Although people are excited about buying a new home, the entire process can be very stressful. Aside from having to deal with piles of paperwork, you also need to find a property worth the investment. Finding the best financial option can also be tricky, given all the services available on the market nowadays.
Whatever the case, you can make a smart and easy purchase with some preparation. The process can be streamlined so you don’t have to go back and forth between the bank and the realtor. In this article, we’ll go through 13 vital home-purchasing steps and share a few tips that will help along the way.
1. Assess the timing
As strange as this might sound, most people don’t have the real need to buy a home. Unless you’re changing cities for a new job, there’s a good chance your home purchase is rushed. This is especially true if you want to move to a fancier neighborhood.
Given the steep home prices as of late, the smart decision would be to delay your purchase. We suggest you start by assessing your professional and financial goals and see how much time you need to pay off the mortgage. You should also calculate how much it would cost to rent for a few years and compare it to a potential drop in prices.
2. Check the credit score
Checking your credit score is vital for understanding your current financial situation and available options. A low score can put you in a nasty predicament where you would have to deal with massive interest rates. If there’s a chance to improve your rating (for example, by getting a new job), you should postpone the purchase for some other time.
Future homeowners can get their credit reports from TransUnion, Equifax, and Experian. You might also want to check at your local bank. Pay close attention to errors that might negatively affect your score. If you notice any issues, contact the responsible agencies and try to remedy the issue.
3. Create a budget
Now that you better understand the basics, it’s time to determine your realistic options. Many people make the mistake of buying above their range. This can cause issues down the line affecting your financial options and, specifically, the ability to pay off the mortgage.
On top of that, people forget to include other payments such as future maintenance costs, home refurbishing, and utilities. As a result, their future monthly payments tend to skyrocket above their financial capabilities. The fact that you had money to buy a larger home doesn’t mean you’ll necessarily have the money for upkeep.
4. Think about a down payment
In most cases, the homeowners have to put down a 20% down payment for any property bought in the US and 5% for Canadian homes. You’ll have to pay private mortgage insurance if you don’t have enough. Alternatively, some lenders don’t require insurance but have much higher interest rates.
We suggest you check the available state and federal programs for financial aid. Some institutions can cover your down payment if you manage to qualify. Alternatively, you can ask friends and family to help you accrue these initial funds.
5. Find the right loan
One of the best ways to prepare for the purchase is by getting a mortgage pre-approval. “Having pre-approval carries several benefits, among others, showing the seller you have the financial means,” according to All Reverse Mortgage (ARLO), a reputable mortgage provider.
The best thing yet, after getting pre-approval, you don’t have to stay with the lender who provided it. This gives you the flexibility to seek out other companies and find the best conditions. Alternatively, we suggest you hire a mortgage broker who can get even lower interest rates.
6. Find a trustworthy agent
Finding a reliable agent can be tricky. In this case, the agent’s experience and knowledge of the market are major factors. You need someone who will help you find a perfect home in a short time frame. Otherwise, the home purchasing process will become stressful. Among others, a savvy agent can connect you to the right home inspectors.
Like with loan providers, you need to contact several real estate agents before making the decision. Focus on people who have served the area for a while and know each neighborhood by heart. The agent should also have solid financial knowledge, helping you find the right amenities based on your budget.
7. Don’t be too hasty
When buying a home in a nice neighborhood, future homeowners often make the mistake of liking every property. They might get stuck on the first house they see, not wanting to check other offers. Although you have to be proactive, you also have to remember this is a place where you’ll live for years and years.
We suggest you visit several homes before making the decision. That way, you can get a better feel of the neighborhood, school, and store placement and what to expect from local properties. Even if the first property was nice, there’s a good chance you’ll find something that is better suited to your particular needs.
8. Make an offer
There’s often cutthroat competition between the buyers for nice homes. In fact, some people are willing to go way above their budgets to secure the property. The negotiating process often goes back and forth between buyers and the seller, with the seller having several offers on the table at all times.
This makes it tricky for young, inexperienced people and those unacquainted with the local market. Knowing how to invest in a house can be tricky. While you should definitely be ready to negotiate, you should also stay inside your financial capabilities.
To make the best possible deal, ask your agent for assistance. The expert can help you make an appropriate offer based on the property’s real value. The agent can also help with proof of funds and a pre-approval letter.
9. Perform home inspection
Performing a home inspection is critical for getting more insights about the property. Homeowners should rush into a purchase without knowing the true state of a house. Most importantly, a home inspector can tell you more about potential structural problems that might have to be addressed.
If the assessment goes poorly, you can ask the seller to fix the issues. At this point, you still haven’t signed the deal, so you have the option to seek out some other property (if there’s an inspection contingency). Although you can find an inspector yourself, you can also ask your agent for assistance.
10. Address the repairs
If you decide to proceed with the purchase, despite the issues, you might have to make the fixes before finalizing the loan. Some mortgage companies require that the property is in perfect condition before they can approve you. This is especially true when it comes to bad wiring and structural damage.
Having to make a few fixes isn’t unheard of. In fact, it’s often part of the buying experience. However, negotiating repairs can be troublesome as you have to strike a deal with the previous owner. Keep in mind they might be reluctant to cover the costs, especially if there’s no inspection contingency in the contract.
11. Finalize the loan
People sometimes make small mistakes between pre-approval and approval that can cost them their homes. Most notably, you shouldn’t get a new loan between the two phases, as it might affect your credit score and even your ability to get a mortgage. Similar goes for large purchases and changing jobs.
During the approval, you need to ask the bank representatives everything you want to know. Don’t be afraid to ask dumb questions and go into every small detail. The future homeowner usually needs to submit additional paperwork during this stage, including tax returns, other proofs of income, bank statements, and so on.
12. Last visit
The future homeowner has the chance to visit the place once again before closing on a property. During this visit, you can discuss any issues or concerns you might still have. It’s common for the agent to be present during the walk-through, as they can address any last-minute doubts you might have.
The buyer should bring all the receipts, invoices, and the inspection checklist. Take your time to go through all the small things that might concern you. If you notice any issue, share it with your agent immediately. The agent can then communicate with the lender and seller in an attempt to remedy the problem.
Keep in mind that the closing date might be pushed forward so you can fix the issue.
13. Finalize the deal
Once you’ve addressed all these problems, it’s finally time to close the deal. At this point, you should have all the signed documents confirming that you’re the new homeowner.
Among others, the lender needs to give you a closing disclosure three business days before finishing the deal. This would include all the loan details and both parties’ obligations. Check the document to make sure all terms are the same as previously agreed upon. If necessary, ask for contract corrections.
When all of this is over, the seller will give you the keys and passcodes, and you can enjoy your brand-new property!
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