Typically, purchase offers are contingent on a home inspection of the property to check for signs of structural damage or things that may need fixing. Your real estate agent usually will help you arrange to have this inspection conducted within a few days of your offer being accepted by the seller. This contingency protects you by giving you a chance to renegotiate your offer or withdraw it without penalty if the inspection reveals significant material damage.
Some first-time home buyers are naive. Overly optimistic, they think nothing could possible go wrong. If a home has a few problems, they view them as easy fixes and are unrealistic when it comes to the cost and time it takes to fix up the home. Some naive buyers will move to a neighborhood on the wrong side of town, forgetting that you can fix up a house, but you can't change your neighborhood or location without moving.
Buying a home is one of the largest purchases you'll likely make, and it's important to make sure your financial house is in order. Start by reviewing your bank accounts and billing statements to get a handle on how much money you're making and spending each month. If you're planning to buy a house with someone else (like your spouse), review their finances as well, and then ask yourself some questions:
Now you're getting into serious home buying territory. Once a bank or mortgage lender gives you a price range for a home mortgage, you can go ahead and attempt to get pre-approved for a home loan. In a pre-approval scenario, a mortgage lender will dig deeper into your personal finances. You'll fill out a mortgage application (and pay a fee to do so), undergo an extensive credit check and answer any questions a mortgage lender may have about your ability to repay a mortgage on time, and in full. If you're approved, you'll receive a conditional commitment from a mortgage lender to green light a home loan for a specific loan amount and with a specific interest rate range. A pre-approval document from a lender is pure gold for a home buyer, as it shows a demonstrated ability to procure an actual mortgage, and shows a home seller that you're a serious buyer.
After your offer has been accepted, splurge for a home inspection. Spending even $500 can educate you about the house and help you decide if you really want to pay for necessary repairs. You can also leverage your offer depending on the results of the inspection report and make the seller financially responsible for all or some of the repairs. For more on what to look for, see 10 Reasons You Shouldn't Skip a Home Inspection.
When you find the home you want—and you will—it’s time to make an offer. Talk to your agent about the right price to offer; it's common to make the first offer below the listed price, but in a very competitive market, you may need to offer the asking price or even more. Your real estate agent can help you gauge this, and often can get the scoop on how much competition there is for a certain home.
Buying a home is one of the biggest financial decisions you’ll make in your life — and one of the largest sources of stress for many first-time buyers is the financing process. Unless you’ve done a ton of research, getting a mortgage can feel confusing or even a bit overwhelming. The good news is you can have a smoother and less stressful experience by avoiding these common mistakes:
A mortgage is defined as a secured loan that uses your home as collateral. The key here is to identify what monthly mortgage payment you can afford without losing any sleep at night. Expect that figure to be around 15%-to-30% of your monthly income (depending on your local tax rates and the amount of your homeowner insurance). This step ties into step one -- the more money you save, the less you'll have to pay on your mortgage loan interest (see next step below.)
I just want to say thank you for creating a site geared towards younger people who actually want to do something with their lives. Most people treat young people like myself like aliens or freaks or something. I am 21, my husband is too, and we have a daughter who is almost a year and a half. We are both college students, me about to graduate from a community college and go on to a 4 year university, and my husband in the beginning steps of Engineering. Soon, we are looking to buy a home, but we still have about a year or two’s worth of prep. My credit is non-existent, and when it finally does exist, it won’t really be good due to some think-fast decisions that had to be made. My husband has good credit. We knew about that part, but all the other things we didn’t know about you covered pretty well 🙂 I will be a regular visitor to your site, keep supporting us who are under 30!
A lot can be up for negotiation in the homebuying process, which can result in major savings. Are there any major repairs you can get the seller to cover, either by fully handling them or by giving you a credit adjustment at closing? Is the seller willing to pay for any of the closing costs? If you’re in a buyer's market, you may find the seller will bargain with you to get the house off the market.
If you already own a home, simply call your insurance agent and let them know you’re buying a new home. They will handle writing a new policy. If you don’t have an insurance agent, now’s the time to find one because your lender will require homeowners insurance. Even if you don’t have a mortgage, insurance is a critical part of protecting your investment. You’ll also want to give utility companies your move-in date to establish service. There’s nothing like moving into a cold, dark house because you didn’t get an account with the power company!
"This investment shouldn’t be entered into without someone who knows the market, the neighborhood, local trends, specific values, and how to navigate the process," says George Lawton, licensed real estate agent with RE/MAX Over the Mountain in Birmingham, AL. "A Realtor who is your advocate and is looking out for your needs can simplify this process and make it enjoyable. But don’t just hire your neighbor’s mom who does this part time for Christmas money. Interview a few that are recommended by friends and family and see who you feel most comfortable with. You may be working together for months, and you want it to be a good relationship."
