Purchasing a home is can be one of the most daunting tasks that anyone can undertake. There are a multitude of steps to take, and if not properly prepared, can leave to massive headaches, frustration, and financial trouble. So, presented to you, are five of the most important things you should keep in mind when buying a house.
1. Save Up to Put Down
When getting ready to purchase a home, the ability to put over a 20% down payment on a house not only ensures a smoother transaction with the seller, but also gives the buyer more negotiating power for a better rate. Additionally, a 20% down payment or more can eliminate the need for mortgage insurance, saving the buyer even more on a monthly basis. It is also best to make sure there are no major purchases pending on the buyer’s credit. Large amounts of tied up cash or a shoestring budget makes it more of a risk through the eyes of a lender, which can make for a more difficult time to secure a loan, much less one with a favorable rate.
2. Don’t Buy Above Your Weight Class
Everyone is looking for their dream home, but sometimes that doesn’t match what reality presents us. A buyer must think in terms of practicality. Can I live in this house and still have enough money to live comfortably? Is this a house I want to commit to for the long term, or is it simply a stopgap? You can’t have it all, but try to narrow down the checklist of essentials that you want in a house such as the number of rooms, bathrooms, type of kitchen, backyard size, and so on. Try to find a house that satisfies your list and your budget. What good is having a dream house that you will have to move out of because you can’t afford it? Think smart, think ahead.
3. Invest in a Home Inspection
If you think a home is too good to be true for the price, there is a strong chance that it is. Some people like fixer uppers, but not when what needs fixing is everything and the kitchen sink. Hiring a home inspector is a safeguard against buying a house that has more problems than it’s worth. Is the foundation sound? Is there termite damage? Does a roof or floor need to be entirely replaced? Is the wiring bad? All these questions need to be answered before purchase, or the buyer will be stuck with a house that ends up costing more to fix than the purchase price.
4. Get Pre-Approved, not just Pre-Qualified
Getting pre-qualified is a quick procedure, and therefore is not as impactful to a seller as someone who is pre-approved. Being pre-qualified is when you send a bank or lender the basics of your financial situation, by which in turn they give you back an estimate of your mortgage options and what might best be suited for you. However, as stated before it is only an estimate, and doesn’t carry much weight.
Pre-approved, is much more of an in depth process, and will conclude with the lender giving you a specific mortgage amount that you qualify for and what interest rate you will be most likely be charged, with an option to lock in a rate. With that done, you move much closer to your goal of obtaining a mortgage and a home that matches exactly what you can afford, taking a lot of the guessing out of the process and appearing more serious to sellers.
5. Prepare for Additional Costs
Besides the down payment and mortgage, don’t forget the laundry list of expenses that will be paid in the immediate and long term. For a start, there are a variety of fees and closings costs, including appraisal, loan, attorney, inspection, and title search fees. These can add up quick, even up to 5% of the mortgage amount. Next, there are monthly and annual costs such as utilities, property tax, and homeowner’s insurance. Ensure that you will be able to cover these expenses when the time comes, or financial hardships may mount up fast. Finally, tying into the home inspection a bit, usually either your roof and/or your hot water heater will have to be replaced within the first two years of purchase. Neither are cheap and should be accounted for unless they were recently replaced as part of the disclosures when purchasing the house. Make sure to ask when these two items were done.
These are only some of the more important steps to take when purchasing a home. When you add it all up, planning ahead, being practical, and taking the time to do the process right can help ensure that you get your home, and stay in good financial shape. Be a homeowner, and don’t let it own you.