How to Buy a Home
Purchasing your first home can be quite an adventure. As with any adventure, it also comes with pitfalls and confusion. Not only do you have to find the perfect house for your family, you also want to insure it fits your budget. Even a low priced fixer-upper can be too expensive when the repairs you need to do are major. You may be able to afford the house payment, but the constant expense of repairs could break your budget.
How Much House Can You Afford?
Before you open the first magazine with all the homes in your area or embark on any home buying venture, you need to decide what you can afford. Your mortgage will be part of your total debt, which should be no more than 36 percent of your income. In order to get the best rate, you should have at least a 20 percent downpayment. Not only do the rates increase the lower your downpayment, but you may have to pay PMI---private mortgage insurance. Don't forget to factor in all unusual payments you have to make monthly, such as child support or child care. While these aren't debts, they do greatly affect your spendable income.
Get a Friendly Lender
Before you consider looking for a home, first see how much you can borrow. If you've done your homework, you already know what your monthly budget can afford, but you also need to combine that information with your credit worthiness to see how much a financial institution will lend you. If your credit score is at 740 or above and you have 20 percent for a downpayment, you're most likely eligible for the best interest rate available. Those with a lower credit scores may still get traditional financing or look to alternative ones such as government backed programs like FHA or VA.
The amount of downpayment you have also affects your rate and the amount you'll be able to afford. When your downpayment is less than 20 percent, you may be subject to PMI payments, which add to the amount you pay out every month, but don't reduce the balance you owe. These can greatly affect the price of the home you can afford. Since purchasing a home and a mortgage often has additional costs, make sure you understand these before you choose a lender. Closing costs can vary greatly from lender to lender.
Finding a Realtor
Some people have no problem estimating what they can afford or are unsure whether they qualify for a loan, but they still need guidance when it comes to finding the best house. Choosing the right realtor can be one of the most important decisions you make. Realtors not only help you navigate through all the paperwork involved in home buying, they also help you find the best home for your needs at the best price.
If you've started the home buying process without doing any of the preliminaries, such as securing financing or even estimating how much home you can afford, many realtors can guide you through the process. They work with many different lenders and vendors involved in the process. Most realtors know the reputation of different lenders and can guide you to several who may be perfect for your situation. They also have a list of people who play an important role in the process, such as those who do inspections or estimates. They also know the individuals at the title company.
A good realtor knows the approximate cost of homes in your area and can help you get the best deal. They do all the negotiations for you and can show you price comparisons of recently sold homes. Real estate agents will also keep you informed of changes to a neighborhood or other factors that could affect the value of your home.
Before You Make an Offer, Ask for Help
If you know a contractor who you trust, or have a good friend who's knowledgeable about construction, a second opinion doesn't hurt. Many younger people ask parents to see the home before they make an offer or have a contractor inspect the home, looking for problems that may exist. While your lender will require a home inspection, septic and a termite inspection in many states, getting an opinion before you make an offer can save you time and money. If you don't know anyone, ask your realtor for the name of a contractor she trusts. This type of service normally comes with a cost, but it's well worth it.