Buying a home can be a long, complex process, so it’s important that you know what you’re doing. If you’ve never bought a home before, then perhaps you’re wondering what the process looks like from start to finish. In that case, you’re in the right place. Here are the four essential steps you need to take in order to buy a home.
1. Do Your Research
Buying a home is one of the most significant financial decisions you’ll make throughout the course of your life, so make sure that you do your research in order to go into the buying process with a sense of confidence. Examine your own financial situation, take a look at the current state of the housing market, and determine your needs, preferences, and goals when it comes to buying a house.
This means you’ll have to check your credit score, review your spending habits, and go online to find out how much homes in the area you’re looking to buy in are selling for. It will also be immensely helpful to come up with answers to the following questions:
- Why are you buying a home instead of renting?
- Do you have any financial issues that would affect your ability to secure financing, such as debt or poor credit?
- What are your must-have features in a home?
- Is there anything you would consider a dealbreaker for a home?
- How will you navigate the home buying process? Do you plan on hiring a real estate agent?
2. Consider Different Financing Options
There are a variety of different loans out there, and each one is accompanied by a unique set of advantages and disadvantages. For example, you may be given the opportunity to choose between a fixed-rate mortgage and an adjustable-rate mortgage.
With a fixed-rate mortgage, you’ll pay the same interest rate throughout the life of the loan (unless you decide to refinance). On the other hand, an adjustable-rate mortgage offers a low interest rate for the first few years, and after that the rate begins to fluctuate based on a number of different market variables. The fixed-rate mortgage is generally considered the safer option, as it’s more consistent and predictable, but you’ll have to look at the benefits of both in order to make a decision.
Perhaps the most important decision you’ll make when considering financing is choosing a lender. Based on your financial information, different lenders will offer you different types of financing, with varying interest rates, loan terms, and monthly payments. It’s always wise to shop around with different lenders in order to find financing that matches up with your own goals and priorities.
There are also all kinds of specialized financing programs out there that may work to your advantage. Specialized loans exist for first time homebuyers, Native Americans, veterans, and more. Schedule a meeting with a mortgage banker who can tell you what you need to know about VA loans, Section 184 loans, and other types of home financing you may qualify for.
3. Set a Budget
In order to set a realistic budget, you should analyze your savings, your current income, and your general financial situation. Take your annual salary, debts, and other expenses into account and weigh these variables against your expected down payment and projected monthly mortgage payments. Keep in mind that you should have enough money to make a 20% down payment and the price of the home you plan on buying shouldn’t be more than five times your annual income.
To make budgeting for a home easier, consider getting pre-approved by a lender of your choice. After reviewing a litany of financial information such as your debt-to-income ratio, tax returns, income statements, assets, debts, and more, the lender will give you an estimate of how much money you’re qualified to borrow in order to purchase your home. Getting pre-approved is always a good idea because it gives you a more realistic idea of what your budget is, plus presenting your pre-approval letter when you make an offer on a home can help close the deal faster.
4. Make an Offer
Once you’ve done your research, selected a home loan, set a budget, and, of course, picked out a home, the last major step is to officially make an offer! A real estate agent will be able to help you come up with a fair offer and submit it to the seller. If the seller accepts your offer, the home will go into escrow, and then the house will be yours once you sign the necessary paperwork and close the deal.
Be cautious that you don’t get so caught up in the excitement of buying a home that you make uninformed or irresponsible decisions. Buying a home is a huge decision, so it’s important not to rush it. Go in with a plan in order to get a home that you’re happy with at a fair price.