For most people, buying a home is the largest purchase they will make in their life. Buying a home tends to be an emotional process no matter how hard you try to avoid it. Here are some quick tips to help you navigate through the home buying waters, whether you are buying for the first, second or third time.
- Determine What Type of Home Helps You Accomplish Your Long-Term Goals
All home purchases are investments. There are so many different types of properties to buy – condominiums, townhomes, single-family homes – and each option has its own pros and cons. Are you thinking resale? Are you planning to have kids? Do you want to purchase a rental property? Determine what you’re looking for so you can narrow down your search.
- Make A [Realistic] Wish List
With buying a home, the hope is that the purchase will meet your needs and wants as closely as possible. The list should include basic wants (neighborhood, school district, amount of bedrooms) and specific desires like kitchen layout and bathroom finishes. Be sure to categorize the list as must-haves and would-be-nice-to-haves so as not to make the purchase impossible.
- Find Out How Much Mortgage You Qualify For
Before you start shopping, be sure to talk to a lender to see how much house you actually qualify to buy. Lenders will take into consideration your income, debt, and employment status to help you determine a number the banks will approve. The general rule of thumb is that you should be able to afford a mortgage three times your income. There are programs available for first-time homebuyers that don’t meet the standard 20% down payment. Also, shop around for a good interest rate; it really impacts the total amount you pay for a house. If you need help finding a lender, talk to your realtor, they can steer you in the right direction. It’s important to have financing in place before you start the process of house hunting so you don’t miss out on the house of your dreams.
- Determine How Much You Can Actually Afford
This is important. Sometimes a bank will approve you for a larger loan than you can realistically afford while maintaining the lifestyle you want. Buying a home should not make you go broke, so when determining how much you would like to pay, consider the home’s total cost as well as the monthly payment. It’s also very important to consider all expenses, including property taxes in your chosen neighborhood, homeowner’s insurance, cost of any desired improvements, closing costs (typically 1 ½ – 2 % of the purchase price), as well as the cost of utilities and HOA dues.
- Find a Home
Remember that list you made in tip #2? It’s time to put it to use. Make sure to take advantage of all options for finding a home on the market. Search listings online, drive around neighborhoods you’d like to buy in, and talk with your realtor. Your realtor will be able to send you listings specific to your needs and desires in a home. When looking at homes, take notes and pictures and remember to use the check list you created. You might find that you’ve fallen in love with a home then realize it meets none of your must-haves on the list. The list allows you to be practical instead of emotional.
- Make an Offer
Your realtor will help you decide the right number to present as an offer along with any conditions you want to ask for. It’s important to consider fair market value (an estimate of what a buyer would pay a seller for any piece of property) because what you can afford has nothing to do with the value of the house. Sometimes houses are listed low in order to incite a bidding war. Typically these houses will sell for much more than you expect. Once an offer is submitted, the seller may issue a counter-offer or accept your offer. Once an agreement is made, you’ll make a good-faith deposit and the process transitions to escrow. Escrow is a period of time (typically 30 days) where the seller takes the house off the market with the contractual expectation that you will be the house.
- Obtain a Home Inspection
Home inspections are one of the most important stages in buying a home. During an inspection, trained professionals inspect the property for the safety, quality, and condition of your potential new home. Inspections can reveal serious hidden issues with the home that could cost you a ton of money down the road. If the inspection reveals any serious defects, you have the opportunity to rescind your offer and get back your deposit or further negotiate with the seller to make repairs or discount from the purchase price.
- Close or Keep Hunting
If the inspection didn’t reveal any significant problems or you worked out a deal with seller, it’s time to close. Closing involves signing a lot of paperwork and waiting for everything to be finalized. During this time, the home may also be appraised (mortgage companies require this to protect their interest in the house). If something falls through, be patient and trust your realtor to get you through the process. It’s important to not be too naïve or too paranoid.
- Congratulations! Now What?
Congratulations! You own your new home. It’s important to remember to keep saving your money and perform routine maintenance of the home to keep it in good condition so it’s ready for resale down the road. Don’t pay too close of attention to the housing market. It doesn’t matter how much your home is worth at any given moment except when you sell it.
- Be patient.
No matter which stage of the home buying process you find yourself in, remember to be patient. Things may go wrong, take longer than expected, or fall through. It’s important to keep your composure, be patient, and trust your realtor to help you navigate through process. Before you know it, you’ll be home sweet home.