For many people, buying a home is the largest financial transaction they can make. This is why acting right the first time is so important. Sometimes, buying a property involves adhering to a set of rules and regulations that make your head spin. Fortunately, armed with the right knowledge and know-how, you can begin to realize your dream of owning your own house, quickly, easily and effectively.
Steps
Part 1 of 4: Tidying Up Your Finances
Step 1. Strengthen your creditworthiness
The higher your FICO score, which ranges between 300 and 850, the better the interest rate you will qualify for. This is extremely important. The difference between a 4.5% and 5% mortgage interest can mean tens of thousands of dollars in the total loan amount.
Receive a free copy of your credit report, so you know what those who lend you your mortgage money will see. Pay for credit card costs and resolve any disputes or credit defaults
Step 2. Get pre-approved to get the actual amount of money you can pay
Go to multiple lenders within the two-week time frame so requests won't hurt your credit report. Do this before you get in touch with a real estate agent, so you get a good idea of what you can afford, and you won't accidentally fall in love with a home that is over your budget.
- Sellers love buyers who come pre-approved. They are almost always given the green light by the lenders, which means that the risk of not seeing the deal go through is lower.
- Don't get pre-qualified by mistake before pre-approval. There is a difference. Getting pre-approved means that the lender is generally ready to lend you after checking the status of your finances. Being pre-qualified only means that the lender is making an estimate of what you could borrow. It is not said that you will receive one.
Step 3. Do research for your mortgage
One moment: why inquire about the mortgage before choosing a house? Wasn't it done the other way around? Not necessarily. Investigating a mortgage before opting for property can benefit you for one overriding reason:
- You will know exactly the amount you will borrow before buying the house. Too many people fall in love with a property that, well, they won't be able to afford. They struggle to find a mortgage that will cover the costs. Identifying a mortgage first and choosing a house later is certainly less interesting, but it is doubly intelligent. You will understand in an instant whether a property falls within your price range or not.
- Think about the type of deposit you can afford. It should be part of your mortgage calculations, even if you don't need to know for sure when to inquire to choose one. Get a general idea. You will find more information on this below.
- Find out what calculations lenders rely on to determine if you qualify for a loan. "28 and 36" is a commonly used proportion. It means that 28% of your gross income (what you have before you pay taxes) must cover the expenses you intend to pay for the house (including principal and mortgage interest, as well as real estate taxes and insurance). The monthly payments of your outstanding debts, when combined with the costs of ownership, must not exceed 36% of your gross income. Calculate the percentages for your gross monthly income (for example, if you earn $ 3750 and we use the 28% and 36% ratio, you will get the amounts of $ 1050 and $ 1350, respectively). Your monthly overdue debt payments cannot exceed the difference between these two amounts (in the case of the example, $ 300), otherwise you will not be approved.
Step 4. If you qualify, take a look at the programs for first-time buyers
They often have lower advance payment requirements. They are offered by various states and local governments. You may also have the ability to access up to $ 10,000 from your 401 (k) or Roth IRA without being sanctioned. Ask your agent or your company's human resources department to find out more about loans and support programs.
Step 5. Talk to a lawyer (optional)
If you expect the purchase of the house to be simple, opt for the realization of a deal in an easy and direct way; then, you will probably only need a real estate agent, a notary and perhaps a mortgage broker. However, if things don't go smoothly, hire an honest, reliable and (relatively) cheap lawyer. Consider this option if:
- The cost of hiring a lawyer is a drop in the bucket when compared to the total you will likely spend on housing.
- The house you are going to buy has been put up for sale for a foreclosure or a certificate of validity is being carried out, which means that the property is being distributed as part of a deceased person's estate.
- You suspect the seller may try to back out quickly before closing the deal or you don't trust him.
- Your state requires an attorney for the final sale. Six states currently require a lawyer to be present to close the contract. Talk to the state real estate commission to find out if it is common practice in your state.
Part 2 of 4: Evaluating the Houses
Step 1. Find a good real estate agent to represent you in the research and negotiation process
The agent should be personable, open, interested in you, relaxed, confident, and competent. Find out about his rates, methods, experience and training. Look for one who knows your area well, works full time, closes several contracts a year, and has a good reputation.
- Real estate agents generally work for sellers, but this is not necessarily a bad thing. His job is to create connections between people who want to sell and buy a certain property. Therefore his interest is to conclude a transaction. A good professional will use his experience to sell the right house to the right person: you.
- When you find an agent, express in detail and comprehensively what you are looking for in a house: number of bathrooms and bedrooms, garages, land and everything that you consider essential, such as good lighting or a courtyard so that your children can to play.
Step 2. Sign up for an MLS service to research properties in your area
A Multiple Listing Service will let you know what's available on the market for your budget. Your agent can do it for you.
