The process of purchasing a home can be thrilling and emotional. You should be familiar with the ins and outs of buying a home before beginning your search. This will enable you to decide what’s best for your family and your bank account.
What to think about
Is this the right time to purchase a home?
No and yes. Early in 2021, mortgage rates hit all-time lows, but by 2022, they had increased. Meanwhile, high demand for homes drove up prices and turned off many would-be buyers. The CoreLogic Case-Shiller Home Price Index shows that between May 2021 and May 2022, real estate prices increased by almost 20%.
But the record-breaking housing market has now started to slow down. Housing economists predict a decline in mortgage rates as realtors report sluggish price increases and rising inventories. For buyers, all of this is good news.
Mortgage rates may have already peaked, according to Mike Fratantoni, chief economist at the Mortgage Bankers Association, and they may remain in the range of 5 percent and 5.5 percent for the remainder of 2022. If that were the case, prospective buyers who had been turned off by the rate spike might return to the housing market.
Unavoidable worries about purchasing at the peak have been sparked by the price boom. Over time, home values increase, but it’s possible that prices in some places have plateaued.
According to Ken H. Johnson, a real estate economist at Florida Atlantic University and co-author of the Beracha, Hardin & Johnson Buy vs. Rent Index, “I would be careful about buying near the top of the market, especially if I want to be in the home for only a few years.” “If you’re looking to buy, haggle hard and be prepared to walk away. Real estate is undoubtedly a wise investment, but you shouldn’t buy it right away just because everyone else is.
Should I purchase a home?
If you approach the decision to become a homeowner with preparation and open eyes, it can boost your long-term financial outlook and give you a sense of pride.
Whether you want to establish roots or keep your living arrangements flexible should be taken into account when thinking about purchasing a home. How stable is your job, and can you comfortably afford home maintenance and repairs on top of your monthly rent? Do you have children or other family members to consider, and are you prepared to remain in one place?
When ought I to purchase a home?
The home-buying season typically begins in the spring, when a large number of listings are released onto the market. But since the coronavirus upset that routine, the market hasn’t quite returned to normal. Compared to the off-seasons before the pandemic, this winter should be relatively slow for home purchases, but with the low housing inventory, it will still feel competitive.
In any case, more important than the season is your own financial preparedness. This entails having your finances in order and your credit in good standing so that you can easily obtain a fair mortgage.
Homebuyers should have enough money saved up to cover closing costs, which can run between 2 and 4 percent of the purchase price, in addition to a down payment.
Include property taxes, homeowners insurance, homeowners association dues (if applicable), private mortgage insurance (if you’re putting down less than 20%), as well as the principal amount and interest when planning your monthly mortgage payment. Don’t forget to budget money for both ongoing maintenance and those unanticipated repairs that will inevitably arise.
- An instruction manual for buying a home is provided below:
- Know why you want to purchase a home.
- Verify your credit rating.
- Establish a housing budget.
- Amass funds for a down payment
- purchase a mortgage
- Make use of a real estate agent
- View several houses
- Make a proposal
- Have your house inspected.
- Discuss credits and repairs
- Obtain financing.
- Perform a final inspection.
- approaching your house
- Know why you want to purchase a home.
A major choice that shouldn’t be rushed is buying a house. If you don’t know why you want to purchase a home, you might come to regret your choice.
Define your financial and personal goals as a starting point. According to Edwence Georges, a sales associate with RE/MAX in Westfield, New Jersey, “buyers should think about things like when they intend to move and what they want in a home — amenities, ideal location, and how long it could take them to save for a down payment.” “All of these are crucial in helping them define the objectives they would like to achieve.”
Key conclusions:
Make a list of the features you value most in a house. Do you yearn for security? Is location your top concern? Any essential facilities?
Does it make financial sense for you? Would staying in a rental for an extra year or two help your financial situation?
Are you equipped to handle the responsibility of home maintenance?
- Verify your credit rating
Your financing options will be more clear if you check your credit score because lenders use it (among other things) to determine how much you can afford to borrow and whether you can repay a mortgage. Your chances of obtaining financing with the best terms and rates will increase with a better credit history.
How to get going Once a year, you are entitled to a free credit report and score from each of the three major credit reporting companies, Equifax, Experian, and TransUnion. You may be able to access your credit score or report for free from your bank or credit card provider as well.
Key conclusions:
Think about the effects that various credit score ranges will have on your interest rate, monthly payments, and overall interest. Your mortgage will typically cost more if your credit score is lower.
