If this is your first time buying a home, there are a few important things to consider when buying a home. This is a huge life-changing decision, both financially and in terms of lifestyle. Arm yourself with this information to make the best decision.
Buying a house: first steps
First, the main to-do list items are essential at startup. home buying process.
Calculate your budget
Do this before doing anything else.
Go to your bank and talk to a loan officer. They will help you calculate your debt-to-income ratio (the general rule of thumb is you want your monthly debt to be no more than 40% of your monthly gross income) and give you a rough idea of how much home you can afford. Use this to solidify the budget and try to stay within that budget for the cost of the house.
Commentary on credits
The affordability of your monthly payments is not only determined by the value of the house itself. It is also affected by mortgage interest rates, closing costs, and various fees associated with the home buying process.
While most people opt for conventional loans, there are also FGAVA and 5/5 ARM (adjustable rate mortgage)) loans. Regular loans require 20% of the value of the home, but other loans may require less. Be aware that paying less than 20% upfront may include additional private mortgage insurance or PMI costs. This extra fee is what the bank will charge you each month as an insurance premium to protect your credit.
Depending on your financial situation, your decision about the type of loan and the value of the home may change.
Take the time to get pre-approved, as this will show sellers that you are ready to make an offer. In addition, during the pre-approval process, you can get information about different types of loans, compare interest rates and choose the one that suits you best. Starting this process early will also help your bank speed up the processing of all paperwork after you make an offer.
Commentary on budgets
When determining your budget for a new home, be sure to also calculate the cost of your new home after the fact.
What are the costs of a new home? There are a few:
Before you move in, consider professional cleaning of the house, changing the locks, transferring services in your name (this could cost you a transfer fee!), and any other monthly bills that are due immediately.
After moving in, you must budget for the cost of maintaining the house, which is usually 1% of the value of the house. So, if you pay $900,000 for a house, you should expect to spend $9,000 a year to maintain the house. Plus, your monthly bills will go up, including gas and electricity.
Include these numbers in your calculations so there are no surprises when you move into your new home!
Define your mandatory requirements
When buying a home, it is important to determine what you need. These are the immutable qualities of the house that you need in life. These deal breakers can influence your decision to pull the trigger by proposing. A house with everything you need can also encourage you to spend more than you originally intended.
When compiling this list, focus on aspects of the home that are difficult to change or add on later. For example, the main bedroom on the first floor may be mandatory. If it’s not already part of the house layout, adding or changing things can be extremely expensive and time consuming. So be sure to only look at homes that have this feature or have a space that can be easily converted.
Other important things to consider:
- Location
- school district
- House layout
- Number of bedrooms
- Open space
- House age
Gather Important Documents
Collect the necessary documents for sending to the bank in one place. These documents include bank statements for at least the last two months, income and payroll documents from work, as well as other documents showing your net worth and ability to finance a loan.
By having your documents ready in one easily accessible folder, you will save time and simplify the process of interacting with your bank.
Find the right real estate agent
Find the right real estate broker or agent, as they can help or ruin the home buying process. Find someone you trust and who takes into account your interests. This will save you money and help teach you the nuances of home inspections and make sure you get your money’s worth.
Good real estate agent will also help you through the escrow process – call the bank and sellers to make sure everything goes smoothly.
Start house search
To begin hunting house:
- Look at sites like Zillow or rudd and see what’s there.
- Browse different neighborhoods and school districts and see what’s available in your price range.
- Once you have a list of homes you want to see, ask your real estate agent to make an appointment to see them. Alternatively, if open houses are available, plan to view them at that time.
Going through a home inventory will be the most time-consuming part of the home buying process. Be patient and don’t give up!
Search comment
Don’t rely on your real estate agent to give you affordable homes. Look around you as well as a form of research. The more knowledgeable you are about neighborhoods and accessibility, the better you will be at asking questions and making the best decision.
Once you have found a home
Once you find what you like and fit your needs, the real work begins.
Make an offer
As intimidating and monumental as this purchase is, don’t be afraid to take the plunge, at least placing offers where you’re interested. The period after the offer is accepted is the escrow.
The deposit often lasts for about a month, during which the bank processes the documents, and you, as the buyer, can carry out due diligence.
Some details about escrow:
The first ten days after the offer is accepted is a period of unforeseen circumstances. Unforeseen circumstances give buyers the opportunity to claim a home and provide an opportunity to change their mind. The distribution of these ten days is as follows:
In the first three days you make a deposit in the form personal check or approximately 1% of the purchase price (some sellers require more in good faith).
After receiving the deposit, you have one week to carry out due diligence, as mentioned above. After you complete due diligence and are satisfied, you sign a “contingency remediation” document. This tells your lender that you are ready to move forward and the purchase becomes blocked. You can cancel the deal until this document is signed and get your deposit back. You will lose your deposit if you back out of the deal after the document has been signed.
After due diligence is completed, the bank conducts due diligence and property valuation, which may take another 10-14 days. Your loan will pass if they determine that the property is worth its price. If they decide the property is worth less, you may not get the loan you need. Although the latter is rare, it must be remembered and prepared for.
Do a due diligence
As mentioned above, you have one week to complete your due diligence, which includes completing a home inspection (never skip it!) and getting all the details about the home from the current owners.
What to look for:
- Major overhaul history
- Renovation of the house – what was done and at what cost. Also ask for before and after photos to see the changes.
- History of problems with the house – any damage or if something is broken and needs to be repaired.
- Take a walk around the house and look for current problems. Bring anything inappropriate to the attention of current owners. Ask for repairs or use this as leverage to negotiate a lower sale price.
Basically, this time is for you to make sure everything is up to par with the house and that you are fully aware of everything that you will get with the purchase.
The documents
Currently everything is done through DocuSign. Easy to skip content and sign. Take your time to read before signing anything! Mistakes happen and it’s best to catch them.
To ask questions
Ask about anything and everything that comes to mind about the house. Talk to the current owners and ask for documentation, receipts, manuals, and anything else you want to have for your records.
The more you know about the property you are purchasing, the better off you will be when you move into it.
Key Findings
Buying a home for the first time can be very stressful. However, making the right choice can improve your quality of life.
Whatever you decide to buy, be sure to arm yourself with the information you need to make the best decision. Know your must-haves and disadvantages; find a reliable real estate agent you can trust; do your research and due diligence; prepare information and documents for the bank, and know what you can afford.
Final Thoughts
The real estate market can fluctuate and home prices where you are located can vary greatly depending on the inventory. Start your research early if you know you’re interested in buying a home. Take your time to look for and understand the options available in your area as it won’t be the same everywhere!
Good luck!
This article originally appeared on Geek Wealth.