Are you ready to become a homeowner? Buying a house is probably one of the most expensive and complicated things that you will do in your entire life. Luckily, it doesn't have to be so difficult once you have a better understanding of what's involved. Here is a quick guide for buying your first home to make things a little easier for you.
When to Buy a House
Before you start browsing MLS listings online, the first thing you should ask yourself is “Should I buy a house?” The common convention used to be that you should buy a house as soon as you can because it is a great investment. However, after the housing crisis a decade ago, a lot has changed. Younger generations like Millennials even have specific things in mind when buying a house.
Owning a home gives you the freedom to make renovations as you like which is something you simply can't do if you rent. In addition, you can also try out those neat interior design ideas that you find online without having to worry about how you're going to undo the changes once your lease is up.
That said, making the jump from renting a home to owning one is a big financial step, not just a change in your lifestyle. You'll need to make sure that you have money for a down payment, a solid credit score, and enough money to cover recurring expenses, such as the mortgage, property taxes, and ongoing maintenance.
It's also a good rule of thumb to decide to buy a home once you're ready to make a commitment to area in which you're buying. If you have planning to start a family or you can simply see yourself returning to the area in which you're planning to buy for 7 or more years, you may want to consider buying over renting.
Costs of Buying a Home
When you look at the list price of a home that interests you, you may think that you'll simply be talking to a lender and taking out a loan if you decide that you want to buy it. However, like most things we buy, homes come with hidden costs and if you aren't prepared, you may just not be able to afford it. Here are all of the costs of buying a home that you should be aware of:
Home inspection costs: Before you close on your home, your mortgage insurer will likely require that you get a home inspection performed, which can cost several hundred dollars. However, even if it is not required in order to close, you should still pay a professional to perform a home inspection so that you can avoid buying a home that needs major repairs or is even uninhabitable.
Taxes: You probably already know that you need to pay property taxes on your home. However, you may not know that you'll have to prepay these taxes at closing.
Mortgage and insurance: Most people can't afford to pay the entire cost of a home upfront. As a result, you need to be prepare to make these monthly payments. In addition, you may have to also pay up to a year's worth of homeowner's insurance and homeowner's association dues at closing.
Fees: There are a host of fees that you will have to pay which can add up quickly. These fees include government record fees, appraisal fee, credit report fee, title services, tax service fee, lender's origination fee, and more. These fees will also be due at closing.
House Buying Process
When you break it down into steps, you’ll see that the process of buying a home isn’t actually that complicated. In fact, the house buying process could be summarized in 10 steps:
Start looking for real estate listings and learning about the homebuying process.
Determine how much home you can afford.
Get prequalified and preapproved for a mortgage.
Find the right real estate agent.
Start touring homes within your budget. Create a checklist of the features that you are looking for and make an offer on a home that interests you.
Get a home inspection.
Work with a mortgage banker to select your loan.
Arrange for an appraisal of the home.
Do the paperwork involved to buy the home.
Close on the home by signing the paperwork required to complete the purchase of your
home and your loan.
What makes the home buying process complicated is when you don’t have the right help available to guide you through the process. This is why choosing the right real estate agent is so important if you want to make buying your first home an enjoyable and satisfying endeavor.
Buying Investment Property
If you plan to buy a first home as an investment property, the process of buying a home gets a bit more complicated given the fact that your goal is to eventually make a profit from your purchase. You'll need to decide whether you want to become a landlord, renovate and resell the home or use a buy and hold strategy to make money on the home when the market improves.
To become a real estate investor, you’ll need to learn about the market trends so that you can effectively estimate the chances of making a profit on your investment within a reasonable timeframe. Keep in mind that you are effectively putting all of your eggs in one basket, which means that there are also significant risks that come along with real estate investment.
For example, the income from renting your property can be inconsistent and you'll also have to decide whether you want to be deal with tenants directly or have a property management company work with them instead.
These are just a few things to know when buying a house. If you're looking for more home buying tips, contacting a real estate agent or attending a homebuyer education course are good places to start if you have questions. And of course if you're looking for furniture for your new home, we can help with that!