The real estate market can be quite unpredictable, depending on economic indicators which constantly inflate and deflate prices. That’s why many people may assume that buying a house isn’t in the cards. However, that’s far from the truth. You can easily become a homeowner as long as you’re patient and smart about your finances. However, an essential component to the process of buying a house is education. If you want to buy a home, you should know how the process works.
Unless you’re a millionaire, you have to plan for years before beginning to look for listings. There are many factors you must consider during this time. You need to know who to hire, what documents to collect, and much more. Luckily for you, this guide completely sums up the process of buying a home:
How to Determine Whether You’re Ready to Buy a Home?
Buying a house may be a significant milestone, but it isn’t an easy goal. It’s both an emotional and financial decision, so you should make sure you’re ready on both fronts.
Here’s what you should do before beginning the process:
1. Look at Your Long-Term Life Goals
As mentioned, buying a house takes years of planning. For most people, it’s a long-term goal, which they plan on an undertaking when they’ve reached a certain point in their life. For example, you may want to buy a house once you’ve established your career. Of course, if you don’t have job security, you can’t handle the financial burden of a mortgage.
Similarly, if you’ve just gotten married or become a parent, you may want some solid roots for your growing family. Many newlyweds talk about their ‘forever homes’ before getting married. Whether you’re married or not, you should think about where you want to live in the future. Where will your career take you? Will you be required to move in the coming years? If you’re in a relationship, consider your partner’s feelings and goals.
2. Check Your Financial Situation
Another significant factor to consider is your financial situation. Are you in debt? How much do you earn? Can you afford a mortgage? Firstly, you need to save a significant amount of money. Apart from the down payment and standard closing fees, there are many costs associated with buying a house. You may not even be aware of some of the fees you’ll have to pay. To start saving for a house, you should create a cost breakdown list and work towards a savings goal. If you manage to save enough, your mortgage payments will go down.
Secondly, you need to check your debt-to-income (DTI) ratio (if applicable). Most mortgage lenders prefer DTIs below 35%. Managing debt, saving money, and reducing frivolous costs lead to increased credit scores, which is also an essential factor. Your score should be in the 600s at the minimum. However, try to increase it to 740 and above.
3. Research Current Market Prices
Lastly, you should keep track of changes in the real estate market. After all, if prices inflate tenfold, you need to increase your savings per month. Alternatively, if they deflate, you can begin looking for a home sooner than expected. In this way, economic indicators are very important. You should also consider the competitiveness in the market. In desirable localities, the high demand for homes can drive up prices. Multiple buyers can bid for one home, reducing your chances.
What Are the Steps to Buying a Home?
If you decide that you’re ready, you should take the next steps in buying a home. Of course, the process is pretty long. At times, it can take months or even a year to close a deal on a house. You need to prepare yourself for the long haul. However, even if it takes long, don’t get discouraged.
All in all, the process is not difficult. You must simply follow these steps:
1. Create Your Price Range
First of all, you need to decide the qualities you’re looking for in a house. What size, location, and amenities do you want? Of course, you will eventually need to compromise on some of your wishes. After all, unless you’ve constructed it yourself, a house will rarely meet all your wants. However, you must decide what features you cannot live without. This list must account for the number of bedrooms and bathrooms you need. If you must move into a specific locality, you must also consider this.
Once you’ve decided the type of house you want, you can look into current market prices and create your price range. This step also means finding a compromise between your savings and market values for the home you want. In this way, you can also make a plan on paying the down payment.
2. Start Your Mortgage Pre-Approval Process
The next step is to find a mortgage lender to begin the pre-approval process. What does pre-approval mean? Well, it involves verifying your financial information with a mortgage lender. You’ll need to submit your income statements, savings information, and other financial details. If the lender grants your pre-approval, you will receive a small loan to get you started on finding a home. The loan typically lasts around two months. However, the amount depends on the strength of your application. As mentioned, lenders look at things like credit scores, DTIs, and investment portfolios. Building a good application takes years.
3. Find a Reliable Real Estate Agent
Thirdly, you have to find a good real estate agent. A real estate agent will show you relevant listings, depending on your price range. Your price range can change, depending on the loan given by your mortgage lender. When your agent shows you listings, be sure to weigh the pros and cons of each home. In this way, you can pick the most suitable home.
4. Get Your Loan Approved Through a Mortgage Banker
Now, once you’ve selected your final listing, you can make an offer. If you’ve out bidden other buyers, your next step is to get your loan approved. Most mortgage lenders have different systems and loan programs. You can find a lender that gives you the best deal in terms of mortgage rates. However, the deal depends on your priorities. Do you want lower interest rates? Or do you want the lowest monthly payment amount? You’ll need to decide before finalizing the agreement.
5. Finalize the Title Paperwork
Lastly, to officially close the sale, you need to handle the title transference paperwork. It’s always better to rely on professionals during this step. You should hire a real estate lawyer to ensure your documents are properly filed. However, if you don’t want to, you can simply rely on your real estate agent to guide you through the process. Typically, the house isn’t yours until the deed is signed and the loan check is delivered to the original owner.
Simply put, buying a house is a very big deal. In terms of finances, it can put a lot of strain on a family. As such, you should be cautious in your decision. However, the process of buying a home isn’t as daunting as people think. Luckily, you can easily navigate the process yourself. However, you do have the option of relying on experts such as real estate agents, lawyers, and financial advisors.