YOUR GUIDE TO BUYING
Buying a home doesn't have to be difficult!
Like any big project, a successful home buying experience is about getting the details right from start to finish. This step-by-step process for home buyers will help you navigate the process, save money and close the deal. Think of this as your 'one-stop-shop' for home buying information.
I've broken the process down into four categories:
PREPARING TO BUY
PURCHASING YOUR HOME
PREPARING TO BUY
1. START SAVING EARLY
Down Payment: Your downpayment requirement depends on the type of mortgage you choose and the lender. Some conventional loans aimed at first time home buyers allow as little as 3% down. Use a downpayment calculator to decide a goal, and then talk to your bank about setting up automatic transfers from checking to savings to get started
Closing Costs: Closing costs are fees and expenses you pay to finalize your mortgage. These typically range from 2% to 5% of the loan amount. You can also ask the seller to pay a portion of your closings costs, and you can save on some expenses, such as home inspections, by shopping around.
Move In Expenses: You can't forget about these! You'll want to set aside some cash for after the home purchase. Save some money for repairs, upgrades and furnishings.
2. DETERMINE WHAT YOU CAN AFFORD
Figure out how much you can safely spend on a home before you start to shop. NerdWallet's home affordability calculator can help with setting a price range base on your income, debt, down payment, credit score and where you plan to live.
3. CHECK & IMPROVE YOUR CREDIT SCORE
Your credit score determines whether you quality for a mortgage and affect the interest rate lenders will offer. Take these steps to strengthen your credit score to buy a house:
get free copies of your credit reports from each of the three credit bureaus - Experian, Equifax, and TransUnion - and dispute any errors that could affect your score
Track your credit score
Pay all your bills on time, and keep credit card balances as low as possible
EXPLORE YOUR OPTIONS
Theres a variety of mortgages that are available with varying down payment and eligibility requirements:
Conventional Mortgages: not guaranteed by the government. Some conventional loans targeted at first-time buyers require as little as 3 down
FHA Loans: insured by the Federal Housing Administration and allow down payments as low as 3.5%
USDA Loans: guaranteed by the U.S. Department of Agriculture. These are for rural home buyers and usually require no down payment
VA Loans: guaranteed by the Department of Veterans Affairs. These are for current and veteran military service members and usually require no downpayment
You also have options when it comes to a mortgage term. Most buyers opt for a 30-year fixed-rate mortgage. A 15-year loan typically has a lower interest rate than a 30-year mortgage, but the monthly payments are larger
FIRST-TIME HOME BUYER ASSISTANCE PROGRAMS
Many states, cities, and counties offer first-time home buyer programs. These often combine low-interest-rate mortgages with down payment assistance, as well as closing cost assistance. Tax credits are also available through some programs.
COMPARE RATES AND FEES
The consumer financial protection bureau recommends requesting loan estimates for the same type of mortgage from several lenders to compare the costs. Some lenders may offer the opportunity to purchase discount points, which are fees that one pays upfront to lower the interest rate. Buying points may make sense if you have the money on hand and plan to stay in the home for a long time.
Mortgage pre-approval is a lender's offer to loan you money under specific terms. having a preapproval letter shows home sellers and real estate agents that you're a serious buyer, and can give you an edge over shoppers who haven't gone the extra mile.
Apply for preapproval when you're ready to start shopping. Lenders will pull your credit and review documents to verify your income, assets, and debts.
FINDING YOUR DREAM HOME
Write out and weigh the pros and cons of different types of home. A condominium or townhome may be more affordable than your typical single-family home, but shared walls will mean less privacy. Don't forget to set aside home for your homeowners association fees when shopping in planned communities.
Find enjoyment in rolling up the sleeves and getting to work? Then consider buying a fixer-upper. Fixer-uppers usually sell for less per square foot than those that are move-in ready. However, you may need to set aside more money for repairs and remodeling. Also consider renovation mortgages, for they finance both the price of the home and the costs of improvements all in one loan!
STICK TO YOUR BUDGET
Lenders may offer to loan you more than what is comfortably affordable, or you may feel pressured to spend outside of your comfort zone to beat another buyer's offer. Don't give in. To avoid financial stress down the road, set a price range based on your budget and stick to it.
GET THE MOST OUT OF OPEN HOUSES
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PURCHASING YOUR HOME
Home inspections are thorough assessments of a property's structural integrity and systems. Professionals look for potential problems, so you can make well informed decisions when it comes to buying the property.
Standard inspections do not test for things like radon, mold, or pests.
Traditionally the buyer attends the inspection. Following the inspector allows one to gain a better understanding of the property and ask questions on the spot.
You can save money by asking the seller to pay for repairs in advance or lower the price of the home to cover the cost of repairs you will be making. You can also ask the seller to cover a portion of the closings costs. However, keep in mind that lenders may limit the portion of closing costs that the seller can pay.
One's negotiating power depends on the conditions of the market. It's tougher to drive a hard bargain when there are more buyers than there are homes for sale. Talk to your real estate agent to better understand the local market and strategize accordingly.
BUYING HOME INSURANCE
Lenders require you to purchase homeowners insurance before closing the deal. Home insurance covers the cost to repair and or replace your home and belongings if they're damaged by an incident covered in the policy. This also provides liability insurance if you're held liable for an injury or accident. Purchase enough home insurance to cover the cost of rebuilding your home if it's destroyed.