The home-buying process can seem intimidating and complicated if this is your first time doing it. But if you're ready, it doesn't have to be. To ensure a simple and straightforward process, here are 11 things you should know before buying a home.
1. Obtain the necessary paperwork in advance.
Amass all necessary paperwork in advance. It can expedite the home-buying process and show the lender and seller that you are responsible. Additionally, you'll need them to determine how much house you can afford before applying for a mortgage pre-approval. Here is a list of the paperwork you will require:
Bank statements: In order to approve your mortgage, your lender will need a snapshot of all money entering and leaving your account over the previous 30 to 60 days. In order to demonstrate additional sources of income and your employment earnings, you might also be asked to provide statements for any retirement, stock, and bond accounts.
Proof of funds (POF): A POF is a statement from the lender confirming the borrower's ability to pay the purchase price. You might need a POF when buying a house to prove to the seller that you have the money for the down payment, closing costs, and purchase price.
Pre-approval: A letter of mortgage pre-approval from your lender demonstrates to potential buyers that you are likely to be approved for a loan based on a quick review of your income and debt.
2. If you have a good working relationship with your agent, it will be simpler and more fruitful for you.
Hiring a dependable and trustworthy real estate agent will put you at an advantage as a first-time homebuyer.
Start by asking friends and family for recommendations of real estate agents who have recently bought or sold homes if you're having trouble finding one that meets your needs. If they had a positive experience, they would be happy to share it with you, and if not, they would be just as happy to steer you away from an agent. Interview a few agents after that to see if you click with them. Find out about their local expertise, how long they have been assisting homebuyers, and their opinion of the state of the neighborhood housing market.
Be accessible and clear about what you want.
You might need to put everything on hold for a showing because homes frequently come up for sale that would be a great fit for your requirements. Real estate agents will make every effort to present you with properties, and you can make every effort to be available when they do. To help them understand the kind of home you're looking for and to help you determine whether it is realistic for your area, be honest with them about your budget and the features you want in your house.
Give your agent honest feedback about what you like and dislike when you view homes, too. Even if the house isn't a good fit for you, be open and thankful that they took the time to show it to you.
3. You might be eligible for programs for first-time homebuyers.
First-time homebuyers can take advantage of numerous programs offered by federal, local, and mortgage lenders to assist with closing costs and down payments.
Anyone buying a home for the first time or someone who hasn't owned a home in the past three years is considered a first-time homebuyer. The majority of federal, state, and local assistance programs have income restrictions.
Low- and moderate-income buyers may be eligible for grants or forgiven loans, which typically don't require repayment. Program accessibility entails confirming household income and purchase price restrictions, and it varies by location. A first-time homebuyers class created to assist you in navigating the home-buying process may be a requirement for applicants to certain assistance programs or grants.
4. Identifying your requirements versus wants is crucial.
Before beginning your search for a home, consider which features are necessary and which you can live without or add later. With this knowledge, you can eliminate homes that don't fit your criteria while streamlining and accelerating the search process. Several points to think about
Style and size: Do you choose a split-level home over a single-level ranch in terms of style and size? When you see a home, it can be easier to decide to buy it if you know what size and style you're looking for.
Size of the property: Do you need a yard for your kids or pets to play in? A forest in your backyard—do you want one? Do you require additional room to add an ADU in the future?
Amenities: A specific brand of kitchen appliances, style of flooring, or backyard features might be top priorities for you. Even while these are excellent to have if they are there, a fantastic property should not be discounted because of an amenity. Don't make these characteristics the main focus of your purchase because you may modify or replace them later.
Consider creating a wish list of elements for your home that you can live without today but that you would like to include in the future. It might also have a hot tub, a pool, an office, a detached garage, a separate dining area, or a newly renovated kitchen.
5. Unexpected expenses associated with purchasing a property can pile up.
When purchasing a new home, there are additional, frequently unanticipated expenses that you'll need to account for in your budget in addition to the purchase price, down payment, and monthly mortgage payment. Here are a few of the most important extra expenses to be aware of.
