Requirements for Purchasing Your New Home
Owning a home is a dream come true to many people out there and, like with any other dream dream, achieving it is not easy. First of all, buying a home is perhaps the single largest investment that the majority of people make in their lifetime and it often takes decades to fully pay it off. Second, it is one of the choices that will affect your lifestyle the most, seeing as how you’re picking the place where you’re going to spend every single day (or nearly every single day) for years and decades to come. In a scenario where you might later turn the place into a rental property, it is also a business decision, which is one more reason to take things seriously.
Other than the issue of motivation itself, the logistics behind buying the place is quite arduous, as well. First of all, you need to raise enough money, which means spending more time at the bank than you feel comfortable with. It also means indebting yourself head over heels, which might also keep you up at night. Then, there’s so much paperwork when it comes to applying for the mortgage, closing the sale and then transferring the ownership and a lot of people fear whether they’re capable of undertaking such a massive task. With that in mind and without further ado, here’s a brief list that you can use in order to get a grip on some of these tasks.
1. How much home you can afford
The first thing you need to determine is how much home you can actually afford. Bear in mind, this is not your only expense. Every month, you’ll have to make the mortgage payment, however, the cost of living won’t just magically disappear. You still have to pay your utilities which, depending on the local utility costs and the size of the place, may be more or less than what you’ve paid in your previous home. Other than this, you have the regular costs of living to worry about. All in all, you need to determine just how much of a home you can actually afford.
The simplest way to determine this is to make a crude assumption with the use of an online calculator. For starter, you need to make an estimate of your mortgage payment, your property taxes and the homeowners association fee. Then, there’s monthly homeowner insurance. Next, you need to take into consideration the down payment and the total closing costs. The majority of these calculators first ask you to set your location, based on which, the majority of these metrics are calculated. Then, you just add this to your regular expenses (minus your current rent payments) and see if you can handle it on your current income. Sure, your income may grow in the future but this is not a presumption that you should base your decision to buy real estate on.
2. Prepare your finances for the mortgage
Next, you need to prepare yourself financially for the mortgage in question. For starters, chances are that you have no collateral whatsoever, which is why you are more likely than not to go for unsecured credit. This means that your credit score will play a major role in the mortgage terms that you can expect. So, start by checking your credit score. The metrics of the FICO scale are quite simple to grasp – the numbers go from 300 to 850 and the higher your score the better you’re off. If there’s enough time, you might even want to try and improve your score a bit.
Another thing you need to consider is how to save money for the down payment. Sure, the mortgage will cover about 80 percent of the value of the future home, however, the remaining 20 percent is still a formidable figure. This is why it’s recommended that you plan ahead and try to save as much money as you possibly can. Starting a savings account, gamifying your saving habits, leading a more austere life, selling an asset or finding an additional source of income are just some of the things that you should take into consideration.
Once you’ve dealt with this, it’s up to you to prepare all your documentation and get it in order. We’re talking about the paystubs, bank statements, self-employment income copies and your last two tax returns. In other words, you’re preparing everything that the lender will insist on during your mortgage application. Having everything filed and ready ahead of time can make things run so much smoother.
The last thing you want to do when preparing to take a mortgage is to do some research. Even with the same credit score, not every lender is about to offer you the same terms. So, what you need to do is go loan shopping. Sure, you might go to a major credit union to get your mortgage, however, looking for small personal loans online can be quite an efficient way of handling your down payment problem in a simple and efficient manner.
3. Get in touch with professionals
Once you have the paperwork and the financial aspect of your home-buying effort out of the way, you need to find the right real estate for you and your family. First, you need to find the right real estate agent or, better yet, a great buyer’s agent. These people are not only well-versed in the industry but also there to help you get the best possible price for the real estate in question. Real estate agents are there to sell you the place and, as professionals, possess the knowledge of a variety of persuasion techniques. Your buyer’s agent is more likely to see past this and get you the best deal possible.
