Ask any homeowner about their experience buying their first house, and they’ll probably share a few amusing stories about lessons they learned the hard way. If you’re buying a home for the first time, you won’t be able to draw from past home buying experiences to know what to expect and how to prepare. Instead of learning the hard way too, check out these seven important things to know before buying a home, and you’ll be purchasing like a pro in no time.
1. Whether You’re Ready To Buy A Home Or Not
Before anything else, you need to know if you’re ready to buy a home. It isn’t just that you’re tired of your current living situation and want your own place. You need to make sure you’re financially and emotionally ready as well.
Homeownership costs money, and it isn’t a one-time fee. Not only will you have to pay for the home, but you’ll also have to pay taxes, insurance and maintenance costs. To make sure you’re financially ready to buy a home, take a look at your financial situation. Are you drowning in debt? You may not be able to get a mortgage. And if you do get a mortgage, the loan will only add to the debt you already have. Are your savings scarce or nonexistent? You’ll need some money saved for a down payment and closing costs before purchasing a home. Are you living paycheck to paycheck? You may not be able to afford a monthly mortgage payment at this time. If you are struggling financially, a home will only add to the problem. Get your finances back on track first, then come back to buying a home when you’re in a better position.
A house is a big commitment. You can’t just pick it up and move it whenever and wherever adventure calls. If you aren’t ready to settle down in one place for at least a few years, a home could feel like a chain around your ankle. You’ll also need to take on additional responsibilities to care for your home, like mowing the lawn, fixing appliances, painting rooms and cleaning. These tasks can often take up a whole weekend or longer. Are you ready to trade weekend fun for weekend chores?
Owning a home can be a rewarding milestone in your life, but only if you’re ready for it. Once you know it’s the right time, the next step will be starting the home buying process – an important process to understand before you jump into it.
2. What The Home Buying Process Is
The process of buying a house can be overwhelming if you don’t know what to expect. Better prepare yourself for what’s ahead by understanding these important steps.
Save For The Costs Of Buying A Home
Whether you get a mortgage or not, there are a few costs associated with buying a home. If you plan to buy your home without a mortgage, you’ll need to save up enough money for, well, the full purchase price of the home. If you’re like most people in the United States and plan to use a mortgage to buy your home, you’ll need to save up enough money for a down payment and closing costs.
Your required down payment will depend on the type of loan you get. For example, the down payment for a conventional 30-year fixed loan is 3%. For an FHA loan, it’s around 3.5%. Of course, you can always make a larger down payment, which is what you’ll want to do if you can. That’s because the larger the down payment, the more you’ll save in interest and the more equity you’ll have in the home from the get-go. If you put down 20% or more, you’ll also avoid having to pay private mortgage insurance (PMI).
You also need to consider closing costs – the fees associated with getting your loan. These may include application, appraisal, origination and underwriting fees, to name a few. While the closing costs vary, you can expect to pay around 3 – 6% of the purchase price. These are costs you’ll need to pay upfront, so you need to have that money available when you buy a home.
Get Approved For A Loan
Loan approval is just the start of getting a mortgage, but doing it early in the home buying process can benefit you in a few ways.
· It helps you understand how much home you can afford.
· It shows that you’re a serious buyer who’s willing and able to pay for the home.
· It will keep the process moving with fewer surprises along the way.
Find The Right Real Estate Agent
A good real estate agentwill take some stress out of the home buying process. They’ll work with you to find the home you want that’s in your budget. Real estate agents are experienced in the housing market, knowledgeable of their local area and experts in helping with negotiations. They’ll walk through houses with you, answer questions, and provide objective information and opinions to help guide your decision.
3. Find Your Home And Make An Offer
While your real estate agent will look for homes based on your interests and price range, you can also join the search by using online listing sites to view homes for sale in the neighborhoods you prefer. Once you find homes you like, take a few tours and attend open houses with your agent. Remember, it may take some time to find the home that’s right for you. Once you do find a home you love, your real estate agent can help you decide on the best price to offer the seller.
Get A Home Inspection And Appraisal
Once the offer is accepted, you’ll want to get an inspection and appraisal on the home you’re preparing to buy. These steps in the process will protect you and your lender from paying more than the home is worth.
The inspection will uncover any issues with the home, including major repairs or any renovations that need immediate attention. It will also point out any red flags that may cause problems in the future. Meanwhile, the appraisal will give you the fair market value of the home, which is the highest amount the lender will loan.
If the home inspection comes back with major issues or the appraisal comes back lower than the original offer, you may need to negotiate with the seller or walk away from the home.
4. Close On Your New Home
The final step in the home buying process is closing on your new home and becoming the official homeowner. During your closing, you’ll sign a number of legal documents, pay your closing costs and get the keys to your new home.
How Much Home You Can Afford
When you’re preapproved for a mortgage, the lender will give you an estimate of the amount they can loan you. While that number may change, it’s a fairly accurate estimate because the lender more than likely verified your income and assets and reviewed your credit to preapprove you. If you have any money saved to put toward the purchase of your home, including the down payment, add that to the lender’s estimate. That will give you a good idea of how much home you can afford. However, keep in mind that just because the lender is willing to loan that much money doesn’t mean you should purchase a home at that price. This is the amount the lender thinks you can afford based solely on your assets, credit score and other documents showing basic information. The lender doesn’t know your lifestyle or consider, for example, how much you spend on takeout or how many times you frequent the movies, so determine the monthly payment you can afford based on the lifestyle you love and can pay for without sacrificing too much.
