Buying a home can be a very difficult experience! It is most likely the biggest purchase of your life but less daunting when you know the real estate lingo and what to expect during the purchase process.
1. Start saving early
You will need to be putting between 3.5% and 20% down of the purchase price. Your current situation will determine when you are ready to purchase. If you are putting less than 20% down, you will be paying private mortgage insurance (PMI) on a monthly basis. For example a 20% downpayment on a 300k home would be 60k while a 3.5% payment on a 300k home would be around 11k. Looking at an amortization calculator would be helpful to gather an idea of what you will be paying on a monthly basis. In Massachusetts, MassHousing offers 5% down which is a program you can look into as well. Look at state specific programs as well to see state specific programs.
2. Know Your Credit
Your credit will be a key factor in your approval amount. Making a dent in any debt may be smart to increase your purchasing power as well. A lender will pre approve you to see how much you can afford. At this time, don’t open new credit account since it may affect your score.
3. What can you comfortably afford?
Your lender will give you the highest amount you can afford. Take a look at the amortization calc to see your expected monthly payments. Look at properties fit your budget and how much you can safely afford to spend.
4. Budget for closing costs/Move in
You don’t want to be strapped for cash after you close! Closing costs are typically 2-3% of your mortgage amount. For example, if your property is 300k, your closing costs can be between 6k-9k. Closing costs include, home inspection, appraisal, and title searches. When you move in, you should set money aside for what will go inside the house. This includes, appliances, furnishings, and fixtures.
5. Consider what type of property
Do you want to buy single family? Consider a condo if you want extra amenities and less maintenance. Also, look into multifamily (duplex or triplex) if you are interested in cash flow.
6. Research mortgage options
A 30 year fixed may not be for everyone. If you can afford larger payments, you can look into a 20 or 15 year fixed loan. Another option is an adjustable rate mortgage (ARM). This will give you a low interest rate at first, then it may spike to a higher rate over time. Lenders can allow you to buy discount points which means prepaying interest upfront to secure a lower rate. Your loan officer can discuss your options with you.
You can get pre approved which gives you an estimate on how much the lender can give you based on your current income and debt. If you have a pre approval, you look much more serious to a seller and can give you an advantage when looking at properties. It is smart to not look at properties above your pre approval amount.
8. Find the right agent
Your agent should understand what you are looking for in a home. It is essential they know the area you are looking into.
9. Know the neighborhoods
Being in a desirable neighborhood may just be as important as finding the right house. Research the school systems as well as the safety of the area. A better school system may cause a premium price. Ask yourself, where is the nearest hospital, grocery store, and amenities of interest? It is smart to take the time to drive the neighborhood in the morning, midday and at night to see traffic as well as activity levels.
10. Buy for the future
A good rule of thumb is to buy a home to live in for at least five years. If you plan to start or expand a family, you want to be able to grow into a larger home. Will this home meet your future needs?
11. Viewing the house
Before you see the house, take a look at the picture online. You can learn from the pictures and also look on google maps if you are unfamiliar with the area. When you arrive at the house, take a look at the neighborhood as well as potential neighbors. Ask plenty of questions about the home such as the age of heating/air conditioning. Keep in mind, if you are buying a home, you can change the paint color, fixtures, and other cosmetics when the home is yours. It is very rare to find the house that is move in ready to your specifications. You could also consider renovations after you move in and are settled in.
12. Strong Offer
Consider what contingencies you would like i your offer as well as how much under or over ask you are willing to pay. If you think it will be a multiple offer situation, consider writing a personalized letter with your offer. In a competitive market, house tend to come off fairly quickly so it is important to make your highest and best offer your first one. Don’t let your emotions take over and pay more then you can afford with mortgage payments you can’t do. You could also consider asking for closing costs in your offer.
13. Home Inspection
Once you offer is accepted you have the option of getting a home inspection. This is typically done 7-10 days after the offer is accepted. The purpose of the inspection is to examine the home’s condition inside and out. Not all inspections test for radon, mold, or pests, and you can add these to your inspection. Ask plenty of questions at the inspection! Once you receive the report, review and renegotiate with the seller.