Home buying is always an exciting but overwhelming endeavor. There are many things to consider and a lot of money is at stake!
Luckily, we’ve compiled some tips and tricks to put the consumers first so that the complex process is simpler and stress free:
Start by building an emergency fund and having minimal debt
Buying a home is the biggest purchase in most people’s lives, and knowing and understanding the costs and anticipated down-payment is important to know how to negotiate the best terms possible.
Because of this, one needs to ensure their financially well-positioned to take on homeownership. This means having little debt and an emergency fund that can cover the next three to six months of homeownership costs without the need for employment income.
Homeownership costs need to factor in more than just mortgage payments but take into account maintenance costs, property taxes, and other incidentals.
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Calculate one’s buying power
The value of a home takes into account a lot of factors such as age, location, and history of the home. This means there is a wide range of home prices and it’s important to narrow down based on what’s affordable.
Calculating one’s buying power can help here, this buying power is can be determined by taking into account how much monthly mortgage payments one can afford along with additional costs related to maintenance and covering any administrative fees (e.g. insurance, taxes).
The average monthly payment is approximately 35-45% of one’s gross monthly income.
Start saving for a down payment
Nearly all mortgage loans will require a down payment and this can range from 15% to 20% of the home’s listed value. This means if a property is listed at $500,000, a 20% down payment of $100,000 is needed to purchase the home.
There are options to avoid this hefty upfront payment but this comes with a higher loan interest rate as they’ll cost one much more in the long run to own the home. As a result, consider homes that are affordable with this down payment amount and begin saving for it.
We maintain the lowest possible margins and eliminate middle men so that our customers can benefit from the savings we’ve worked hard to accomplish.
Ensure there’s money to cover closing costs
Buying a home also involves covering what’s known as ‘closing costs’. These are costs involved in transferring over the ownership of the home from the seller to the buyer and consist of legal fees, appraisal costs, home inspection fees, and much more.
A common rule of thumb is to estimate 3% to 4% of the home’s listed sale price, which are the costs related to closing the property.
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Obtain pre-approval for loans
To ensure a smooth home buying process it’s important to have pre-approval for loans in place. In fact, many buyers won’t entertain an initial discussion if one doesn’t have pre-approval letters letting them know the buyer can afford the value of the home.
Obtain pre-approval involves a lender verifying one’s financial situation such as income to authorize an initial underwriting of a loan value.
Find the right home
If one’s determined their affordability and has the necessary funds available, then it’s time to find the ideal home. Utilize various search channels to find the best home and don’t be afraid to mix it up by having a real estate agent keep a lookout but also subscribe to various online rental listing portals that said weekly emails with new listings that match one’s criteria.
There are many resources out there as well as providing tips and tricks on finding properties in one’s local market.
Research the neighborhood
After shortlisting a few desirable homes be sure to research the neighborhood. Research on crime rates, comparable property values, and nearby amenities such as hospitals and schools.
All of this will influence not only if the listed price of the home is reasonable but also its resale value in the future. Look into how commute times change and what the traffic conditions and noise levels are like.
Remember, location is a huge influencing factor on home prices so finding a great neighborhood is paramount. A funny but true philosophy is better to have the “Smallest, ugliest house in the safest neighborhood.”
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Visit open-houses
Attend open houses frequently to get a real-world feel of both the homes and the neighborhood that peaks one’s interest. These open house visits can also reveal who else is interested in the home and whether there’s stiff competition which may affect how strongly the value can be negotiated down.
Put down a competitive offer
If one’s found the perfect home then it’s time to put in a competitive offer. It’s important that whichever offer is placed should be within the budgets one’s set out earlier in this guide and covers both monthly payments and one-off costs.
Utilizing a real estate agent at this point can prove beneficial as they’ll have expertise on the right offer to place and how to handle negotiations effectively on one’s behalf.
In addition to putting in an offer, it’s good to supplement this with a personalized letter to add color to why one might be the best future owner of a seller’s home.
However, rather than offering slightly more money to beat out another offer, also consider our “10 day approval certainty for your contract” and “21 day closing” guarantee. Offering a seller the advantage of certainty and time can have many other monetary benefits and savings.
Get ready to close
If a seller has accepted the offer, then it’s time to prepare the necessary closing documents to transition ownership over. A real estate agent can help with certain aspects of the closing process, while one may need to engage legal counsel for other aspects.
In either case, some time will have to be devoted to pushing this home buying process to the finish line. Keep in mind closing on a home doesn’t happen overnight and it will take 3 to 4 weeks for everything to be finalized.
Buying a home is a rewarding experience but one that requires a lot of thought, time, and diligence to ensure a buyer is getting the best value for their money and finding a home that will not only be the perfect future home but act as an appreciating investment for the future.
Ready to buy a home, see how Mares Mortgage can help!