There aren’t too many life events more exciting than buying your first house. In fact, you’ve most likely spent significant amounts of time daydreaming over the years about what home ownership might feel like. However, many first-time buyers don’t fully understand the process of purchasing real estate. Here, then, are the six steps to buying a house.
Step One: Savings
When you buy a house, even with a home mortgage loan, you’ll need to put down a 20 percent down payment. Your lender will loan you 80 percent of the cost of the house you’re buying, but you’re responsible for the remainder. But there’s more than the down payment. As the buyer, you’re also responsible for the closing costs. Closing costs include services provided throughout the transaction such as surveys, appraisals, inspections, escrow services, real estate agent commissions, lender fees, and more. You can anticipate that closing costs will amount to about one to eight percent of the total value of the home you’re buying. Furthermore, you’ll pay property taxes, homeowner’s insurance, and possibly HOA fees if a homeowners’ association governs the house you buy. There’s more to buying a house than saving a deposit and obtaining a home mortgage loan. Make sure you’re financially prepared before you start the journey into home ownership.
Step Two: Credit and Debt-to-Income Ratio
When you apply for a home mortgage loan, the lender will order a copy of your credit report. Before you apply, take a look at your credit reports and rectify any derogatory accounts. The financial institution wants to verify your ability to borrow and repay your debts in a timely manner.
The lender also takes a look at your debt-to-income ratio, which is the amount of money you earn vs. the amount of money you have going out. To prepare your debt-to-income ratio for applying for a significant loan, try to pay off as many debts as possible before turning in your application. Furthermore, avoid making any major purchases with credit, such as a car, furniture, vacations, or other financed expenses.
With your savings adequate, your credit score clean, and your debt-to-income ratio low, you’re ready to apply for your home mortgage loan. You should obtain pre-approval for your loan before you reach out to real estate agents or begin looking at properties online or in person.
Step 3: Hire the Right Real Estate Agent
Interview real estate agents until you find the one that best suits your needs. The agent with whom you choose to work should be an expert in the type of property you’re interested in buying such as single family homes, condominiums, townhomes, waterfront properties, luxury homes, etc. Your agent should also be familiar with the areas in which you’d like to live and be able to educate you about the neighborhood nuances and features.
Your agent should have excellent communication skills and you should be comfortable outlining expectations, asking questions, and plotting the course for buying your starter home.
Step 4: House Hunting
Talk with your real estate agent about your budget and your wish list. Buyers often over-estimate how much house their money will buy, which can be disheartening and may add frustration to the house hunting process. You may not be able to afford the bells and whistles – the hardwood floors, granite countertops, raised ceilings, and other embellishments. But remember, you can renovate and upgrade as you go. You don’t need to have it all right now; you can grow into your home and customize the design to your liking.
When you’re touring homes, be mindful of etiquette. You don’t want to risk offending the owner by openly verbalizing features of the home you don’t appreciate, such as insulting the wallpaper, turning your nose up at the appliances, or other opinions that may be insulting. You won’t always know if the owner is home or if there are cameras recording tours.
Step 5: Offers and Negotiations
When you find the right property, don’t emotionally attach. Yours may not be the only offer. Your agent will help you comprise an offer that is compelling and competitive. Expect a counter-offer from the seller, or negotiations, especially if there are multiple offers creating tough competition.
Step 6: Inspections, Appraisals, Surveys
Your lender requires the house be deemed free of problems or pests, priced at fair market value, and that your property lines are well defined. These processes take time, so be patient.
Your real estate agent is the best source of information about the local community and real estate topics. Give Charles Mortimer a call today at 510-578-8803 to learn more about local areas, discuss selling a house, or tour available homes for sale.