As we are on planning on buying a home soon, I thought I should do some reading up and also write about it. Buying a home is a huge decision and commitment that requires utmost attention to detail and care to make an informed decision. Let's look at what processes there are in buying a home and other tips that would help assist this major decision.
Finance check
Credit score has to be in form when you are buying a home, to apply for a mortgage. The higher the credit score, the higher the chances for getting a low interest rate on your loan. If you are not prompt with payments and you have a low credit score, it would hurt your chance of getting the best interest rate or getting any financing at all.
Budget
How much can you afford to buy your desired home? You can ask to be pre-approved by a lender, who will consider your income, debt and credit to determine the kind of loan that's available to you. A general way of coming up with the cost of the home is that it has to be 2 1/2 times your gross annual salary. Another way of calculating would be to ensure that the monthly payment for the home does not exceed 36% of your gross monthly salary.
Cash for Downpayment
Generally, 20% of a home's price has to be paid as downpayment and if you do so, lenders would approve a larger loan. There are private and public agencies such as Fannie Mae and Freddie Mac and the Federal Housing Administration that remove this barrier and make possible lower downpayment mortgages. Besides the downpayment, you need to have enough to cover the costs of appraisal fee, loan fees, attorney's fees, inspection fees and the cost of a title search which could amount to more than $10, 000 and often run to 5% of the mortgage amount.
Real Estate Agent
Though it may not really be necessary to buy a home through a real estate agent, given all the information and tools available these days to assist you, its not usually recommended. The housing market is localised and each state, city and neighborhood has its local laws and customs that only risk professionals can help you with.
House Hunt
Finally its time to get down to the real business and look for that house! What city or neighborhood do you want to live in? Some signs of economic vibrancy in a community include a mixture of young families and older couples, low unemployment, and good incomes. Districts with good schools are desirable even if you don't have any children as it would be helpful when it is time to sell. Choose a price range of 10% percent above and 10% below your true range so that your search criteria isn't too restrictive. Note: Don't reject a house just because it doesn't measure up to your expectations in price or features. You can add a patio or upgrade the kitchen. The asking price is just the start of negotiation and so you can make offers and counteroffers till an acceptable price is reached.
Closing the Deal
Once you have found the house you like, you would have to make your bid. You can make an offer about 8-10% below the asking price which would give you room to negotiate. However if you really want the house then don't test the seller too much or you might lose it to another buyer or the seller may just give up on you. Be creative in your negotiation skills, for example, you can ask if the seller would throw in the kitchen and laundry appliances if you met his price or take them away in exchange for a lower price.
Once a mutually acceptable price has been reached, the seller's agent will draw up an offer to purchase, including an estimated closing date which is usually 45-60 days from acceptance of the offer. Have an attorney review done where the lawyer would make sure the deal is contingent upon your obtaining a mortgage, a home inspection that shows no major defects, and a guarantee that you may conduct a walk-through inspection 24 hours before closing. You need a make a good-faith deposit which is usually 1-10% of the purchase price that should be deposited into an escrow account. The seller will receive this money after the deal has closed. You will get the money back only if the home failed any of the contingency clauses. Now, you should call your lender and agree on the terms, if you have not already done so.
Conduct a home inspection which could cost between $300 to $1000. If there are any major problems, ask your lawyer or agent to discuss it with the seller. Either the seller has to fix the problem before you move in or deduct the cost of the repair from the final price. If the seller doesnt agree to either, you may decide to walk away from the deal, which you can do without penalty if you have that contingency written into the contract.
Finance check
Credit score has to be in form when you are buying a home, to apply for a mortgage. The higher the credit score, the higher the chances for getting a low interest rate on your loan. If you are not prompt with payments and you have a low credit score, it would hurt your chance of getting the best interest rate or getting any financing at all.
Budget
How much can you afford to buy your desired home? You can ask to be pre-approved by a lender, who will consider your income, debt and credit to determine the kind of loan that's available to you. A general way of coming up with the cost of the home is that it has to be 2 1/2 times your gross annual salary. Another way of calculating would be to ensure that the monthly payment for the home does not exceed 36% of your gross monthly salary.
Cash for Downpayment
Generally, 20% of a home's price has to be paid as downpayment and if you do so, lenders would approve a larger loan. There are private and public agencies such as Fannie Mae and Freddie Mac and the Federal Housing Administration that remove this barrier and make possible lower downpayment mortgages. Besides the downpayment, you need to have enough to cover the costs of appraisal fee, loan fees, attorney's fees, inspection fees and the cost of a title search which could amount to more than $10, 000 and often run to 5% of the mortgage amount.
Real Estate Agent
Though it may not really be necessary to buy a home through a real estate agent, given all the information and tools available these days to assist you, its not usually recommended. The housing market is localised and each state, city and neighborhood has its local laws and customs that only risk professionals can help you with.
House Hunt
Finally its time to get down to the real business and look for that house! What city or neighborhood do you want to live in? Some signs of economic vibrancy in a community include a mixture of young families and older couples, low unemployment, and good incomes. Districts with good schools are desirable even if you don't have any children as it would be helpful when it is time to sell. Choose a price range of 10% percent above and 10% below your true range so that your search criteria isn't too restrictive. Note: Don't reject a house just because it doesn't measure up to your expectations in price or features. You can add a patio or upgrade the kitchen. The asking price is just the start of negotiation and so you can make offers and counteroffers till an acceptable price is reached.
Closing the Deal
Once you have found the house you like, you would have to make your bid. You can make an offer about 8-10% below the asking price which would give you room to negotiate. However if you really want the house then don't test the seller too much or you might lose it to another buyer or the seller may just give up on you. Be creative in your negotiation skills, for example, you can ask if the seller would throw in the kitchen and laundry appliances if you met his price or take them away in exchange for a lower price.
Once a mutually acceptable price has been reached, the seller's agent will draw up an offer to purchase, including an estimated closing date which is usually 45-60 days from acceptance of the offer. Have an attorney review done where the lawyer would make sure the deal is contingent upon your obtaining a mortgage, a home inspection that shows no major defects, and a guarantee that you may conduct a walk-through inspection 24 hours before closing. You need a make a good-faith deposit which is usually 1-10% of the purchase price that should be deposited into an escrow account. The seller will receive this money after the deal has closed. You will get the money back only if the home failed any of the contingency clauses. Now, you should call your lender and agree on the terms, if you have not already done so.
Conduct a home inspection which could cost between $300 to $1000. If there are any major problems, ask your lawyer or agent to discuss it with the seller. Either the seller has to fix the problem before you move in or deduct the cost of the repair from the final price. If the seller doesnt agree to either, you may decide to walk away from the deal, which you can do without penalty if you have that contingency written into the contract.
