So, it’s finally that time to be grown and own your own home. You’ve reached that point in adulthood where you are finally ready and itching to have your own place you can call home.
This is one of the most exciting experiences in life- and one of the most stressful. It’s easy to get overwhelmed by all the details such as the legal documents and financial options. Below is a guide to make it easier…
When to Buy a house
You should only buy a house when you are emotionally and financially ready for the responsibility. Realize that owning a house is far more expensive than letting one. The cost is not just the one-time fee that you pay, but also the money you will spend on any repairs, utilities, taxes, and insurance. If you are not financially ready, you will find yourself in a quagmire of problems.
Here are the things you need to do to financially prepare to own a home:
1. Improve your credit rating
Because mortgages interest rates are based on your credit rating, it is important to make sure that you are in the safe zone. You can do this by always paying your card on time, and if possible, paying more than your minimum payments.
2. Get out of debt
This is important in regard to being able to own a home or qualify for a home mortgage. Being debt free is also a significant part of building your wealth. Part of getting out of debt is improving your credit rating. You can also set up a debt elimination plan and a budget
3. Set up an emergency fund
It’s always imperative to have some money set aside in case of emergencies. This is especially so when buying a new home because one never knows what can happen. Experts vary on how much should be in the emergency fund, recommending 3-6 months’ worth of everyday living expenses. A rule of thumb is; the more you are able to put aside, the better.
4. Know your cash flow
You need to understand your financial standing. This means knowing your earnings, your savings and where your money goes every month. Without a clear understanding of these factors, then it is impossible to properly manage your funds let alone buy a home.
Be honest about what you can spend on a mortgage and a house. The recommended amount for a home is 2.5 time your yearly salary. Experts also advise that your mortgage, taxes, and insurance be less than 30% of your monthly income. It is better to start with a small home as you continue to accumulate wealth and then move to a bigger one later. The hassle of starting too big is not worth it.
If you have done all this and have a steady monthly income, then you have taken the first step to owning a home.
Look for a Loan
Contrary to most advice, it is important to start looking around for a loan and get pre-approved before you actually start looking for a home. This is in order to help you remain focused on a specific price range. It’s easy to get carried away when looking for a house, and you don’t want to fall in love with something only to have it be more than you can afford. It also helps in case you do find your dream home, then you don’t have to waste time scrambling for the necessary finances
Find a mortgage broker to find you the best rates in the market. There are many types of loans out there with different options. Consider looking into first time home buyer programs. These programs are designed to help first time home buyers to raise the capital for down payments that can be substantial. First-time buyer grants are also for first-time homeowners who need assistance. Depending on your country of origin, it is worthwhile to look into these programs.
Also, consider the duration of a loan. Those with long-term repayment options (15-20 years) at a fixed rate are the best options. Ask around at your bank and sit with your mortgage broker to gain a more in-depth understanding of your options.
Search for a house
Now you know what your budget allows, you are pre-approved for the loan and have even found a good first home owner program. It is time to begin the search in earnest. There are few things you must do in order to find the perfect house.
1. Make a list of must haves
This is a list of things you really desire in your home. Have a list of 5 things you absolutely must have. This helps narrow down the focus and thus saves you time. When creating the list, think of the future as well as the present. Consider what life in a few years will look like and then choose a home that fits that. Remember, buying a house is a long-term investment and you won’t be moving anytime soon. Better be comfortable in the long run.
2. Find a realtor
This is the next necessary step. A good realtor is a difference between finding a home you love and settling for a home with a myriad of problems. Your realtor should be willing to listen to you and find a few options that cater to your needs. They should also be able to help you in the negotiation process.
It is fairly difficult, especially in today’s world of conmen and thieves to find an honest, reliable realtor. It’s better to get recommendations from friends, family or colleagues.
3. Be patient
Remember that finding a house is a complicated process. It may take a month or three, you never know. So, hang in there and be willing to wait to find the right home for you.
Pay for a Home Inspection
You’ve found a nice home and have even made an offer negotiated by your agent. Within your offer should be a clause allowing for a home inspection within a week if the offer is accepted. The idea is that if the inspection fails, you can get your money back or renegotiate the cost.
The home inspector will look for any structural or mechanical problems in the home that may not be directly visible to the eye. These include mold, pests, roof issues and even foundational problems.
Getting an inspection of the house costs between $300- $500 but may save you thousands of dollars in the future. If possible, trail the inspector to learn more about the house that could become your future home.
After the inspection is done, terms are agreed on, and the offer accepted, the sale is almost done. There are still a few things to be done:
An account is set up where the buyer deposits money instead of handing it directly it to the seller. The money stays in this account while a certain amount of time while stipulations such as repairs, taxes, and passing inspection are met by the seller, while the necessary documents are gathered by the buyer.
Escrow protects every party involved, the seller, buyer and even the lender.
2. Purchase and sale agreement
The concluding document is the purchase and sale agreement which includes the legal details and agreed upon terms.
3. Finalize funding
Once the agreement is signed, then its time to get together your funding. You need to re-submit your updated mortgage application. Because a lender won’t pay above what the property is worth, they hire a property appraiser. The aim for the buyer is that the appraisal is either close to or above the purchase price.
4. Purchase insurance
This is essential for the lender to give you the money and it also protects you from any unseen problems. Again, search around for insurance that suits your budget and terms.
Once all the steps are done, it’s time to close the deal. Do the last walk-through of the house you are buying to make sure it has been kept in good condition in the time it took to complete the deal. Don’t rush, the seller typically doesn’t want the deal to fall through, so you can take your time to make sure everything is in order.
When you are satisfied, it’s time to sign the deed. Feel free to ask any questions on things you are unclear about.
Finally, pack up and move into your new home. You can paint and furnish it however you want but be careful not to overspend in excitement. Make sure to update your address with the necessary institutions. Then sit back and feel proud of how well you are adulting.