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The Ultimate Guide to Buying a Home

Written By: DollarGeek

Written By: DollarGeek

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Buying a home for the first time is definitely exciting, but it’s easy to let your nerves take over. Sure, you may have found your dream home, but there is a lot that can wrong during the homebuying process.

Not getting preapproved for a mortgage could mean losing out against other offers, for example. Or, you could discover that your home has serious foundation or mold problems during the home inspection.

Whatever comes your way, it’s best to build up an arsenal of homebuying information before you start the process. With enough data and an idea of how things will work, it’s possible you could avoid many of the homebuying pitfalls consumers run into.

The Mortgage Process

First things first. You’ll want to get preapproved for a mortgage before you shop for a new home. Not only can getting preapproved give you an edge if you’re up against several competing offers, but it can help you find out how much you can actually afford to borrow.

To qualify for a mortgage, you’ll need good or decent credit, a solid employment history, and a down payment of 3% or more. You’ll also need to gather some important documents your lender will need. Information you’ll need to gather includes:

  • Paystubs from the last 30 days
  • W-2 forms from the last two years
  • Information on all your debts including car loans and student loans
  • Recent bank statements from all your accounts
  • Tax returns from the last two years
  • Proof of any supplemental income you have

If you have a lender lined up already, that’s perfectly fine. However, you may want to shop around among different home lenders to make sure you’re getting the best interest rate and loan terms. Keep in mind that all lenders are not created equal, and that some can offer lower rates or a loan with fewer fees and ongoing costs.

If you have less than 20% of your home’s purchase price to put down, you should also plan on paying private mortgage insurance, or PMI. PMI can cost close to 1% of your home’s purchase price and is paid in your mortgage payment each month. To avoid PMI, you need to put down 20% or more when you buy.

Finding a Realtor

Maybe you’ve already been going to open houses on your own, or maybe you want professional help during your search. Either way, working with a buyer’s agent can help the process along since these professionals should have their fingers on the pulse of your local real estate market.

Ask family and friends for recommendations of realtors they have used when buying a home. You can also search for realtors with the highest ratings on Realtor.com. Finally, you may meet a realtor naturally while you’re looking for homes and visiting open houses on your own.

Whatever the case, make sure you find someone who feel comfortable with who has several years of experience as a buyer’s agent at the very least.

Shopping for Your New Home

Once you have a realtor, you can start shopping and have your agent set appointments to see homes you’re interested in. Some tips that can help with the home shopping experience include:

  • Set a budget ahead of time. No matter how much the bank is willing to lend you, you likely have a decent idea of what you can actually afford. Make sure to set a budget based on a monthly payment amount you feel comfortable with.
  • Only shop for homes in your price range. While it might be tempting to check out every home you think you might love, you should only set appointments for homes you can afford to buy. If you shop outside your price range and fall in love with a home, you risk overspending or setting yourself up for heartache.
  • Make sure to factor in the costs of upgrades and repairs. Make sure to consider the condition of any home you might buy. If a home is in your price range but it needs considerable updates and repairs, factor in the costs of those updates to ensure you can still afford it.
  • Take a close look at the neighborhood. A home is only as good as the neighborhood it resides in. Keep in mind that the area your home is in could make a positive or negative impact on its livability and your property values.
  • Don’t forget about upkeep. Think through how much upkeep you want to be responsible for before you buy a home. Moving to a property with several acres might sound ideal, but it’s not for everyone. If you want a huge yard or a pool, make sure you are financially and mentally prepared for the extra work.
  • Consider the size. How many bedrooms will you need? Do you want a larger home you can grow into or a smaller home you’ll upgrade later on? Make sure to figure out how much room you need so you can find a home that fits the bill.

Making an Offer

So, you found a home you really love. What now? Provided the home is in your ideal neighborhood and price range, you may be ready to make an offer. Once you reach this stage, you’ll want to work closely with your realtor that write up a winning offer that sticks.

Make sure to speak with your realtor to come up with a strategy and to find out how much the home is actually worth. Your realtor will do much of the leg work for you at this stage, as he or she has likely pulled comparable sold properties and values so you could come up with a fair offer.

The details in our offer should include how much you’re willing to pay for the home, an initial deposit called “earnest money,” and other information such as when you would prefer to close on the home. Once the seller receives your offer, they may respond and accept it, refuse your offer, or make a counteroffer. For that reason, you typically want to come to the table with a fair offer they are likely to accept.

In the case they make a counteroffer, you’ll need to consider the details in their proposal to ensure you can live with the new terms. If not, you can make counteroffers back and forth with the seller (via your realtor) until you strike a deal that works for both parties.

Closing on Your Home

Before you can close on your home, you will likely need to pay for an appraisal. An appraisal is a formal evaluation of what your home is worth and is used to justify the mortgage you take out.

On top of the appraisal, you’ll want to pay for and line up an official home inspection. A home inspection will help you determine whether the property has any major problems or issues that need solved. Once you pay for a home inspection, you can also go back to the seller (via your realtor) and ask them to make important repairs before you close.

Once an agreement is reached once again, you’ll sit down with your realtor, your lender, and a title company to close on your loan. Your home closing is a process that involves both the seller and the buyer signing loan and transfer documents that make the sale of your home complete.

This is also when you’ll bring your down payment to the table, along with closing costs you’re responsible for. Closing costs you’ll pay at closing (or have the seller pay on your behalf) can include:

  • Appraisal fee
  • Credit report fee
  • Title insurance
  • Origination fee
  • Flood certification fee
  • Underwriting fee
  • Recording fee
  • Application fee
  • Homeowner’s insurance premium
  • Property taxes

Once you’ve signed all the applicable paperwork for your home loan and the sale, your closing is complete and you own the home.

Now that you’re a homeowner, you can get to work decorating and furnishing your home as you please. And, as long as you keep up with your monthly mortgage payments, your dream home could remain yours forever.

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