Buying your first home can be a daunting process with many deciding factors and little experience guiding the way. Fortunately, you can buy with confidence after planning for what to expect. In this article, we will provide you with a list of steps to follow when making a decision on a new home.
Assessing your needs
Before diving into the research, you should consider what you need in a home. Think of factors such as location, community, size, and price range. Generally, the median home prices are two to three times the area’s median annual income, so if an area’s median annual income is $100,000, the median home price would fall between $200,000 and $300,000.
Once you have a clear picture of the type of home you are looking for, you need to ensure that it can fit your budget. Getting a grasp on your financial situation includes taking inventory of your income, savings, investments, and outstanding debt. Additionally, checking your credit score can be done for free and will help prepare you for what to expect in a mortgage. A higher credit score will result in a more favorable interest rate and lower total interest paid over the life of t he mortgage.
Seek approval for a mortgage
Now that you have reviewed your finances, you can begin to seek approval for a mortgage. Your current financial situation will dictate the type of mortgage you are able to obtain. Expect a required down payment of anywhere between three percent and twenty percent in order to qualify for a mortgage.
Hire a real estate agent
While not necessary, hiring a real estate agent will make the home buying experience much smoother than going it alone.
For first-time home buyers, a real estate agent can be an excellent resource for questions throughout the process. Furthermore, agents usually have access to far more listings and can negotiate better prices than an individual buyer, which is why more than eighty percent of homeowners will use one when buying. In exchange, expect a commission fee that is around six percent of the closing cost of the home.
Inspect and appraise the home
Before making your final decision, be sure to hire a professional home inspector to assess the foundation, electrical, plumbing, and other aspects of t he property. While this carries a fee between $300 and $500, the cost of finding hidden problems down the road will be exponentially higher. Also, consider hiring an appraiser to ensure the home is valued fairly.
Finalize the loan and close the sale
If everything with the home and property checks out, you can begin to finalize the loan and ultimately close the sale. Be sure to fully review the conditions of the mortgage and lock in the interest rate. You will be granted either a 15, 30, or 45-day escrow period that protects your interest rate against market fluctuations. Before your closing date, the lender should provide an outline of expected closing costs. These commonly total between two and five percent of t he purchase price and can include a number of different small fees. At this point, you are ready to move in to your new home.