the majority of closings, both will be there along with the realtors and or attorney.
10. Homeownership:
Congratulations on your new home! It is at this point, you can take pride in knowing that you are building equity for your future, your mortgage interest and property tax is deductible, you now have more privacy, and you have reached the "American Dream" of home ownership. 😊