AnnualCreditReport.com offers free credit reports every year from all three credit bureaus. You should get in touch with each agency and let them know if you find any differences.
Discover additional methods from Bankrate to obtain your free credit report and score.
- Make a budget for housing.
Knowing what you can afford and how much your total costs will be for your new home will help you set a realistic budget.
Starting point: The purchase price isn’t the only factor to consider. Determine what you can afford by carefully taking other costs into account.
“Buyers frequently neglect to account for additional expenses like homeowners association dues and saving money for maintenance costs. It doesn’t necessarily follow that you can afford those ongoing expenses after you move just because you can afford a mortgage and a down payment.
- Paige Kruger, Florida’s Jacksonville Beach-based Signal Real Estate’s founder and realtor
Key conclusions:
- Find out the largest loan that you are eligible for.
- Determine your budget for a down payment and a reserve fund for unforeseen or ongoing maintenance expenses.
- Check to see if your monthly spending plan can cover the mortgage payment in addition to other expenses like daycare, school, utilities, groceries, and more.
- Establish a down payment fund
You’ll need to set aside at least 20% of the home’s purchase price as a down payment if you want to avoid paying private mortgage insurance, or PMI. Mortgages without PMI are sometimes available from lenders with lower down payments, but be prepared to pay a higher interest rate.
How to get going To determine the exact amount you’ll need, research the down payment requirements for the loan you want. If a friend, relative, or employer has offered to make a gift to cover the down payment, start a conversation as soon as possible to find out how much they intend to give and whether there will be a shortfall you’ll need to make up. You should also get a gift letter from them well in advance.
Key conclusions:
- Consider options backed by the federal government if you don’t have much money set aside for a down payment. While VA loans and USDA loans don’t require a down payment, FHA loans, which are insured by the Federal Housing Administration, only require 3.5 percent.
- Just 3% down payment is needed for conventional loans that are backed by Freddie Mac and Fannie Mae.
- To assist with closing costs or your down payment, look into a local or state first-time homebuyer assistance programme.
- Examine mortgage options
When you make an offer on a home, getting preapproved for a mortgage is helpful because it gives you a better idea of how much you can afford.
How to get started: To improve your chances of obtaining a low interest rate, shop around with at least three lenders or a mortgage broker.
Key conclusions:
- Work with a knowledgeable mortgage lender who can guide you through each option and the associated costs.
- Find out if there are any first-time homebuyer programmes or other rewards available to you.
- Create a Bankrate account to use our daily rate trends to decide when to lock in your mortgage.
- Work with a real estate broker
An expert real estate agent can help you find your dream home and negotiate with the seller on your behalf, saving you both time and money.
How to get going Before choosing one, get in touch with several real estate agents and request to meet with them so you can discuss your needs. According to the features you want in a home, a local expert can also tell if your budget is reasonable or not, according to Kruger. They can also recommend nearby areas in your desired neighbourhood or other factors to take into account when looking for a home.
Key conclusions:
Find out about a real estate agent’s background, familiarity with the neighbourhood of your choice, and workload before hiring them. Someone who is overbooked is not someone you want.
The services of home inspectors, contractors, appraisers, and title companies can be recommended by agents, but you should still look around and compare prices from other professionals.
- View various residences
The neighbourhood and its amenities can only be fully appreciated by visiting homes in person, taking the necessary safety precautions in case of a pandemic.
How to get going Inform your real estate agent about the particular types of homes you want to see, or do your own online home search. Your agent can set up automatic searches for properties that match your criteria and create your profile in the local multiple listing service (MLS), a database of homes for sale. Prioritize what matters most to you in terms of home amenities besides location since you might not be able to check off everything on your wish list.
Key conclusions:
Drive through desirable neighbourhoods to see what’s available, and stop by open houses for properties that catch your eye. Don’t forget to take notes on every place you visit. It’s simple to forget which homes you liked and why after a few showings.
Particularly in a hot seller’s market, keep your schedule flexible so you can seize the opportunity when a fantastic house comes on the market. The sooner you recognise it and submit your offer, the advantage you may have over other buyers.
- Make a proposal
Knowing how to present a compelling offer can improve your chances of the seller accepting it, bringing you one step closer to obtaining those coveted house keys.
Once you’ve found “the one,” your real estate agent will assist you in putting together a complete offer package that includes your offer price, your preapproval letter, proof of funds for a down payment (helpful in competitive markets), and terms or contingencies.
