Sure, buying a new home is exciting, but can it be stress-free? Here are some suggestions to help lessen the stress of the process.
1. Are you ready? Answer these questions:
- Will you be in your current area for at least the next five years?
- Is your employment situation secure and stable?
- Do you know where you want to live, regarding the commute, type of home, and neighborhood?
- Does your financial situation allow for a down payment?
- Will your salary support a mortgage payment and additional home maintenance expenses?
2. Prepare yourself financially
A home is usually the most expensive purchase of an adult’s lifetime. Prepare yourself by contacting a lender or mortgage broker, and be ready to show your recent W2s and pay stubs. Check your credit score, which may be done for no charge at your bank or financial institution; this score will affect the types of loans and terms which may be available. Many lenders consider your debt-to-income ratio, so pay off as much debt as you comfortably can.
3. What can you afford?
An online calculator, such as Nerdwallet, can help you determine how much home you can afford before you apply for a lender’s pre-approval. Remember that part of the expense of owning a home includes property taxes, homeowners insurance, possible homeowners association fees, home maintenance costs, and unforeseen emergency costs. GoBankingRates.com reports that homeowners spend an average of $14,448 annually of expenses and home maintenance.
When you submit your financial information to a lender, you will learn the loan terms for which you qualify, including the loan amount, interest rate, and mortgage points. Go ahead and contact multiple lenders; each may offer different terms. Interest rate shopping usually does not affect your credit score, according to MyFico.com. When you’ve chosen a lender, ask to be pre-qualified, which may help your negotiation position when you find a home on which to offer.
5. Explore your mortgage options
A fixed-rate mortgage offers the stability of the same rate for the full life of the loan. Variable rate loans may start at a lower rate and suddenly increase. Know what you’re getting!
Loans can be of two general types:
- Conventional loans can be used to purchase several different types of property, including rental property and second homes, and require no additional monthly mortgage insurance payment then a minimum 20 percent down payment. A buyer must have a lower debt-to-income ratio, higher credit scores, and a larger down payment to qualify for a conventional loan.
- Government-insured loans allow for lower down payments and lower credit scores but can be used only for specific property types and usually require payments of private mortgage insurance monthly. Government-insured loans generally provide lower interest rates for qualifying buyers and include three types: Federal Housing Administration (FHA) loans for first-time buyers, VA loans for active armed service members and veterans, and USDA loans for rural home buyers.
6. What kind of home is right for you? So many decisions…
- What neighborhoods or area do you like?
- Do you want a townhome, condo, or single family?
- How many bedrooms and bathrooms do you want/need?
- Do you want a big yard or little (or no) maintenance?
- If you have children, do you want to learn about the schools and their scores?
- Do you prefer move-in ready, an older home, or a fixer-upper?
7. Plan your strategy
You can begin your home search with an online, DIY site to explore what’s available in your target area, or you can further personalize the process by contacting a real estate professional to help you.
8. Finding your dream home
9. Making an offer
Congratulations! You find a perfect home. Now what? Your REALTOR© can compare the comparable sales in the area, help you to arrive at your offer price, and negotiate the details of the contract. Patience is key at this point. The seller may counter your offer, and your REALTOR© will serve as your representative to finalize the contract. If your offer is strong and the timing is right, your seller may accept the offer and you may move forward. Your payment of earnest money proclaims to the buyer that you are a serious buyer.
10. The importance of the home inspection
An accepted offer is not the end of the deal! The next ten days or so are called the due diligence period, and you will want to have the home thoroughly and professionally inspected to discover potential issues, point out needed repairs, and estimate the age of the HVAC, roof, hot water heater, and anything else that may need repair or replacement soon. In the event that the inspection report uncovers defects, your REALTOR© can further negotiate the contract or you can back out of the contract without losing your earnest money.
11. The appraisal
During the due diligence period, another important report will be generated. The mortgage loan lender will order an appraisal to ensure that the home is worth what they agreed to let you borrow. If the home does not appraise for the cost on which you’ve agreed with the seller, you will be required to pay the additional money in cash or decide to walk away, without penalty.
12. The closing!
At the closing table, the seller and buyer sign the final paperwork, make final payments, and pay closing costs, typically between 1 and 3 percent of the purchase price. At the end of the closing, the home has officially changed owners.