Certainly one of the most important decisions we all have to make in our lives is which home to buy for ourselves. This is a scary process and nobody really knows what needs to be done, while at the same time real estate agents are usually not willing to give out this kind of information for free.
It is normal that people are scared of this, simply because it’s a life-changing decision that will decide a big part of our remaining lives – the home in which we will live, raise our children and have special moments. However, it doesn’t necessarily mean that you won’t be able to do this on you own. If you take your time to do proper research and learn more about this process, you will be able to make a quality purchase worth your money.
House hunting can be quite an exciting and interesting process, but still, you shouldn’t allow yourself to get carried away, because once again, it is a very important decision to make. Just take a look at a couple of years back and you will see how many people made the mistake of buying a home right before the market crashed, and a lot of those people lost their homes shortly after.
This is why we have created this guide to help you understand all of the things you must consider when purchasing your brand new home, learn how to approach things and, most importantly, make sure that you don’t waste money where it’s not needed.
Figure out your price range
You might be thinking “well I already knew that”, but this is something that needs your utmost attention and you must perform this first step correctly, down to the smallest detail. The process of determining a budget for purchasing a home is pretty much the same as budgeting for anything else, only it’s larger in scale. So where should you start?
The first thing you must do is check your annual income. Once you’ve done that, you should look for houses that cost two or three times more than your total annual income, this is as far as you can go. With this rule, you will ensure that you won’t have to commit to a large mortgage that you will ultimately not be able to afford.
When you are looking at mortgages, it can get difficult to figure out what you can afford or not. This is why you should avoid signing up for payments that are higher than 30 % of what you earn on a monthly basis, and this is the absolute maximum; not everyone can afford these 30 % and you should look to go lower, unless you are determined to tighten up your budget for a certain period of time.
For example, if you have additional costs such as paying for college education you should definitively go lower. If you are still uncertain, remove 30 % of your budget per month and see how you fare with it. If you find out that you can do it, go for it, and if not, find a lower mortgage. This brings us to the next step.
If you find it difficult to do this, it can be a good idea to look for a helpful tool by going through investment management software reviews. With a tool like this, you can calculate all of your investment expenses without having to crunch down the numbers all on your own.
Finding and recognizing the right mortgage for you
After you’ve finished calculating your budget for purchasing a home, the next step is to find a good, reliable mortgage lender with a reputation for quality service. The first thing you should know is that you must ask as many questions as you possibly can.
A lot of people are too shy to ask something, or they simply don’t know what to ask their mortgage lenders and they end up with an inconvenient deal. The first two things that are essential to any mortgage, is to know how long you will have to pay it off and what are the demands for qualifying for a certain mortgage.
There are a lot of different mortgages out there, and you must choose the one that suits you the most. However, if you don’t have the time or the energy to perform such research, you can go with two options which are usually the safest and apply for most home purchases.
The first one is fixed rate mortgage, and it has a static interest rate, meaning that it doesn’t change while your loan is ongoing. The second options is to find an adjustable rate mortgage during which your interest rate changes accordingly to the current condition of the housing market.
The duration of your loan can go from 15 to 30 years. It depends on you really, and on your confidence of how quickly you can pay it off. The longer your loan is the greater your interest will be, simple as that; you will pay more money, but you will have a lot more time to pay it off.
If you go for a shorter duration, you will pay less money overall, but your monthly payments will be greater. No matter what you choose, it’s a good idea to try and add another 10 % to your payments so that you are always sure that you can deliver your payments on time.
Check your readiness
Everyone has a lot of concerns when it comes to paying their mortgage on time. If this is your case as well, then you should make steps towards preparing yourself by creating a trial run. Start off by calculating all the costs related to your purchase that you will have on a monthly basis. These costs include all of your home maintenance expenses, mortgage payments, HOA fees, and tax and insurance estimates. Once you have gathered all of these numbers you should try and set aside money each month for these costs.
If the total number of all the expenses is higher than the number you currently have to pay for housing, then you should subtract rent form the number. It is best to keep the difference in a savings account for three months or so, in order to accurately figure out how much money you will have to pay in case you buy a home. If you are able to go through this period comfortably, then you can rest assured that you will be able to handle the financial duties that come with buying a new home. If not, then it is best to adjust the price and repeat until you find a price range with which you are comfortable.
Make a list of things you must have and things that are nice to have
It is important that I make something clear straight away; only a small portion of buyers are able to find perfect homes which are within their price range. This is why you need to sit back and make a list of things that you absolutely need in your new home and add things that would be nice to have, but are not crucial for deciding on a house.
Some of the factors that should fit in the “must-have” category include the number of schools in the area, the distance of your home to your office, the number of bedrooms, bathrooms, your neighborhood, crime rate etc. Basically, these factors should be the things that are here to stay, and you cannot change or improve them on your own. For example, if you have a small backyard you cannot make it larger.
Go out and hunt for a house
The first and easiest thing you can do is to utilize free online resources and check out what the options in your neighborhood are. There are a lot of websites that offer house reviews and gather all the offers that are currently available in a certain market.
If you perform your research through them, you will be able to see whether or not your “must-haves” and the price range you’ve set are realistic for the market you are currently looking at. This is also a good opportunity to see whether you need the help of a real estate agent or not. It is also good to look for tools that can perform real estate marketing research, to see if you can find some cheaper solutions.
When you find houses that have what you need, you should go and inspect them. Perform a checkup by seeing whether there are any damages, or things that are not functioning properly. Bring an expert to inspect the houses that look really good, to get a professional opinion about the condition of those houses.
A lot of times, there are underlying issues that cannot be seen by inexperienced eyes. In case a house that you like has some issues that are repairable, you can negotiate a lower price, and you can lower it more than the actual costs of the repairs.
Making a bid for a house
Once you’ve found a house that you really like, and all the factors seem good, it’s time to make an offer for it. As easy as it seems, this can actually be a tricky thing to do, as you might ruin the deal by making a wrong offer in so many ways. If you go too low, the owner might get insulted and offer the house to another buyer, and if you go too high, you might end up paying well over the realistic price.
First of all, compare similar houses to yours, and see what kind of offers people made on them. Check out the amount of time this house has been for sale, and whether more people are interested in it. Furthermore, you can check up on the owner, and see if he or she is in a hurry to sell the place, as this can improve your chances of lowering the price.
The last, and not the least thing that must be done is to make sure that you make a contract for the sale. However, before you sign any papers, you should make sure to read the whole deal and see whether there are any points that don’t suit you. It is generally a good idea to hire a real estate agent or a lawyer to help you with this matter, as they can understand contracts better and explain what is expected of you.