Interest rates, including those offered on mortgage, can be volatile and subject to change. A 0.25 percent rise in interest rate can significantly increase your repayment amount, repayment tenure or both. It is advisable to lock the interest rate for the loan in advance, instead of being at the mercy of the market fluctuations which can be a big risk if the rates rise before you finalize your property purchase. Pre-approved mortgage offers the facility to offer you a rate lock, which means that you can secure a favorable interest rate for the loan. Though chargeable rates are subject to multiple factors, like applicant’s credit score, geographic region, property and the type of loan applied for, attempts to lock in at favorable rates can be beneficial.
To your initial savings for a $300,000 home, it's also wise to add enough to ensure that any unexpected twists and turns are accounted for after you move into your new house. A sensible goal is to think of that buffer as a half-year of mortgage payments. That would be $10,572 for the buyers in our initial $300,000-at-10% model -- a total of $46,572-$48,072 in the bank before closing a deal.
Still, if you familiarize yourself with what it takes to buy your first home beforehand, it can help you navigate the real estate market with ease. So let's get started! In this step-by-step guide, you'll learn what it takes to buy your first home from beginning to end. Whether it's your first time in the real estate market or you're an experienced homeowner who wants to brush up on their skills, this list has you covered.
Although it may not always be feasible if you live in an expensive real estate market, try to keep your total housing payment under 30 percent of your gross monthly income. When you spend much more than that on your mortgage, you risk becoming “house poor” — you might live in a beautiful home but find it difficult to save or even cover other monthly expenses.
Escrow is an account held by a third party on behalf of the two principal parties involved in a transaction. Since home sale involves multiple steps which takes time that can span weeks, the best way to mitigate the risk of either the seller or the buyer getting ripped off is to have a neutral third party hold all the money and documents related to the transaction until everything has been settled. Once all procedural formalities are over, the money and documents are moved from the custody of the escrow account to the seller and buyer, thereby guaranteeing a secure transaction.
Once you have researched the home buying process in detail, the next phase is to take actionable steps towards your goal of becoming a homeowner. The home buying process is no doubt a long and arduous process, and it is possible that you will experience some setbacks along the way. At times like these, a helpful home buying process checklist will prove to be helpful:
An FHA loan is a loan insured by the Federal Housing Administration (this means that if you default, the FHA will repay the note to the bank). Because the loan is insured, the lender typically offers a low down payment required (3.5%, for example) and low closing costs. Anyone can apply for an FHA loan and an FHA loan is easier to qualify for than a conventional loan. Instead of PMI on your FHA loan, you will have MIP (mortgage insurance premium), which stays with the life of the loan. That means that unlike a conventional loan where you can remove the PMI, on an FHA loan, you cannot remove the insurance without refinancing the entire loan (which you have to qualify for in order to do).
Prior to the closing date, the buyer will want to verify with his or her agent, lender, and escrow company that all of the necessary documents have been signed and terms met. If they have not this should be taken care of immediately to ensure that there are no last-minute problems. The buyer will also want to verify what forms of payment are acceptable. On the closing date, closing costs and fees will be paid.
Thank you for the wonderful advice. I particularly liked what you said about considering the mortgage fees, and all other things that you will have to pay for when getting a house, to ensure you know what you can afford. My brother is in the market for a home, and was wondering what he should know. If he were to consider these things into his budget, he could know what house he could afford, and move forward with peace of mind.
The type of home that a person prefers is another factor to take into consideration when determining where to live. Things to consider include buying a new home versus a resale home. Home types include single-family detached homes, semi-detached homes, duplex homes, town houses, or even condos. When determining what type of home is the best fit, a person should take into consideration the lifestyle that he or she lives, current needs - such as rooms - and future needs of the family if it should grow.
McDonald recommends working with a local lender rather than an online or non-local lender, even if the online lender is offering a better rate. "Working with a local lender that's knowledgeable of the local market ensures you a smooth transaction right through to closing," he says. "Local lenders are typically also more readily available to their clients, and many local lenders will match the rates their competitors are offering."
The home inspection is an added expense that some first-time homebuyers don’t expect and might feel safe declining, but professional inspectors often notice things most of us don’t. This step is especially important if you’re buying an existing home as opposed to a newly constructed home, which might come with a builder’s warranty. If the home needs big repairs you can’t see, an inspection helps you negotiate with the current homeowner to have the issues fixed before closing or adjust the price accordingly so you have extra funds to address the repairs once you own the home.
