Buying a home is still the American dream. While the procedure is not complex, some Americans have come to regret buying their home too hastily – without looking into the best and most cost-effective way to do it. These 10 steps will show you how to buy a house and avoid common problems.
1. Check Your Finances
Before you buy a house, you need to know how much you can afford. Being able to meet your home’s costs typically means that all costs, including your mortgage payments, insurance, and taxes, should not take more than 25% of your income.
It is just as important to get your finances in order. Make sure that your credit score is as high as you can get it before buying a home, which will enable you to get better interest rates and get a larger loan. You also want to reduce your debt to less than 30% of your credit. Check to ensure that your finances are stable and that you can expect to continue to make the payments for a long time to come. Having an emergency fund for at least six months’ worth of bills will help to ensure it.
2. Get a Downpayment
You will reduce the cost of your mortgage considerably if you can come up with 20% of the mortgage. If it is less, you will need to add the cost of private mortgage insurance (PMI). At the same time, you also want to get enough money for closing.
3. Seek to Get Pre-approved for a Loan
When you approach a home seller with a pre-approved loan, you will find that they are ready to talk. This will give you a competitive edge over other potential buyers that have not been pre-approved.
4. Get a Real Estate Agent
A real estate agent knows the market and they know the houses that are for sale. When you tell them what you are looking for, they can line up the homes to view quickly in the neighborhoods you are interested in relocating to. If you need certain nearby features such as schools, grocery stores, public transportation, etc., be sure to ask.
5. Look at Homes for Sale
Now is the time to actually start looking to buy a house. Be careful to stick within your budget when looking. It can be easy to go a little beyond your budget but this can easily mean that you will regret that move for a long time to come after buying it.
6. Make Your Offer
Talk to your agent and get suggestions on a recommended price. Expect there to be other potential buyers, so you will need to make a competitive offer. This will require filling out a legal document that includes details of the sale and the closing date.
You can expect the seller to make a counteroffer. If so, be willing to do some negotiating.
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7. Apply for the Mortgage
After the negotiating has ended and the seller accepts your offer, it is time to pay your security deposit (earnest money). Then, tell your lender how much you need for the mortgage. They will require a lot of financial information before approving the loan.
8. Get a House Inspection
The next step is to get the home inspected. Do not trust the owner’s inspection report. You want to know about any potential problems the house has – and its estimated cost to repair it – before buying. If the costs are too high, renegotiate with the owner or look somewhere else.
9. Get Homeowner’s Insurance
Having a homeowner’s insurance policy before closing prevents the lender from adding PMI. It will be required.
10. Close the Deal
Once the mortgage is in hand, go to closing and the house is yours.