The majority of young adults and couples dream of one day buying a home. And while it takes some people a little longer than others to reach a point where it’s a practical option, most are eventually able to make it happen. But when this time comes, do you know what to do?
5 Steps to Take
Buying a house is a challenging process that comes with lots of steps and requirements, but it doesn’t have to be as overwhelming as some make it out to be. If this is your first time buying a house, here are a few practical steps to consider:
1. Get Your Finances in Order
Before doing anything else, you need to get your finances in order and make sure you’re ready to proceed. Purchasing a home is a complex process that requires a very thorough financial investigation. If you have too many warning signs, lenders won’t want to work with you.
First off, you need some cash in the bank for a down payment. Lenders love to see a 20 percent down payment, though you should be fine with just 3.5 to 5 percent. On a $300,000 home, this means you’ll need a minimum of $10,500. When you factor in closing costs and other expenses, you’ll likely need $15,000 or more.
It’s also a smart idea to check your credit score, which lenders will use to evaluate how you’ve handled debt in the past. The higher your credit score, the lower your interest rate will be.
Finally, lenders will look at your debt-to-income ratio to determine whether you have enough room in your monthly budget to pay back the loan. Typically, lenders want to see a ratio that’s less than 43 percent.
2. Get Pre-Approved
It’s smart to get pre-approved prior to seriously beginning your home search. This lets your real estate agent and sellers know that you’re serious about buying a house.
“In the most basic sense, a pre-approval is an assurance from a lender that you will be qualified to finance a home purchase up to a certain dollar amount,” Green Residential explains. “It’s not necessarily a guarantee – as something could happen or be uncovered during the due diligence that takes place during approval – but it’s a pretty safe bet.”
Pre-approval is also helpful in terms of allowing you to know how much money you have to spend. If you get pre-approved for a $200,000 loan, you now know exactly how much house you can buy – which simplifies the search process and prevents you from wasting time looking at properties you can’t afford.
3. Find a Real Estate Agent
As soon as you’ve been pre-approved for a loan, you can look for a real estate agent. A good agent is experienced and has years of local knowledge. Real estate agents should also be able to manage all of the small aspects of the process that can otherwise be frustrating and time-consuming.
4. Figure Out What You Want
When going into your first meeting with your new real estate agent, it’s smart to have an idea of what you want. The more you can narrow your search, the less time you’ll waste seeing properties, sifting through listings, and making offers on homes that may or may not meet your needs.
Location is the first big factor. Do you want to be in a specific neighborhood or zip code? Square footage and the number of bedrooms are another decisive element to weigh into the equation. Then there are smaller issues like neighborhood amenities, lot size, renovations, etc.
The key is to differentiate between needs and wants. The former are deal-breakers. The latter are elements that would be nice to have, but that aren’t necessary.
5. Practice Patience
Cultivating patience is really important – particularly in today’s market. After you swing and miss on a couple of properties, it’s easy to become anxious and feel like you have to make higher offers or compromise on some of your needs. Be wary of doing this prematurely, however. Practice patience and wait for the right opportunity to come along.
Do Your Due Diligence
The home buying process isn’t one that you should take lightly. It’s the single most significant financial decision you’ll make in your life. Take your time, do your research, and wait to proceed until you’re confident in what you’re doing. This is an exciting time – don’t take it for granted!