Williams got his start working in entertainment reporting in 1993, as an associate editor at "BOP," a teen entertainment magazine, and freelancing for publications, including Entertainment Weekly. He later moved to Ohio and worked for several years as a part-time features reporter at The Cincinnati Post and continued freelancing. His articles have been featured in outlets such as Life magazine, Ladies’ Home Journal, Cincinnati Magazine and Ohio Magazine.
“Realtors do a lot of your groundwork up front for you by contacting listing agents to set up showings and help you negotiate the purchase,” says Brandon Gentile, CEO of the Legacy Group Real Estate Team in Clarkston, Mich. “The best part is, a buyer doesn’t pay for working with a realtor. The service is free for a buyer, as sellers pay all the commission.” For more, see How to Find the Best Real Estate Agent.
Homeownership is one of the core concepts of the American Dream. When a person is ready to make that dream a reality there are certain steps to buying a home that must be followed. These steps ensure that the person is prepared to actually own his or her own home, that the right location and home are selected, and that the actual purchase of the house proceeds with as few problems as possible. The process of buying a house can be complicated, even for those who have previously owned a home. The following guide will help navigate home buyers through the necessary steps.
1) Get your credit in as good shape as possible. Your credit score can make a big difference in your mortgage interest rate. You can use sites like creditkarma.com (which uses TransUnion and Equifax) and freecreditscore.com (which uses Experian) to get free credit scores from all three credit bureaus, free credit monitoring to alert you of any changes to your credit, and advice on how to improve your credit scores. The key things are to make sure you make your debt payments on time, pay off as much of your debt as possible (except perhaps car and student loans, which tend to have relatively low interest rates), and be careful of closing credit card accounts. If you have a credit card that is charging you an annual fee, see if you can convert the card into a no-fee card rather than close it.
Pride of ownership is the number one reason why people yearn to own their home. It means you can paint the walls any color you desire, turn your music up, attach permanent fixtures, and decorate your home according to your own taste. Home ownership gives you and your family a sense of stability and security. It's making an investment in your future.
After you’ve found some homes for sale in your price range, be careful not to make a decision based on the property alone. According to a NAR survey, 78% of home buyers believe neighborhood quality is more important than the size of a home. And 57% of buyers would opt for a shorter commute over a larger yard.(4) So make sure you factor neighborhood quality and location into your decision.
Or better yet, decide how much you’re willing to pay. Just because you can qualify for a larger mortgage doesn’t mean you want to have that kind of payment each month. Use the mortgage affordability calculator to help determine what you can afford. Now is also a good time to research your housing market and start going to open houses in your prospective neighborhood to give you a good sense of what your money will get you.
Most home sale contracts give the buyer about 10 days to complete a home inspection. If you’re getting a mortgage to buy the house, your lender will likely require you to use a certified home inspector. (Even if you’re not required to get a home inspection, it’s best to get one anyway to make sure you’re not buying a house full of expensive problems.)
Lastly, what's the market like in the neighborhood? Is it like New York City, where condos get snatched up with all-cash offers, or are you in a Las Vegas-esque location, where empty homes are a common site? In the former situation, it may be a good idea to start with a strong offer to beat out an army of other suitors, whereas you may have more leeway in a market like Vegas.
Before a person begins the process of buying a house he or she will need to know what they can afford. Typically this comes down to how much of a loan he or she can obtain. One route to take is to get pre-qualified. The pre-qualification process is one in which a mortgage company interviews the home buyer and asks questions about the individuals finances, including debts. An estimate of how much the buyer can afford is given at the end of the interview.
Owing to the high costs, property purchase often remains once-in-a-lifetime activity for many individuals. It may seem like the closing process is a lot of complex work, it is worth the time and effort to get things right instead of hurrying up and signing a deal that you don’t understand. Be wary of the pressure created to close the deal fast by the involved agents and entities who are there to help you for their cut, but may not be really responsible for the problems you may face in the long run from a bad deal.
Variable rate mortgages are also known as adjustable rate mortgages, float up and down on a regular basis, based on the movement of U.S. Treasury bonds. Treasuries are tied closely to the overall U.S. economy, and ebb and flow based on the health of our nation's economy. Variable rate mortgages typically come with lower interest rates up front, but with the potential of seeing those rates rise after an interim period of five-to-seven years after the mortgage loan is signed.
Before you head out home buying, you should seek pre-approval from a lender for a home loan. This is where you meet with a loan officer, ideally a few at various mortgage companies. Each mortgage lender will scrutinize your financial background—such as your debt-to-income ratio and assets—and use this info to determine whether they're willing to loan you money, and what size monthly payment you can realistically afford. This will help you target homes in your price range. And that's good, since a purchase price that's beyond your financial reach will make you sweat your mortgage payment and puts you at risk of defaulting on your loan.