Be willing to negotiate · 3. Prepare for a bidding war · 4. Make a formal offer · 5.Due to the pandemic, homeownership is more affordable than ever. Mortgage interest rates, almost in record territory, hover around 3 percent.
If you qualify for a loan, these rates add up to significant savings over the course of a 30-year loan. The Federal Housing Administration's formula, used by many lenders, recommends allocating no more than 31 percent of your monthly income to your housing payment. This figure will change depending on the amount of your debt. Buyers with no other debt can budget up to 40 percent of their monthly income for housing.
But remember that the rest of your budget will need to be spent on heating, water, electricity, routine home maintenance and food. Lenders use credit scores, also known as FICO scores, to assess the potential risk of lending you a loan. The higher the number, ranging from 300 to 850, the better your score. According to the Consumer Financial Protection Bureau, the best mortgage rates go to borrowers with credit scores between 700 and above.
But during the pandemic, most open days have been canceled and replaced with private introductions (by appointment only) to keep buyers and brokers safe. And many homebuyers are choosing to forgo in-person viewings altogether, relying instead on the new 3D videos that accompany online listings, and sending an agent or proxy to the house to walk through it while watching a video call. Virtual tours, which include everything from bright professionally produced videos to shaky mobile phone videos, can sometimes hide defects such as creaky floors or poor lighting, so be sure to ask for measurements and feel free to ask questions. Did you walk into a private exhibition and got goosebumps? Did you immerse yourself in a 3D virtual tour and realized that you finally found the house that has everything you are looking for? Did you sit down and weigh the pros and cons of three homes? However, you made a decision about the house you want to buy, the next steps you take are crucial.
Understand that making an offer on a house is sometimes the beginning of a psychological game. You probably want to keep the house for as long as you can without losing the house completely. The seller wants to maximize the sale price of the house without scaring him. Where should you start with your first offer? Conventional wisdom says that you should start at 5 percent below the asking price, but market conditions will largely determine how much leeway you have.
The more competitive the market, the more likely you are to face multiple bidders. In a soft market, where listings haven't been sold, you'll have more bargaining power. In a rising market, prime listings will have the total sales price or more, and sometimes offering just a few thousand dollars above the asking price can help your offer stand out. Either way, keep your budget in mind when you make your first bid and set a limit on how high you're really willing to go.
Sure, you're financially ready to buy a home (see Step 2 for that). But are you emotionally ready? Even if it's just going to be your starting home, you're making a big financial commitment and putting down roots. Once you've determined what you can afford, you can calculate how much you want to save for the down payment. Although the 20% down payment used to be the norm, many landlords choose to put less.
A smaller down payment requires less money up front, but it means you'll have to pay for mortgage insurance. The type of mortgage loan you use also affects the required minimum down payment. You'll want to set aside money for more than just the down payment. Closing costs generally range from 2% to 5% of the total cost of the loan.
It's also a good idea to have some emergency funding in case the house needs unexpected repairs. With each of these types of loans, you may have the opportunity to choose between a fixed-rate mortgage or an adjustable-rate mortgage (also called an ARM). As you probably guessed from the names, fixed rates are static; adjustable rates can go up or down. You'll also need to choose the term of the mortgage.
Thirty-year mortgages are the most common, but terms of 10, 15, or 20 years may be available. Forms W-2 from the past two years (possibly longer, if you have changed employers). Paid receipts for the last 30 to 60 days. The subscription includes going deep into your finances, so you may need to prepare even more documents.
The lender will also review the home you have chosen through an appraisal (see Step 13 below) and request a title search. You choose the home inspector and pay for the home inspection. If you discover issues that weren't included in the seller's disclosures, you may be able to negotiate with the seller (see Step 1). As a first-time buyer, you have access to state programs, tax breaks, and federally backed loans if you don't have the usual minimum down payment, ideally 20% of the purchase price of a conventional loan or are a member of a certain group.
At closing, you (the buyer) will attend, along with your real estate agent, possibly the seller's agent, the seller, in some cases, and the closing agent, who may be a representative of the escrow or title company or a real estate attorney. Knowing how much money you can spend on your purchase will likely limit your search and reduce the work involved in buying a home. Real estate is definitely a good investment, but don't just buy now, because that's what everyone else is doing. First-time homebuyers have a wide variety of options to help them get into a home, both those that are available to any buyer, including mortgages backed by the Federal Housing Authority (FHA) and those aimed especially at novices.
If this is your first home or if you haven't owned a home for a long time, you may also want to look into state programs for first-time homebuyers. Building your own home is different from buying a home and may require more effort to complete the process. Don't even consider buying a home before you have an emergency savings account with living expenses for three to six months. To demystify the process and get the most out of your purchase, here's a summary of what you need to consider before you buy and what you can expect from the buying process itself, plus tips to make life easier after buying your first home.
You can find homes for sale on your own, but a good agent can help you make sound decisions and guide you through the home buying process. Buying a home can be exhausting, but if you follow the steps described above, you should be more prepared to buy a home. When you buy a home, there will be considerable upfront costs, including down payment and closing costs. A pre-approval letter also shows sellers and realtors that you are a serious buyer who can get financing, which can give you a crucial advantage over competing homebuyers.
The picture isn't so bleak if you know how to buy a home and what steps to take next in the homebuying process. . .