Okay. So you want to own a home. Congratulations! It’s exciting! Throw a party! Pop some bubbly! Or maybe not.
House buying is a serious business, and if you’re a mere mortal like the rest of us, you’re probably terrified. There’s a reason the party comes after you manage to actually move into your new home… it’s a long road from the decision to buy to closing the deal, and for some reason that escapes our understanding, they don’t teach Home Purchasing 101 in College. But, lucky for you, we have broken the process down into five, easy to understand steps. So bring on the battle! You’re prepared.
Step 1: Determine the Home You Can Afford
Affordability is the first point in the process you should approach. It does you no good to be researching how Leonardo DiCaprio decorated his 8 guest rooms if you’re on a strict budget. Everyone reacts to the affordability question differently, and of course, there will be variability with what will work for you, but a good rule of thumb to establish a baseline is three times your annual income. If you make $85,000 per year, for instance, you can probably be looking in the $255,000 range.
Now, before you panic or start saving the pennies that fall out of your pockets in the washing machine, you don’t pay it all in one lump sum. That just wouldn’t work. You pay a percentage up front, plus other miscellaneous costs, and get a mortgage on the bank for the rest. The down payment can vary widely depending on what type of loan you are looking at getting- anywhere between 3.5% to 20%. Discuss loan options with a banking professional to get the full story on your finances before choosing which payment will work best for you. Involving the bank means making sure that your credit score is as high as possible, and having a little extra money to take care of any additional costs you might encounter, for instance, having to repair damage in your current home, and the closing costs.
No matter how you look at it, buying a home is an expensive purchase. It’s not something you should look into doing if you’re not in a stable financial situation. But even though the cost can be daunting, it’s an investment, and it will pay off in the long run.
Step 2: Find a Realtor
Purchasing a home is not a process that should be undertaken without professional help. Whether it’s help with the paperwork, the legwork of actually finding a house, or just a helping hand to guide you through the process, a realtor’s expertise is an invaluable resource. The seller pays the commission to the agent, so it’s not an additional cost to you.
A realtor can take the details that you’re looking for in a home, your price point, and any other needs you specify and devote the time it takes to find that perfect home for you. With all the other stress that comes with buying a house, allowing a professional to lift that burden is a great way to ease your mind.
Step 3: Get Disclosure
You never want to be placed in a situation where you have spent an inordinate amount of money on a very pretty looking house only to find out that the foundation has been eaten away by termites, there’s mold and water damage in the roof, or that the garage is six inches of snow away from collapsing over top of your car. Knowing what kind of damages you might have to repair or deal with yourself once you purchase the home is crucial to determining a fair buying price. Once you have a clear picture of what you’re getting into, you can move forward and make an offer.
Step 4: Make an Offer
This is where a real estate agent is a crucial ally. Their experience will allow them to tell you exactly how much the home is worth, taking into consideration any issues that come with the house. Once you decide on a good price, you’ll sign a contract with the seller, agreeing on that price. Depending on the wording of the contract, it is often still possible to walk away, but really, at this point, you are obligated to purchase.
Step 5: Inspection, Appraisal, Insurance
Have the house professionally inspected to make sure there are no further issues that disclosure either missed or left out. If something comes up that causes a problem, you may ask the seller to lower the price or fix it, or you might walk away, depending on your preference.
Appraisal is done by the bank. When you approach the bank for a loan, they aren’t going to give you a loan for $250,000 when the home is only worth $185,000. This isn’t a step in the process that you engage in much, but it’s still necessary in order to purchase.
And, of course, you need insurance. You know, just in case the day after you close on the home, a major earthquake hits and it cracks the ground where your new home stands and swallows your house into the depths of the earth. Or something like that. Approaching an insurance company and getting a quote will make sure you’re covered right away, and it’ll be added to your closing costs.
Step 5: Close the Deal
And finally, you’ll have made it to the end of the road and you close! You sign the dotted line, fork over the closing costs and the down payment and then you pop the champagne! This is handled through an office, and once that’s done, you can pick out the curtains, and breathe a sigh of relief. You made it!
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