Buying a house is one of the biggest and most exciting decisions you can make in your life. It can also be one of the most stressful and complicated ones, especially if you are not prepared for the process. There are many factors to consider, from your finances and credit score to the location and condition of the property.
To help you navigate the home-buying journey, here are some of the most important things you need to know before buying a house.
1. How much house can you afford?
The first and most crucial question you need to answer is how much house can you afford. This will determine your budget, your loan options, and your home search criteria. You don’t want to fall in love with a house that is out of your reach, or end up with a mortgage that strains your finances.
To figure out how much house you can afford, you need to consider your income, debts, savings, down payment, and other expenses. A general rule of thumb is that your monthly housing payment (including principal, interest, taxes, and insurance) should not exceed 28% of your gross monthly income. You can use online calculators or tools to estimate your affordability based on your financial situation.
You also need to factor in the closing costs, which are the fees and charges associated with finalizing the sale of the property. These can include appraisal fees, title fees, origination fees, inspection fees, and more. Closing costs typically range from 2% to 5% of the loan amount, depending on the lender and the location.
2. What is your credit score?
Your credit score is another key factor that affects your ability to buy a house. Your credit score is a number that reflects your credit history and behavior. It ranges from 300 to 850, with higher scores indicating better creditworthiness. Lenders use your credit score to assess your risk as a borrower and offer you an interest rate accordingly.
A higher credit score can help you qualify for a lower interest rate, which can save you thousands of dollars over the life of the loan. A lower credit score, on the other hand, can limit your loan options or result in higher interest rates and fees.
To improve your credit score, you should:
- Check your credit reports from the three major credit bureaus (Experian, Equifax, and TransUnion) and dispute any errors or inaccuracies
- Pay your bills on time and in full every month, as payment history is the most important factor in your score
- Pay down your debt and keep your credit utilization (the percentage of your available credit that you use) low, ideally below 30%
- Avoid applying for new credit too often, as hard inquiries can lower your score temporarily
- Maintain a mix of different types of credit, such as credit cards and loans
3. What type of home do you want?
Another thing you need to know before buying a house is what type of home do you want. There are various types of homes available, such as single-family homes, townhouses, condos, apartments, duplexes, etc. Each type has its own advantages and disadvantages, depending on your needs and preferences.
Some of the factors to consider when choosing a type of home are:
- Size: How much space do you need for yourself and your family? How many bedrooms and bathrooms do you want? Do you need extra rooms for guests or hobbies?
- Style: What kind of architectural style do you like? Do you prefer modern or traditional designs? Do you want a single-story or multi-story home?
- Location: Where do you want to live? Do you want to be close to work, school, shopping, entertainment, etc.? Do you prefer urban or suburban settings? Do you care about the neighborhood amenities and safety?
- Maintenance: How much time and money are you willing to spend on maintaining your home? Do you enjoy doing repairs and renovations yourself or would you rather hire professionals? Do you want to deal with lawn care and snow removal or would you prefer a homeowners association (HOA) to handle them?
- Cost: How much does the type of home cost in your desired area? How does it compare to other types of homes? What are the ongoing expenses associated with owning that type of home?
4. How do you find the right home?
Once you have an idea of how much house you can afford and what type of home you want, you can start looking for the right home for you. This can be both fun and challenging, as there are many homes on the market and many factors to consider.
To find the right home for you, you should:
- Do some online research: You can use online platforms or apps to browse through listings of homes for sale in your desired area. You can filter by price range, property type, size, features, etc. You can also view photos, videos, virtual tours, floor plans, and other details of the properties. You can also check the home values, market trends, and neighborhood information of the area.
- Hire a real estate agent: A real estate agent can help you find the right home for you by providing you with access to more listings, arranging home tours, negotiating offers, handling paperwork, and guiding you through the whole process. A real estate agent can also represent your best interests and protect your rights as a buyer. You can find a real estate agent by asking for referrals from friends, family, or coworkers, or by searching online for reviews and ratings.
- Visit the homes in person: Nothing beats seeing the homes in person to get a feel for the space, the condition, and the surroundings. You should visit as many homes as possible that match your criteria and budget. You should also take notes, photos, or videos of each home to help you remember and compare them later. You should also pay attention to any red flags or potential issues, such as structural problems, water damage, pest infestation, etc.
5. How do you make an offer and close the deal?
The final thing you need to know before buying a house is how to make an offer and close the deal. This is the most exciting and nerve-wracking part of the home-buying process, as it involves negotiating with the seller, securing your financing, and completing the legal formalities.
To make an offer and close the deal, you should:
- Get pre-approved for a mortgage: A mortgage pre-approval is a letter from a lender that states how much money they are willing to lend you based on your income, assets, debts, and credit score. A pre-approval can help you determine your budget, show the seller that you are serious and qualified, and speed up the approval process once you find a home.
- Make a competitive offer: An offer is a formal proposal to buy a home that includes the price, terms, and conditions of the sale. You should make an offer based on your budget, the market value of the home, and the seller’s motivation. You should also include any contingencies or clauses that protect your interests, such as financing contingency, inspection contingency, appraisal contingency, etc.
- Negotiate with the seller: The seller can accept your offer, reject it, or make a counteroffer. You can accept their counteroffer, reject it, or make another counteroffer. This process can go back and forth until you reach an agreement or walk away. You should be prepared to compromise on some aspects of the deal but also stand firm on your priorities.
- Schedule an inspection and an appraisal: An inspection is a thorough examination of the physical condition of the home by a professional inspector. An inspection can reveal any defects or problems that may affect the value or safety of the home. An appraisal is an estimate of the market value of the home by a licensed appraiser. An appraisal can confirm that you are paying a fair price for the home and that it meets the lender’s requirements.
- Secure your financing: Once you have an accepted offer and a satisfactory inspection and appraisal report, you can finalize your mortgage application with your lender. You will need to provide them with various documents to verify your income, assets, debts, and credit history. You will also need to pay for various fees and charges associated with getting a mortgage.
- Purchase homeowners insurance: Homeowners insurance is a policy that covers your home and personal belongings from damage or loss caused by fire, theft, vandalism, natural disasters, etc. It also covers your liability if someone gets injured on your property. Homeowners insurance is required by most lenders as a condition of your loan. You should shop around for different quotes and coverage options before choosing a policy.
- Close on the home: Closing is the final step of buying a house where you sign all the legal documents to transfer ownership of the property from the seller to you. You will also pay any remaining closing costs and fees and receive the keys to your new home. Closing usually takes place at an escrow office or a title company with all parties involved.
Buying a house can be a rewarding experience if you know what to expect and what to do along the way. By following these tips, you can prepare yourself for buying a house and make your dream come true.