What to Accomplish before Purchasing a Home
What to Accomplish before Purchasing a Home
What Prospective Buyers Must Accomplish before Purchasing a House
Finding your Home
So, you want to buy a house?
Just find one for sale, go to the bank, get a mortgage and you’re done! Simple as that, right?
No, not quite. There are several steps you must take to ensure your home buying experience is as painless as possible. The worst thing you can do is rush into buying a home and then be saddled with a mortgage you cannot afford.
This post will go over the specific steps you should take when looking to buy a home as well as some pitfalls to avoid.
Determining your Budget
Figuring out your budget is one of the most difficult parts of the homebuying experience. As a rule of thumb, you should never pay more than 25% of your take-home pay. This includes the costs for the principal, interest, property taxes, homeowner’s insurance, and HOA fees.
There are dozens of online mortgage calculators to assist you in determining your budget, although it is never a bad idea to see a certified accountant. Once you have your budget in place you will be able to know how large of a house you can afford and the locations you should be looking.
One of the biggest mistakes homeowners make is buying a house for more than they can afford. Even if the house is “too good to pass by,” your financial future can be crippled by a mortgage that is too expensive. You also need to make sure you have saved enough money for a down payment. In your bank account, you should have at least 10% of the value of the home, although 20% is likely a better target. It has never been easier to buy a house with little to nothing down, but be forewarned, bypassing a down payment will increase the amount you must pay in interest and fees.
Determine the Best Time to Buy
You’ve probably heard of the home buying season. If not, it is a term realtors use to refer to the time of year when a majority of homes go on the market. This typically takes place in the spring, although it does change slightly every year. Since supply is up many people assume this is the best time to buy a house. However, since spring is often the busiest time for sellers, it is also the busiest time for buyers.
In spring, you can easily find yourself in a bidding war and thus overpaying for a mid-level home. In short, supply is up, but so is demand. This high demand tends to trickle into summer and early autumn.
Conversely, winter tends to be the time of year when houses go for the cheapest. Few people are looking to buy in winter and therefore sellers tend to get desperate and sell their home for less than it is worth. However, there are also far fewer homes available than in the warmer months and your selection will be limited.
If you are looking for a bargain, winter is the time to buy, otherwise, Spring and Summer are likely your best bet.
Check your Credit Score
Credit score can sometimes be confusing, especially when it drops after paying off major debts, but it is essentially a metric that gauges how likely a person is to repay their loans. If you consistently have loans out and consistently pay them on time, your credit score will rise. However, if you have never taken a loan or are prone to miss payments, your credit score will drop.
There are three main credit score calculators, FICO, Equifax, and Experian. You can use any of these three for free once per year. There are other credit score calculators out there, but the three listed above are the only three that are guaranteed to be reliable.
If your credit score is low, consider taking out a smaller loan you know you will be able to pay back regularly to build up your score. The lower the score the harder it will be to get an affordable mortgage and thus you will have fewer housing options.
Search for a Mortgage
Before you have even found a house you want to purchase, it is a good idea to shop around for a mortgage. It is relatively easy to become a mortgage broker, however, it takes years to understand the complexities of the business and what is best for the individual taking out the loan.
Selecting an experienced, reputable broker is important as they will be able to explain any intricacies and will usually save you money in the long run.
Hire a Real Estate Agent and Search for Homes
While it’s true that you can search for homes on your own, it is often best to have an experienced real estate agent, especially if it is your first time buying a home. A real estate agent can help filter out some of the more undesirable choices and save you time touring homes.
Ensure that you are cautious as some real estate agents are somewhat predatory and are only concerned with getting you to buy as soon as possible. Do your research and make sure you hire a real estate agent that has your best interests at heart. If your agent is trying to pressure you into making a purchase or hurries you through home visits, it is likely best to search for other options.
When touring make sure you keep an eye out for any damage or liabilities hidden behind a veil. Sellers and real estate agents will often take the cheapest route to increase home value. Familiarize yourself with common tactics used to improve perceived value. Always opt for homes with strong foundations and structure rather than that which is trendy. Remember, you can always repaint rooms or fix up the front garden, but a cracked foundation or rotting wood can be a disaster.
Get a Home Inspection
Once you have found the home you wish to purchase the next step is the get the property inspected by a qualified home inspector. Just like mortgage brokers and real estate agents, do your research and find a trusted and experienced home inspector. One who does a half-baked job will do nothing but make mistakes and cause problems in the long run.
You may even want to have the property inspected by two entirely separate inspectors, just like you would get a second opinion from a separate doctor after a serious diagnosis. It may cost a little more at the present, but it can save you a boatload of cash in the future.
Whatever route you choose to take, make sure all your bases are covered. Be extra cautious as a poorly maintained home is nothing but a money pit.
Secure your Financing
Once the inspector has cleared your future home from any major risks or issues, you are ready to apply for your loan. It typically takes 21 to 30 days to complete the financing process. To make sure this process goes as smoothly as possible, make sure you provide the exact documents that are asked of you and that you answer any questions truthfully.
You will need the following:
Written statements explaining major deposits into your bank account (if applicable)
Additional proof of your income
It is always wise to get a preapproval before you officially start the homebuying process. This will cause the approval process to go faster, however, a preapproval does not mean you are clear. You cannot consider yourself officially approved until the lender has given the final approval.
In the time that the underwriting for your loan approval is taking place make sure you do the following:
Avoid changing jobs
Do not run up any major credit card purchases or max out your cards
Do not take out any other new loans
Do not close any credit accounts
If you do any of the above, your credit score will change and could put your final approval in peril.
Close it Out
Once your approval goes through, you’re all ready to purchase the house. It is always smart to do one final walk-through before the previous owner hands over the keys if only to make sure everything is consistent and invoice any repairs. This will also give you a chance to correct any errors and ask any final questions.
After this walk-through, complete any remaining paperwork and the house is officially yours. Make sure you keep this paperwork in a secure location separate from the title of your house.
Congratulations new homeowner! The house is now yours. All that is left to do is move in and decorate your new place.
Buying a home can be complicated, but if you follow each step on this list, it should be relatively pain-free.
If you have any questions about the home buying experience or any other topics that go along with homeownership (such as joining an HOA or fees that go along with it) reach out to Management Plus. We have over 100 years of collective experience in helping homeowners turn their house into a home.