Buying home is the culmination of a life’s work for many people — and probably one of the biggest worries many people face. Buying a home may seem like a scary experience (and a healthy fear of goofing up is a good sign); but, if it is done right, buying your first home can be exciting challenging and even very rewarding.
House hunting can be a challenging task, make no mistake about it. Then there are many pitfalls and traps in the buying process itself, the impending housing market collapse is always there and a good deal of other details that wait to assail the first time buyer.
These facts and more have worked to make the whole business look daunting, but with a easy to grasp introduction to what you will meet and how best to prepare, you can significantly decrease the difficulties and enjoy the process of buying your home — and even save some of your hard earned cash.
Following is a step by step guide to the process of buying a home that can help you prepare for the greatest acquisition you will make.
1.Decide what your Price Range TRULY is
Obviously you can’t go into this market with no idea of what your buying power truly is. The first step in buying the home of your dreams is deciding how much you can realistically budget for this momentous project.
How does one begin? There is a good rule to keep in mind when deciding this budget, experts will recommend that you look for homes in the range of two or three times what you will make annually. This helps to keep the commitment you will make to your mortgage within your capacity.
While on the topic of mortgages, it is also recommended that the payments you commit to are less than 28% of what you generate in a month. Unless you have any additional expenses that can be considered hefty, like school tuition fees or other, in which case, you could lower that percentage even further.
If you are still unsure of this very important figure after crunching the numbers yourself, there are many professional financial advisors that can proffer their expert opinion to your situation and help you decide on a realistic financial plan for this big buying project.
Once you have a clearer idea of how much you will budget, it is time to consider “cash in hand”. It is generally advised that a buyer saves at least 20% of the down payment, this will avoid having to seek private mortgage insurance, then another 3% for the closing costs.
You will also want to have saved enough to have some cash to spend on home improvements, upgrades, moving costs or any other expenses that will need to be addresses before you can get your new home in operational conditions. It would be a bad idea to plan to use emergency funds for this necessary expense.
Then consider emergency funds, as a homeowner you will find that a home may present unexpected costs that will need to be addressed fully, immediately. If you are not fully prepared for these expenses bad things happen, damage to property among a host of others.
2. Find a Mortgage that is Right for You—and Get Pre-Approved
Now that you know how much you have to meet this project with, it is time to find a mortgage that will suit your needs. You will want a mortgage company with a good reputation of service and prompt closings.
Be sure to have a substantial list of questions with you, like how long it will take to approve your financing or what the stipulations for eligibility are, etc., be sure to work with the company that gives you straightforward responses.
Then you will have to decide on which type of mortgage is the best for your situation. There are two common types here: the Adjustable Rate Mortgage which will fluctuate in line with market fluctuations. Then there is the fixed rate mortgage which will give you a single rate for the duration of the mortgage arrangement.
The length of the loan is best left to the decision of the buyer, although it is always best to go for a slightly longer period than the timeframe in which you originally believe you can complete the mortgage — because you never know what will happen in the future.
The next important step here is to seek pre-approval. This is when a lender will look over your financial records and commit to lending you the mortgage for the specified rate. The reason you will want to do this here and now is that when you do find your home and are ready to make an offer, the lending company will only have to come and appraise the home as you will have your mortgage pre-approved — meaning you are a qualified buyer.
Be careful here, the clever bankers will obviously want to pre-approve you for a much larger amount than you had originally figured, especially if your financial records show what an upstanding borrower you can be. Ignore the flattery and stay your original course, the figure you found in step 1.
3. Prioritize the features you want in your new home
It is very rare for a buyer to find the perfect house of their dreams within their budget. With this in mind, be sure to sit down and make a list of all the features that you absolutely “Must-Have” in your new home— juxtapose this list with a list of all the things that “Would Be Nice”.
The “must have” list should include the number of bedrooms and bathrooms, the distance between workspace and other important facilities, as well as the location of the home in terms of school districts, downtown, etc. Other particulars could include garage space and outdoor areas.
Things that do not belong on a “must have” list include interior decoration, landscaping and paint jobs, pools or anything else that can be installed or improved on later.
This list will be extremely important later when you are trying to narrow down your decision between a few good choices, as well as when you are searching and need to fall back to the original plan due to being tempted by some deal that will cost a lot for something you may not even want.
You can prepare a list similar to this one:
4. Start looking for a Home or a Real-Estate Agent
That takes care of the preliminaries, now the fun stuff begins: Time to look for a Home! There are many online resources that can show you the options available in the neighborhood and price range in which you are browsing.
