Home Buying 101: Preparing to Buy Your First Home
The home buying process is long and for those who haven’t done their homework, complicated. There are multiple hands that exchange money, plenty of paperwork to get to get tangled in, and lots of complex and important decisions to make. It’s important to be prepared when you venture into real estate, because the stakes are high and the cost of being caught off guard is higher. The path to home ownership is the last place you want to encounter any serious surprises.
Understand the financials
The largest burden that you will be shouldering as a first time home buyer is financial. Before you take up homeownership, you need to understand what you’re signing up for. Make sure that you have a working understanding of mortgages, credit scores, debt-to-income ratios, earnest money, broker fees, property taxes, escrow, HOA fees and more. Knowing what you need to be approved for a mortgage, how much you’ll be on the line for on a monthly basis, how your credit score will affect your mortgage rates, how your HOA uses it’s monthly fees, and the other important financial features that are attached to your home purchase will help you make an informed decision that will give you peace of mind throughout the process.
Understand the situation—don’t shoot renting out of the decision process
Home buying is a serious step. It’s considered a rite of passage–one of the final steps into adulthood and so, it might be tempting to jump the gun. While your instinct may tell you to buy as soon as possible, it is important to remember that this step shouldn’t be taken lightly. Don’t buy a home because you think that renting is “throwing money away” or because it’s a buyers market. Buy a home because you’re settling down and you’re financially ready. If you’re not financially ready, don’t knock out renting. Here are some questions to consider before you buy your first home:
1. Do you know if you want to live in the area in the next five years?
2. Do you know if you will experience any career changes within the next five years?
3. Is your credit score going to severely impact your mortgage rates?
4. Are you ready to shoulder all costs–including maintenance expenses, property taxes, HOA fees, and homeowners insurance?
Determine what you can afford
We recommend that you get a ballpark of how much house you can actually afford before you start to hit the open houses. That way, you won’t fall in love with a $2M house when you only have a $200K budget–this will keep you level headed. Being realistic with your budget can really help out in the long haul.
The quickest and easiest way to estimate a reasonable price range for your home purchase is to multiply your annual salary by 3 (on the low end) or 4 (on the high end). For example, if you’re making $60K per year, you should be looking for homes between $180K and $240K. To narrow it down further, check out this article on how much house you can afford. The rule of thumb is to be sure of what you can afford before you fall in love with an unaffordable new home.
Determine what house best suits your needs
What do you want and need from your first home? It’s important to keep this question in mind when you’re house hunting. In fact, write it down! Make a checklist of your ideal criteria. This will help to keep you from getting distracted and from pulling your hair out. If you’re shopping with a spouse or partner it is especially important to decide before hand what is important for them to save yourself from hours of house hunting aggravation. Do you want a spotless and perfect modern home? Or are you more interested in a fixer upper? What location are you looking for? City or suburbs? Have kids–need school districts? These are all questions you’ll need to answer–and you should probably answer them before the hunt.
Find a good agent who will make your needs a priority
It’s not explicitly necessary to work with a buyer’s agent, but especially for first-time home buyers, it is a very good idea. Be sure to ask how your agent is paid, but most of the time having a buyer’s agent will not increase the commission you pay. When you’re choosing an agent, make sure they’re good. Ask friends and family for recommendations and look them up on review sites. Talk to them in person to see if they’re someone you’re comfortable with and who is knowledgeable about the market and price level you’re looking at.
Know what to expect
The home buying process can be fast or slow. In a healthy market, when you fall in love with a home you’ll have to make an offer fast. Be prepared. Get a pre-approved mortgage, know what you want, and be sure that you’re ready to buy to save yourself a lot of unnecessary stress. Being prepared for the various steps of the home buying process will make the process run much smoother. Some major points are:
While the beginning of the buying process may seem rapid fire, the closing process may feel like it’s moving at snail speed. Keep yourself educated on the process so that you can rest easy and feel confident in your important decision.
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