You’ve finally decided to buy a new house, but how do you actually start the process of purchasing a home? For veteran homeowners, many already know the drill. But for first-time homebuyers or those who haven't purchased a home in a while, buying a home can be a daunting process. The best way to stay calm and focused is to approach the process methodically by creating a simple checklist of things to do.
1. Figure out how much you can afford
There are basically two ways to pay for a new house: either with all cash or by borrowing the money from a bank. Should you be paying with cash, then you are only limited by the number of funds you have available. On the other hand, if the piggy bank does not allow for an all-cash purchase, then the cost of a monthly mortgage needs to be factored into your budget. According to Dave Ramsey, a good economic rule of thumb is to “[keep] your mortgage payment to no more than 25% of your monthly take-home pay on a 15-year fixed-rate mortgage. Don’t forget to save a little extra each month to cover regular maintenance as well as future home improvements and furniture replacement.”
2. Check Your Credit
It is always a smart idea to do your own due diligence when it comes to your credit score, particularly before going to a lender. According to a survey from LendingTree, six out of ten Americans are unaware of their credit score. That number increases to over seventy-four percent when it comes to 18 to 24-year-olds. Why is your credit score so important? "Credit scores can be very influential since it represents your credit-worthiness as a borrower. The better the score, the more likely you'll be able to receive better interest rates and terms on credit-based products like mortgages and auto loans," states Doug Lebda, founder, and CEO of LendingTree. Fear not, checking your credit score is easy to do with any of the free credit scoring websites or by requesting a complimentary credit score from your credit card issuer or lender.
3. Get Pre-Approved by a Lender
Right before you begin your home search (which to many, is the fun part of buying a new home), a necessary step in today’s real estate environment is to get pre-approved by a lender. Essentially, a lender pulls your credit information, assesses your financial situation, and subsequently provides a letter that details the dollar amount their institution would be willing to lend. Pre-approval gives a seller added confidence that loan approval is likely. According to real estate site Zillow.com, “When it’s time to officially apply for a mortgage, it’s best to get loan estimates from at least three lenders to compare their interest rates and fees.”
4. Make an offer
When the right house finally appears, a good broker will help navigate the offer process based on his or her knowledge of the market, so that you present the most attractive offer. A good rule of thumb is to bear in mind that the listing price is only a starting point. Other factors come into play as well, such as any contingencies to the offer and whether an inspection will be required. More often than not, a counteroffer follows until and if both parties, sellers, and buyers, agree on a price. If things do not work out, then the search continues.
5. Home Inspection
Many states require a home inspection before a sale can go through; however, in states where home inspections are not mandatory, doing so is worth the cost in order to have a full understanding of the structure and functioning of the home prior to going through with the sale. There are a number of important issues that are scrutinized during a home inspection including the overall structure, plumbing, and electrical concerns, and a full residential pest control report. The existence or signs of any vermin, animals, or insects such as termites can have a major bearing on the condition of your potential new home.
According to records from home inspections in South Plainfield, NJ, a home inspection report identifies areas of the home that need to be repaired or replaced prior to purchase and protects buyers from buying a home that requires major repairs they may be unwilling or unable to finance. Incidentally, an inspector’s report can also provide leverage to negotiate a lower price or require the seller to fix any problems found.