Buying a home seems like it should be simple, but it is a complex experience, especially if it’s your first time. Here are four steps to buying a home.
1. Determine Your Financial Readiness
One of the most important steps to buying a home. Are you truly ready now, in your life, to own a house? Many people focus only on the benefits of a home and do not pay attention to the responsibilities that go along with such a huge purchase. Are you going to have to get a loan to help pay for your new home?
Is your money situation stable enough for you to continue making payments and to pay for maintenance as the home gets older?
Is there any chance at all that you might have to move in a few years?
Figuring out right now whether it’s the right time to buy and how much you can afford will save you a lot of time and stress down the road. Comparing the financial benefits of home ownership to the benefits of renting is a good place to start. Renting provides more flexibility in your ability to move and maintenance costs are much lower. But the place doesn’t belong to you and your money goes to someone else.
Buying a home takes up-front costs: a down payment, inspection fees, closing costs and loan fees. Your mortgage payment made each month is being invested for the future. Some other benefits to consider include: tax breaks, value appreciation, no landlord, equity in the home can be used to help with other financial endeavors, and the home can be customized to your own tastes.
2. Shop For a Loan
If you have decided that now is the time to buy a home, you will probably use a loan to finance all or part of the home’s price. It is always a good idea to shop around for the best interest and terms on a mortgage. Make sure you understand the loan products you are reviewing.
How will the mortgage fit into your long-term financial strategy? Are you willing to take risks with your money, or do you prefer to play it safe? A lender will want to make sure you will be able to pay the mortgage back and will create a loan product that fits your financial situation. Two major areas they’ll look at are debt-to-income ratio and your credit score.
Gather the following financial documents: your past two years of W-2 forms and tax records, current pay stubs, bank statements, retirement funds, investments and any other income, credit-card, car, student loans and other debt statements. Also include any extra information that is necessary to show your assets and how much you owe.
Review your credit report and make any corrections if necessary. Do your best to improve your credit score. If you need help in this area, contact a credit card counseling company.
3. Look for Houses
You probably have already been doing this, since it is the most fun! It is important that you know the price range of the home you can afford (there are loan calculators for this) to target the right houses. The quickest way to get a list of houses in your price range is by using our online property search. Create a home wish list to guide you in what is most important. After doing some research and driving through some neighborhoods to find a location you’d like to live, you’ll want to get one of our Buyer-Agents to show you some homes.
Some helpful things to think about when trying to find the right place to live:
1) Is the commute to your place of work going to be acceptable? Depending on traffic, a short distance could take twice as long as you think it should. Try driving it during heavy traffic commute times.
2) Have you checked the crime rates in the area?
3) Do you like city life or country living, or somewhere in between?
4) Are you as close as you’d like to be to stores, hospitals, restaurants, etc?
5) What are the local property taxes? Some areas can be much higher than others.
6) Do you have kids? What are the schools like in the area? Keep in mind that even if you do not have kids, the quality of the schools affects home values.
If you like a neighborhood, but the homes are above the price you’d want to pay, try finding a home that needs a little work. The house will have built-in value and will make any repairs and remodeling worth the cost. Another option is to find neighborhoods which are improving. The home will be reasonably priced, but will rise in value as the neighborhood improves.
4. Get the Deal Closed
You found the right house–now make an offer! A Buyer-Agent can help provide you with the guidance needed to write up an offer that will entice the seller to accept your offer (or at least start a negotiation process.)
Negotiations can revolve around home price, home repairs, or closing costs. With a bank-owned property and short sales, there is usually little room for negotiation except on price.
If you’re financing the purchase, see if you can lock in an interest rate; there could be an extra fee, but it might be worth it. During closing, make sure to get the home inspected so that you can find any hidden problems. An appraisal, title search and homeowner’s insurance should also be sought.
Make sure you have an agreed upon move-in date signed in writing from the seller and have funds ready for closing. Cash or cashier checks are usually required for closing costs.
The end of the month and end of the year are extra busy, so try to avoid closing during those stressful times.
When everything is in satisfactory order, the deal will close–and congratulations–you will have a new home!