Closing costs: These expenses, which typically range between 2-5% of the loan amount, must be paid on the closing day. In order to transfer ownership of the home from the previous owner to you, a number of parties must be paid.
Property taxes: You will be required to pay a prorated portion of the annual property tax for the remaining portion of the tax year when you close on the home. By looking at the taxes from the previous year on the county website, you can estimate your tax expenses.
Homeowners insurance: You must show proof of homeowners insurance before your lender will approve your mortgage application. This insurance protects both you and your lender in the event that the house is damaged or completely destroyed. Homeowner's insurance premiums can be paid annually or monthly, but a paid policy must be in place before the closing.
Moving costs: The hourly rate for a moving company can range from $80 to $350. The amount you need to move, the distance you are moving, and whether you need to move items that require special handling, like a piano, will all affect how much it will cost. Be careful to account for the cost of a moving truck, packing materials, boxes, etc. if you intend to relocate yourself.
6. A buyer's or seller's market is something you should be aware of.
When there are more homes for sale than there are potential buyers, it is considered a buyer's market. When demand is low, this takes place. A buyer's market is a good time to buy a house if you're looking to do so. This is due to the possibility of finding a fantastic home for less money than you would in a seller's market. In a seller's market, there is little available housing, prices are higher than they were previously, and there is increased competition among buyers for the same home, which pushes prices even higher. The seller benefits in this kind of market because they can frequently demand higher prices than they would ordinarily get in a balanced market.
To get a better idea of what to anticipate, be sure to discuss the market conditions with your real estate agent.
7. Little adjustments may have a large impact
You might not be able to purchase a property that has had major recent modifications, depending on your budget. Finding a house that needs some minor repairs, buying it for less, and making improvements gradually as you can afford to might make sense. Don't discount the possibilities if a house that fulfills your specifications has stained wood cabinets rather than white if the price is appropriate. On your timetable, you may remove wallpaper, repaint, or put in the new carpeting.
8. Larger home upgrades can be costly.
Get a realistic estimate of your likely home improvement costs from a home inspector or contractor if you intend to buy a fixer-upper. Plumbing, electrical, and wall tearing out can be pricey. If you're lucky, the cost of paint and carpeting will only be $10,000. Or you might need to spend more money on expensive but necessary repairs before the house is safe and usable. If you have a better idea of the cost of the home improvements, you can decide whether it is best for you to purchase a fixer-upper or a move-in-ready home.
9. Budget for the cost of home maintenance.
For your house to maintain or increase in value, as a homeowner, you'll need to make regular home maintenance investments. Homeowners should set aside money in their budget for routine house upkeep.
Regularly mowing the lawn, clearing the gutters, pruning trees, and shoveling snow are all part of proper exterior maintenance. It may cost $100 to $200 a month to contract out this kind of work.
Basic cleaning and upkeep are part of routine internal home maintenance, as is planning for bigger projects as needed, such as new flooring, cabinets, plumbing, lighting fixtures, HVAC, appliances, and more. Budgeting 1% of the home's value each year for upkeep and improvements is a good general rule of thumb. A minimum of $2,500 must be set aside annually for these costs if the house costs $250,000.
10. Owning a home requires commitment.
If you intend to reside in the area for at least five years, purchasing a home makes sound financial sense. By accumulating equity and integrating into a neighborhood and community, you will be making an investment in your future. But take into account your financial condition and future ambitions. You might want to postpone buying a home if your future plans are nebulous or your employment is in doubt. Waiting allows you to minimize responsibility until you are ready, save money, and maintain your mobility.
11. And finally, give yourself time to purchase a home.
Although you might begin your search for a home in May with the hope of moving in by September, this is frequently not the case. The closing procedure can take anywhere from 30 to 60 days after your offer is accepted. All things considered, you should give yourself at least six months to purchase a home. However, speak with a local real estate agent for a more precise timeline based on your area's market conditions. Try to make your lease month-to-month if you are already renting.