This will be your first glimpse into how realistically your budget and “must have” list align— it is quite common to return to the drawing board and rethink your budget parameters.
This will also be a good time to consider retaining the services of a reputable real estate agent to facilitate this process. Of course, you are probably suited to making this acquisition on your own, but there are some considerable advantages of employing the services of an estates agent.
The most important advantages of a real estate agent are as follow:
Access to a much larger selection of options than you can hope to find on your own.
Save time looking for homes and setting up home viewing appointments.
A dispassionate mediator that can present the demands of the seller and wishes of the buyer with ease and fluidity.
Although they do come with a fee, a real estate agent can also find you a better deal and save on a certain amount of “surprise” expenses that only an experienced eye can detect.
If you do choose to work with a real estate agent, be sure to select one that represents buyers exclusively, thus eliminating the conflict of interests, at least until you have a bit more experience and can perhaps contact other agents for better deals.
Research your reals estate agents credentials and work history with more prejudice than you would give a surgeon you are considering for open heart surgery. Make sure they have all licenses up to date and an impeccable history of customer service.
If you plan on going it alone, then your chances of success will be significantly increased with each house you are able to look over. So pencil in some dates on the calendar for house hunting.
You can start your search from our real estate companies list by clicking to the link.
5. Homeowner’s Insurance
The lender supplying the mortgage will probably ask about the company providing your homeowners insurance, this is a good reason to shop around for some quotes while you are in the area house hunting.
The basic insurance will cover incidents of fire, storm damage theft as well as a certain degree of coverage if anyone is injured on your property and tries to sue you. If you feel the need you should investigate extra add ons for costly jewelry, furnishings and other belongings that might be covered.
Shop around for a good insurance provider online, where you can check quotes from various agencies and even consider the independant agent option. Prices and costs are varied and finding a good deal will take some time and considerable attention to the fine print.
6. Make an Offer
So you have found the property that meets your price range, all or most of your “must Haves” and you can even picture a spot for your favorite chair. Perfect! Time to consider making an offer.
Things get a little tricky here: on the one hand, a “low ball” offer can possibly lose you the house to another buyer or insult your seller. On the other hand, do you really want to spend more than you have to? How to hit that elusive price right on the button is a difficult trick.
There are entire books on how to perform this small miracle, for lack of time, let’s hit some of the biggest factors that go into producing an enlightened offer.
The best place to look is all around, how much have similar homes in the area sold for? Was this more or less than the asking prices? Was the asking price higher or lower than the other prices in the area? These questions and their answers will reveal on which side of the asking price and how far you should make your initial benchmark.
Then you have to consider how long this particular property has been on the market and, therefore, how desperate the homeowner is to make a sale. Finally you can factor in the nature of the local market. Is it a hot market where every inch of ground is bought for cash down deals. Or is it a slower area that has lots of empty houses?
You will want to make a stronger offer in a fast paced market so that the other buyers don’t even get chance, this would not be a good idea in slower market where a good deal can take some time.
7.Home Inspections, Contract Reviews and Mortgage Submission
The seller has agreed to your price and the deal is about to be made, but not so fast. Be sure you review each and every clause in your contract.
Especially those clauses that layout contingencies, which illustrate the procedures for backing out of a sale in case of something gone terribly wrong, like a horrible home defect or bank who backs out of their financial aid.
On the subject of defects, this is when you will have your home professionally inspected, which will cost around $500. Any serious or even not so serious defects found here can shave some dollars off your price if you can barter well. If any deal breakers are discovered, a faulty foundation for example, you are free to back out now.
If the inspector approves the building and no defects have affected the value of the home, you can then submit the application for your mortgage. This is when you will have some closing costs to address, hopefully you saved that additional 3% and can make them quickly go away in time to sign the contract.
8. Sign the Contract
Before you put ink to paper you will be allowed to walk through the home to be sure nothing has changed since the day you made the agreement. Be sure you have the agreed upon amount of money and make sure transfers are wired to the proper account.
Be sure you are provided with copies of all the settlement papers you will be signing so you can have a reference for future review. There will a good amount of papers to sign and it would be a good idea to investigate the HUD-1 settlement statements, Final Truth-in-Lending Act statement and mortgage papers as well.
Once all the paperwork has been signed and you have been handed the keys to your new kingdom…
Congratulations you are now a Homeowner!