While we’ve already talked a lot about handling the finances prior to buying a new home, it is also quite important that you consult a skilled legal advisor to help you out. They can help you draft a plan that will allow you to save for the down payment or help you figure out how to effectively return your mortgage. A great financial expert, when contacted in time, can also help you figure out the best way to improve your credit score in order to get the most favorable terms when you finally apply for a loan.
Lastly, before you commit to buy the place, you need to make sure that the place is a prime piece of real estate. What this means is that you need to bring a number of specialists to inspect the place. We’re talking about bringing a general contractor to see the structural integrity of the place. Next, you need to bring a plumber and an electrician to see if the installations are in proper working order. This will either help you knock off the price a bit or, at least, know exactly what you’re getting into.
4. Home appraisal
One of the most important steps used to protect both the buyer and the lender is the home appraisal. This consists of hiring a third party to make an assessment of the home’s value in order to make sure that the mortgage in question actually makes sense. Without it, the buyer would deliberately inflate the price of the home in order to get approved of a larger loan. In other words, this is a method used in order to ensure that everyone’s getting the fair price out of the deal in question.
Keep in mind that the seller often uses a number of appraisal-boosting techniques in order to get the most value out of their home. We’re talking about small improvements and boosting curb appeal of the place. Remember, nonetheless, that a professional can look past the décor and trifles. What they need to focus on are the crucial structural issues and base their assessment based on it. Still, if you believe the appraisal to be too much against your own interests, you can always challenge it. Sure, this prolongs the procedure by quite a bit, however, it is usually worth waiting.
5. Survey the neighborhood
The next item on your list (while some argue that this should come before the actual visit to the place, let alone contacting professional inspectors), is checking the state of the neighborhood. This comes in several different stages. First, you want to check the crime rate of the place. In this day and age, all you have to do in order to get there is to find the online platform and type the name of the neighborhood. There are a lot of different thematic maps, both official and unofficial, that you can base your search on.
The next thing you should probably take into consideration is your future lifestyle in this neighborhood. If you’re looking for a place where you can start a family, then the vicinity of schools in the area might be your primary concern. Even if you are single at the moment, you need to weigh in the likelihood that this will change in the future and plan accordingly. The accessibility to job options in your field should be another major interest. Will you have to relocate in order to advance in your career? If so, this can be a major inconvenience and something that you should try to avoid.
Finally, let’s take into consideration a chance that you might want to repurpose the home in the future. Let’s say that you intend to turn it into a getaway, thus transforming it into a venue or a vacation rental. Does the place have a tourist potential? If you intend to turn the place into a traditional rental property, you need to take into consideration the appeal of the overall neighborhood. For anyone in the rental industry, vacancy is a direct loss of profit – the lower the vacancy time the better the investment. These are just some of the factors worth taking into consideration.
6. Close the sale
Closing the sale itself may be quite an arduous task, which is why it’s vital that you have a skilled and experienced intermediary. Here, there’s a list of documents that have to be signed before the sale is final and official. On the top of the list, there’s the deed, the affidavit of title and the transfer tax declaration. These are the so-called real estate transfer documents. Then, you have the home loan documents, which are the note, the deed of trust, the loan application and the loan estimate and closing disclosure. Keep in mind that all of these documents should probably be checked by an attorney before you start signing them.
Next, you have some additional (miscellaneous) files worth keeping in mind in this occasion. First, you have the bill of sale, which transfers personal property that is being sold with the real estate. This is in the case where the place is furnished and already has furniture and appliances. Then, you need to have the certificate of occupancy, which serves as a guarantee that the place is habitable (according to local building codes). Finally, you need to receive homeowners’ insurance, at least until the loan is paid off in full. This is one of the last documents that you’ll have to sign, probably just before closing.
In the end, it’s important that you keep two important things in mind. First, handling all of these issues is not something that you’ll have to face on a regular basis. This is something that you do when buying a new home which is not an occurrence that should take place too often. Second, you can always hire specialists to help you out. Sure, this ends up costing more but it also provides you with higher security of the transaction and a safer decision-making process. At the end of the day, you should just look at this as an additional home-buyers’ fee and find some room for it in your budget. Skipping this step can be terribly inconvenient.