The Process of Home Buying Part 1
Want to make that jump to buying your first home? Afraid of how the process is? Don't want to miss the steps to buying your home? Well, this article will show just that. So let's get started.
Knowing If You're Ready To Buy
Okay, so before we start on our journey of home buying for the first time let's take an audit on whether we're ready for it first. Namely, it is knowing whether you're ready financially to buy a home first.
Hold On! Before you start batting your eyes and getting your pitchforks out. Understand that the upfront costs of initially buying a home are a pretty penny. For an average home here in the state of Michigan, the home value is usually $177,838 according to the neighborhood scout. The average price of a home in America to just give comparison up till now is $353K or more accurately $352,975, according to Redfin.
Picture from RedFin site
Now that's a big price tag for a home, but don't let the big numbers scare you off(hopefully it didn't). It's just about setting a reality, so we can all better work towards that goal of owning our home me included.
You would need to understand the following:
Understanding Upfront Costs
Looking at savings
Checking your credit
Upfront Costs Before Buying
These costs are typically what you would have to pay out of pocket. Yeah, I know it sucks but it is very important to understand. You don't want to facepalm before the actual facepalming begins don't you?
The cost typically includes earnest money, the inspection fee, and the appraisal fee.
Look at Savings
This one is pretty self-explanatory. You need at least 3-6 months of emergency funds in your savings account before even thinking of buying a home.
Reviewing Your Spending
Budget, budget, and wait for it........budget. Make sure you have a budget or are creating one. Obviously, we know how important they are and can help give us a wider picture of our overall spending.
When you're calculating everything make sure you're not only allocating how much you spend for such as utilities, food, entertainment, etc., but also how much you plan to allocate to a mortgage payment. The last thing you want to do is overspending when you didn't mean to.
Checking Your Credit
Having a good credit score will help with being able to qualify for a home loan. Generally, you need the obvious again a good credit score, history of paying your bills on time, and the maximum debt-to-income ratio, or DTI of 43%.
In case you're wondering what the debt-to-income ratio is, according to Investopedia, the debt-to-income ratio is a percentage of your gross monthly income that goes to paying your monthly debt payments. This is also used by lenders to determine your borrowing risk.
Pre-Home Buying To-do's
Once you have everything planned financially, then it is time to figure out how to gain proper help finding a house, doing paperwork, making sure it suits your needs.
Find what type of home suit your needs
What specific features do you want the ideal home to have
How much of the mortgage do you qualify for
How much you can actually afford the home
Who can help guide you through the entire process and find your home
Find What Type Of Home Suits Your Needs
You have a wide range of options when it comes to purchasing a residential property for you. There's the traditional single-family home, a townhouse, co-op, condo, duplex, and more.
Each option has its pros and cons, depending on what your goals for homeownership are. so make sure that whatever those goals are, you decided on the type of property that will help you achieve those goals. You can save on purchasing price no matter the category of property by choosing a fixer-upper. However, be prepared to put in the amount of work, time, and money you put into your fixer-upper. It could be more than what you bargained for, so weigh your options
What Specific Features Do You Want The Ideal Home To Have
You might not think this is important....but it is! You can have some flexibility in the list, but this is still the biggest purchase of your life. Make sure you have a purchase that both fits your needs, and wants as closely as possible. You deserve the very best!
This list can include the basics such as size and neighborhood and all the way to smaller details such as bathroom layout and kitchen fitted with durable appliances. You can scan real estate websites such as Zillow, Realtor.com, Trulia, and more to help you get a sense of pricing and the availability of property with features that are most important to you.
How Much Of The Mortgage Do You Qualify For
Next, before shopping for your dream home it is important to check with a lender. Lenders will give you a mortgage depending on a number of factors, with some of those factors mentioned before in this article. Take note that many realtors will not spend time with clients who haven't specified an amount they can afford to spend. So, make sure you know exactly what your price range is, and have done your homework.
Don't forget, make sure to see if you can get preapproved for a loan before placing an offer. Sellers, in many instances, won't even entertain the idea of an offer without seeing a mortgage preapproval being accompanied. It is easy as applying for a mortgage and completing the necessary paperwork. It is beneficial to look around for a lender and compare interest rates and fees using tools such as a mortgage calculator or Google searches.
How Much You Can Actually Afford The Home
A bank will sometimes give you a loan that's more than you want to pay for on real estate. A bank saying they will lend you $300,000, doesn't mean you should take that much. Many instances of first-time buyers make this common mistake, and end up "house-poor". This is when you're left with very little left after making the monthly mortgage payment to cover other costs. Not fun for anyone.
When it comes to deciding how big of a loan you want to take, take a look at the property's total cost and not just monthly payment. Take into consideration property taxes in your chosen neighborhood, how much the homeowners insurance will cost, how much you're calculating on maintaining or improving, and the closing costs.
Who Can Help Guide You Through The Entire Process And Find Your Home
Finally, find a real estate agent. They can help you locate the homes that fit your needs and price. You can also meet with them to view the homes. When you found the one you want to buy, they can help assist you in the entire purchasing process.
This can include making an offer, getting a loan, and completing paperwork (watch out for papercuts!). Real estate agents and especially good ones can help protect you from any possible pitfalls during the entire process.
This is just part 1 of the home buying process. Part 2 will be out sometime this week, so be on the lookout for that. But, as you can see the process can take time and is a very big step that involves a lot of wheels turning.
However, there is a lot of information out there where you won't be lead astray. Buying a home is a big deal, and is the next chapter in a lot of people's lives such as you whose reading this. We're all on our own journeys, so before taking that next step make sure you are prepared and ready.
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