Buying a home is one of the most impactful and stressful financial decisions you can make. The process takes many months, and requires extensive planning and saving. To prospective home buyers, the challenge may initially seem insurmountable. How could you possibly be expected to learn and remember everything you need to know about home buying if you’re working, taking care of children, and trying to live your life?
We’ve got you covered. In this article, we’ll cover some of the most important points to remember when you’re securing a mortgage. We’ll go over the whole process, from application to closing, and point out some commonly made mistakes we see to help you avoid them in the future.
First Things First
Before getting into the complicated processes of financing and negotiating, you must first ask yourself a very simple question, “What do I need out of a home?” Are you planning to grow as a family? Are you already growing, and feeling the squeeze in your current living situation? Does your work require you to move around a lot, or would you like to be closer to your office or place of work? These must all factor into your decision to buy a home, since they can easily become reasons for moving later on. You don’t want your home to become a burden just a few years after you buy it, so the smart thing to do is try to forecast your needs 10-15 years down the line to see if the house you’re considering is actually up to the task.
Home Financing
This is where home buying gets tricky. To figure out just how much they’re willing to loan you to purchase a home, financial institutions will take into account your credit history, current debt, income, and work history. Once they’ve determined the relative risk of loaning you money, they will decide how much they’re willing to finance.
This is why it’s important to speak with your mortgage lender before setting your heart on specific properties. You could be denied the financing you need for the home, or you could be approved and end up “house poor,” stuck in a mortgage you truly can’t afford. Get an accurate estimate of what an institution would be willing to lend you, then take into account the estimated monthly mortgage payment for a property of that value and the down payment you’ll need to put up. One rule of thumb is that you shouldn’t spend more than 28% of your pre-tax income on your mortgage payment. Once you’ve narrowed the amount down to a manageable sum, you can begin to move on.
For a more in-depth look at how to manage the down payment on a new home, take a glance at our article on the details of down payments. In it, we cover what to expect when making a down payment, how to effectively save for one, and some neat tricks for reducing your down payment obligation.
Finding a Home
Now the search for your home really begins. With the help of a real estate agent, you can begin perusing the available homes in the area where you wish to buy. This isn’t as simple as driving around and looking at houses, though. You’ll need to think carefully about your proximity to schools, doctors’ offices, highways, and workplaces to make the best decision available.
Your real estate agent will also help you walk through and do initial inspections on the homes you like the look of. Many homes have underlying issues that only a detailed inspection will reveal, but that comes later. For now, you’re looking at the age of flooring and paint, architectural likes and dislikes, as well as floor plans and appliances that you’ll need to adjust once you move in.
Making an Offer
Finally, it’s time to make an offer on the home. Speak with your real estate agent about how much you’d like to offer for the house, and the bidding war will begin. Once you’ve secured the home for yourself, it will enter a period of time called “escrow,” where the house will be taken off the market in preparation for the sale.
After depositing non-refundable money to show you’re serious, you’ll be permitted to have an in-depth inspection of the property performed, and you want to do this. Many of these issues are not apparent, and will only be revealed by having a trained professional perform the inspection. Serious underlying issues will give you the ability to rescind your offer, have the owners pay for the repairs, or adjust your price to reflect the cost of repairs. In any case, it’s imperative to identify these issues before you move in, because once you do, they’re your responsibility.
Closing the Deal
Closing on a home is a great deal more stressful than people realize. Not only is there a mountain of paperwork to go through, there are also a few extra fees that can catch some home buyers unawares. You’ll need to complete a home appraisal and a title search; these elements guarantee the value of the house and ensure nobody else has a legitimate claim to it.
Finally, it’s time to move in, which can be a major expense all on its own. For first-time home buyers, it may surprise you just how much space there is to fill in the home, and how much it costs to get all your furniture and appliances moved in. Be sure to calculate the moving costs and the price of washers, refrigerators, and other essential appliances before you reach this step, as those expenses can add up very quickly.
I’m Still A Little Lost
Luckily, Equity Bank is here to help. Our loan officers will help guide you through the home buying process from start to finish, allowing you to consult a trusted advisor whenever you feel overwhelmed. You can easily apply online, over the phone, or in person at your nearest Equity Bank location. If you’re thinking about buying a home and don’t know where to start, contact us today and find out how Equity Bank can help you achieve your financial goals.