If you sign up for the service through a real estate agent, calling him to come and see a house indicates a certain lack of style. Don't ask him to do things for you, unless you intend to represent you. This professional doesn't get paid until the client buys a house and it's not fair to demand that he work for free, knowing that you won't be relying on him to buy your property
Step 3. Start looking for homes within your budget
Allow your agent to start working for you, aware of your spending cap. The rule of thumb in this case includes the possibility for you to buy a house that is worth 2.5 times the annual family income. For example, if the family's annual salary is $ 85,000, you should be able to afford a mortgage of at least $ 210,000, possibly higher.
Use online mortgage calculators to start balancing the numbers, and remember the research you've already done on your mortgage. Keep these numbers in mind as you prepare to find your new dream home
Step 4. Start thinking about what you are really looking for in a home
You've probably already got a rough idea, but the details matter. There are, in particular, a couple of things that both you and your family should consider:
- What will you need in a few years? Maybe you are a young couple today, but do you plan to have children in the future? A house that barely two people enter could become torture for three or four.
- What compromises are you willing to make? In other words, what are your priorities? While we like to think that buying a home can be a straightforward process, it is often a complex ordeal that forces us to adapt. Do you care more about living in a safe neighborhood with good schools or having a large yard? Do you need a huge kitchen in which you can work more than two luxury bedrooms? What are you willing to sacrifice in hard times?
- Do you expect your income to increase in the coming years? If your income has increased by 3% for several years in a row and you have a secure job in a stable industry, you can probably be reassured that you will get an expensive but still reasonable mortgage. Many buyers start with a relatively high mortgage and catch up after a couple of years.
Step 5. Define the area you would like to live in
Take a tour to get to know the neighborhoods. Look at the prices, architecture and proximity to shops, schools and other facilities. Read the local newspaper, if the city has one, and chat with the locals. In addition to evaluating the property, observe the neighborhood and condition of nearby homes to make sure you are not buying the only beautiful property in sight.
The area in which the house is located can sometimes be an important factor in the final choice, as it will have a greater impact on the value of the house if you want to resell it. Buying a home to renovate in the right neighborhood can be a great investment and being able to identify emerging communities, where more people want to live, can lead you to make a real deal, buying a property with increasing value
Step 6. Visit open houses to estimate what's on the market and see for yourself what you want
Pay attention to the general layout, the number of bedrooms and bathrooms, the comforts of the kitchen and the spaces to store your things. Visit the properties that really matter to you at different times of the day to estimate traffic and congestion, available parking spaces, noise levels and general activities. What may seem like a peaceful neighborhood at lunchtime can turn into a noisy shortcut to cars at rush hour, and you'll never know that if you've only gone once.
Step 7. Evaluate comparable homes in the neighborhood
If you are unsure of the house for the price, have it appraised by a local appraiser, who also checks the other properties. When evaluating a house, the expert compares it to neighboring houses of similar characteristics and dimensions. If your property is more expensive than the others or the professional has to look for houses to compare in a different category or more than a kilometer away, be careful! Never buy the most expensive house in the neighborhood. Your bank may refuse to finance the home, and you probably won't see its value grow much. If you can, buy the cheapest property in a neighborhood, since if the houses around you sell for more than what you paid for, the value of your property will increase.
Part 3 of 4: Making an Offer
Step 1. If possible, customize your offer according to the seller's circumstances
It's not easy, and it's often impossible, but it doesn't hurt to try when you complete one of the biggest transactions of your life. Here are some factors to remember as you think about your proposal:
- What are the seller's financial prospects? Are you desperate to make money or do you have no financial problems? Sellers who are short of cash will be more likely to accept an offer that is lower than their original price.
- How long has the house been on the market? Sellers of properties that have been on sale for longer periods of time can usually lower the price.
- Has the seller already bought another house? If you don't currently live in the house you want to sell, it might be easier to propose a lower sum than in another case.
Step 2. Have previously compared houses handy when bidding
What was the original selling price of the other houses in the neighborhood and, ultimately, how much were they sold? If properties in the area typically sell for 5% lower than the starting price, you may be bidding between 8% and 10% lower than the original price.
Step 3. Calculate the expected expenses for the house
Estimate the annual property taxes and insurance costs of the area and add them to the average price of the home you are trying to buy. Also, aggregate how much you expect to pay for closing costs (this includes various charges that typically range between 3% and 6% of the money you will borrow. Credit unions often offer closing costs. inferior to its members). Enter the total in the mortgage calculator (you can find it on the web or create one in a spreadsheet). If the figure exceeds 28% of your gross income (or the lowest percentage used by lenders in your situation), then you will have trouble getting a mortgage.