Depending on how much you can spend, you may have to find a compromise when it comes to your wish list. While you may not be able to get every single item on your list – and this happens often – you can ease the heartache by coming into the home buying process knowing what you literally can and can’t live without.
5. What You Want Vs. What You Need
It can be hard to find a home that’s custom fit for you – especially when you’re choosing from a pool of homes that were originally built for someone else. That doesn’t mean you won’t get anything you want or need in a home, but you will have to loosen the grip a bit – especially if you have a budget.
You’ll spend much of your time in your home, so it’s important to like your surroundings. However, it’s even more important to make sure the home has what you need. When it comes to giving up on having certain things in a home, your wants should be the first to go, not your needs.
Think about your dream home and list everything that makes it perfect for you. Then, go through your list and mark which items are wants and which are needs. Your wants are things you could live without if you had to; your needs are things you absolutely must have. When it comes time to compromise, skip items on your “want list” first.
While these things are a matter of opinion, here are examples of home features to consider and types of questions to ask yourself to determine if you need them.
Type of home: Do you like condos or single-family homes? Do you want a two-story home, or do you need a one-story home without stairs?
Location: How far are you willing to drive to work? Does the school district matter? Are you a city dweller, suburbanite or rural enthusiast?
Rooms: Are you planning on expanding your family? Does your work require a home office? Do family members fight over sink space and shower times?
Exterior: Do you have a bunch of dogs or kids who need a big backyard to run around in? Do you want a white picket fence and a wraparound porch?
Special Features: Have you always wanted a swimming pool? Are you a professional chef who needs a big kitchen with plenty of counter space? Do you just love stainless steel appliances, exposed brick or subway tile?
While these home characteristics are important, what you need most of all is a home that is in good condition. When you have a housing budget, you don’t want to waste your money on burdens you don’t need and problems you certainly don’t want. Before you buy a home, you want to know it’s not going to be a financial problem for you in the future. That’s why it’s important to know what to watch out for.
6. What To Look Out For In A Home
When you’re caught up in the excitement of finding a home you love, it can be easy to ignore red flags. Remember, love is blind, so it’s a good idea to know what to look out for ahead of time. You may even want to bring a list of those things to keep top of mind just in case you get stars in your eyes looking at a home you love. When walking through the home, watch out for these warning signs:
· Roof damage
· Leaky pipes
· Water damage
· Cracks in the foundation
· Foul odors
· Poor neighborhood condition
· Electrical issues
· Amateur repairs and upgrades
· Poor drainage
· Lead-based paint and asbestos
Even small issues can turn into bigger problems later down the road. And these problems could cost you thousands of dollars to repair. If you see one or more of these red flags, take them up with the seller and work out a fair solution before you buy the home.
7. Costs Beyond The Purchase Price
There are more costs involved in buying a home than just the sales price, and knowing this will keep you from draining your accounts on surprise expenses you weren’t prepared for. When creating your home buying budget, make sure to include the following expenses:
· Appraisal and inspection fees
· Down payment and other closing costs
· Homeowners insurance
· Property taxes
· Moving costs
· Repairs needed before closing
· Homeowners association fees, if any
Also, remember that the costs associated with owning a home are often higher than those that come with renting. For one, you’ll be in charge of paying for maintenance and repairs. With more space to heat and cool, you may also see an increase in your utility bills. If laundry and landscaping were offered by your landlord, you may have to buy such necessary items as a washer, dryer, lawnmower and toolset.
What Not To Do Before Buying A Home
There are so many things to do before you purchase a house, but there are also certain things you should not do that could put your loan in jeopardy. A mortgage can be denied at any point in the home buying process, so don’t do anything that may affect your eligibility. When deciding how much you can borrow, lenders typically review your assets, income and credit, so when you’re about to buy a home, don’t make any big purchases, change your job, miss any payments or open any new accounts.
Lenders review your assets and debt-to-income ratio (DTI)to make sure you have enough money to afford your mortgage. Your assets include your checking and savings accounts. If you pull money from your accounts to make a big purchase, you’ll reduce the value of your assets. And if you use a credit card to make that purchase, you’ll increase your DTI. If that rises above 43%, you may not be eligible for a loan.
Lenders also like to know you have a steady, reliable stream of income coming in each month. Changing your career field or accepting a lower-paying job may take away that stability. You may have a harder time getting your loan approved.
Your credit score provides insight into the type of borrower you are and your ability to pay back a loan. A good credit score will typically indicate that you’re good at managing your debt and that you make payments on time. Not only do missed payments or new accounts cause your credit score to drop, but they also raise red flags for lenders, as both could indicate financial trouble – even when your finances are just fine.
Purchasing a home is as thrilling as it can be overwhelming. But when you’re equipped with the right knowledge, you can approach the process with confidence. By knowing what to expect, you’ll be better prepared to find the right home, handle the expenses, and smooth over any bumps along the way. And Rocket Homes is here to help. Do you still have questions? Reach out to a Rocket Homes Partner Agent online or call (855) 200-2001.
If you’ve purchased a home before, what’s one thing you wish you knew before buying a home?
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