Key conclusions:
The price, terms, or conditions of your offer may be countered by the seller. You have the option of responding to the counteroffer or rejecting it and continuing.
You’ll sign a purchase agreement after your offer is accepted, which will include the home’s price and the anticipated closing date. A deposit for earnest money is required, usually between 1 and 2 percent of the purchase price. If you cancel, the seller might be entitled to keep the money.
In order to protect the buyer, contingency clauses frequently mention financing, home inspection, and appraisal. You can frequently cancel the agreement and receive a refund if a home inspection report reveals significant issues.
- Have your home inspected.
A home inspection gives you a general idea of the mechanical and structural problems with the property. You can decide how to move forward with the closing process with the aid of the home inspection. If there is a contingency in the contract, you might need to request repairs from the seller or you might opt to cancel the transaction.
How to get started: Ask your real estate agent for recommendations for home inspectors, but make sure to do your own research before choosing one. You typically have 10 to 14 days after signing a purchase agreement to complete a home inspection, depending on your contract and state of residence. The cost of the home inspection is typically the buyer’s responsibility; however, HomeAdvisor by Angi estimates that you will pay an average of $270 to $400.
Key conclusions:
Read online testimonials, enquire about previous clients, and review the home inspector’s credentials to confirm that they have sufficient experience.
To learn what is and isn’t covered, look at the home inspection checklist.
- Arrange for credits and repairs
Your home inspection report might point out serious or minor problems. Minor issues frequently wait until you take possession of the home, but major issues will likely need to be fixed before your mortgage lender will approve your loan.
Start by asking your agent to help you bargain with the seller. Request that the seller either makes the repairs or provides you with a closing credit.
Key conclusions:
Your lender might not approve your loan if there are risks like structural damage or shoddy electrical wiring. After purchasing the house, you might not have the funds or motivation to handle such repairs.
A home inspection contingency is a good idea because some sellers won’t agree to significant repairs, giving you a way out of the deal if the house isn’t in good condition.
Secure your financial resources
Keeping your finances and credit in order during underwriting is necessary if you want to receive final loan approval. You shouldn’t open new credit lines or make other significant purchases once you’re prepared to close until the paperwork is signed.
How to get going In order to avoid hiccups later, respond quickly to requests for additional documentation and double-check your loan estimate to make sure all the information is accurate. As your lender completes the underwriting process, you might be required to provide additional documentation, such as:
- Banking records
- tax filings
- Added evidence of income
- Gift letter or written statements outlining significant bank account deposits
- Key conclusions:
A preapproval does not guarantee that you will be approved for a loan until the lender has given its final approval. From preapproval to closing day, keep your finances and credit in order. Avoid changing jobs prior to closing on your new home if at all possible.
Additionally, refrain from maxing out credit cards, getting new loans, or closing accounts. Any of these actions could jeopardise the approval of your loan because they would lower your credit score or have an adverse effect on your debt-to-income ratio.
- Perform a final inspection.
An opportunity to see the house before you buy it is a final walk-through. This is your final opportunity to see the house, ask questions, and take care of any unresolved issues before taking ownership of the property.
How to get going Bring your home inspection checklist along with any additional paperwork, such as repair invoices and receipts for any owner-performed work, to confirm that everything was completed as agreed upon and that the house is ready for habitation.
Key conclusions:
So they can serve as a witness and assist with any inquiries you may have, request the presence of your real estate agent.
If any issues or repairs are still outstanding, have your agent get in touch with the seller and your lender right away. To ensure that those problems are resolved first, your closing date might need to be postponed.
13. Accept a house offer
It’s time to close on your home once all conditions have been satisfied, the final walk-through has gone well, and the closing agent has given the all-clear. Your lender will give you a “clear to close” status on your loan during this last step.
How to get going The lender will give you a closing disclosure three business days prior to your closing date that includes all of the information about your loan, including the monthly payment, loan type and term, interest rate, annual percentage rate (APR), loan fees, and the amount of money you must bring to closing. The seller, in some cases, and the closing agent, who might be a representative from the escrow or title company or a real estate attorney, will all be present at the closing along with you (the buyer), your real estate agent, possibly the seller’s agent, and the seller. According to the escrow company’s policies, this is also the time to wire your down payment and closing costs.
Key conclusions:
Make sure the loan terms and closing costs match up by carefully reading the closing disclosure before closing and comparing it to the loan estimate. Before you sign the closing documents, inquire about your loan and make any necessary corrections (like your name or other personal information).