Determine if you need to sell your current home in order to afford a new one. If so, any offer to buy you make will depend on this sale. Dependent bids are riskier and less desirable for the seller, as the sale cannot be completed until the buyer's home is sold. You better put your current property on the market first
Step 4. If you fall head over heels in love with a property, be prepared to place an offer that exceeds the starting price
The law of supply and demand will sometimes affect your choices. If a lot of people are competing for a few houses, be prepared to step in with your highest possible bid. Some buyers don't believe you should act this way, but you could easily find yourself out of the auction and won't have the chance to place further bids. To get the best chance on a home you really like, take a dare with your offer.
Step 5. Talk to your real estate agent when you are ready to formally submit your offer
While the guidelines for submitting proposals may differ from state to state, this usually goes like this: You send your offer to your real estate agent, who returns it to the seller's representative. The seller will decide whether to accept, reject or make a counter offer.
Include a deposit in the offer. Once you sign a proposal, you officially make a security deposit, which means you commit to buying the house, or you'll lose the deposit, provided they don't refuse your final mortgage approval. During the guarantee period (typically 30-90 days pass), the lender arranges to finance the purchase and finalizes your mortgage
Part 4 of 4: Finalizing the Deal
Step 1. Determine the amount of the advance you will have to pay
This payment establishes the value of the mortgaged property. This is money for which you don't have to pay interest. The more down payment you can make for the property, the less money you will actually have to pay in the end.
- You should pay 10-20% of the home's appraised value. Remember that the appraised value may be higher or lower than the home's selling price. For example, if you have $ 30,000 set aside for the down payment, you can use it for that purpose for a house between $ 300,000 (10% down payment) and $ 150,000 (20% down payment). Paying less often, but not always, will require you to pay private mortgage insurance (PMI), which increases the monthly cost of ownership but is deductible.
- If you can't afford a 10-20% down payment on your home, but have good creditworthiness and a fixed income, you could be assisted by a mortgage broker to take out a combination or FHA mortgage. In fact, you will get a first mortgage that will amount to a maximum of 80% of the value of the house and a second mortgage for the remaining sum. Although the interest rate on the second mortgage will be slightly higher, it is deductible and the combined payments should still be lower than on a first mortgage with the PMI. If this is your first purchase, consider the Nehemiah Program to receive a down payment subsidy.
Step 2. Make sure final acceptance is declared after a proper home inspection
Request the following reports and investigations: inspection, presence of pests, wood rot, radon and hazardous materials, possibility of landslides, floods and damage caused by the earthquake, and criminal statistics (typically you will have 7-10 days to complete the checks, make sure your agent explains it to you when you sign the sales contract).
- A home inspection costs between $ 150 and $ 500, depending on the area, but can prevent a $ 100,000 repair. This is especially true for older homes, because you want to avoid having financial problems due to the resolution of damages such as those caused by lead paint, asbestos and mold.
- If you use the inspection results to negotiate the lowering of the purchase price, do not refer to the inspection or offers in your contract. The lending institution may require you to see a copy of the inspection document and alter their appraiser's assessment.
Step 3. Request an energy audit of the house and make sure the contract depends on the outcome
Such a diagnosis is an essential part of buying a property. Not knowing how much it really costs to heat and cool a home can lead you straight into a potential financial disaster. Buyers make assumptions when budgeting for their new home. But such assessments can be significantly wrong and make a family live with water in their throats.
Step 4. Close the deal
Typically this process is done in a notary's office and involves signing documents related to ownership and mortgage agreements. The package of documents includes the deed, which proves that the house is yours now, and the title, which proves that no one else claims it or has a right of retention. If there are any issues left, the money can be set aside and not paid to the seller until resolved, which acts as an incentive for the seller to quickly remedy any problems and receive whatever is owed to them.
Consider going to your real estate attorney to review the closing documents and represent you in this regard. Real estate agents can't give you legal advice. A lawyer can charge $ 200-400 for the few minutes of attendance, but he'll protect you
Advice
- Make sure you have some savings before you start researching!
- Try not to fall in love with a particular property. It's great to find exactly what you want, but, if you leave your heart in a house, you may end up paying more than its value because you are emotionally involved. Furthermore, the deal may not necessarily be closed. Be willing not to "lose your head" for a home; no house is so perfect that the seller can sell it at any price he can think of.
Warnings
- A salesperson who won't give permission for a home inspection has something to hide - go away!
- The economy is not quite in shape lately. Some people say it's a good time to make such an investment (prices are low), but others say it's not a good time to enter the real estate market. We recommend that you discuss and consider all suggestions before buying right now.
- Watch out for real estate agents who are in a hurry to sell a property. They may be aware of events such as market crashes. Try to be wary of unusual offers made by an agent.
