Congratulations on your decision to purchase a home! I know you are excited to begin down this road. There are several of steps required to purchase a home. It is easy to become overwhelmed. I created this 1000-word guide to help clarify the process. Reviewing this guide should also provide a better understanding of the steps involved with buying a home.
WHAT ARE THE BENEFITS OF BUYING A HOME?
While there are many benefits to owning a home, here are the main reasons:
Investment: For most homeowners, their residence is their largest asset. As you live in and make improvements to your home, and gradually pay down the principal on your mortgage, you are building on this equity.
Income Tax Savings: All of the interest you pay on your mortgage and payments on your property taxes are deductible for income tax purposes.
Pride of Ownership: A major component of The American Dream is homeownership. Buying a house gives you and your family a sense of pride, stability and security. Unlike renting, owning a home provides you the flexibility to customize your home with paint and permanent fixtures without seeking approval of a landlord.
FOUR ESSENTIAL TIPS FOR BUYERS
There are four important rules to follow as you begin the journey of purchasing a home:
- Choose a real estate agent…carefully. Remember, the person you choose will serve as an advisor in your search for a new home. Interview several agents so you are sure to find someone that is right for you and your real estate needs. You will spend considerable time with this person so, in addition to knowledge and experience, trust and fit are key qualities you should seek.
- Get pre-approved for a mortgage. Before you begin searching for your property, get pre-approved for a mortgage with a bank and/or a mortgage broker so you have a clear understanding of how much house you can buy. Your real estate agent can provide recommendations of trusted lenders.
- Communicate and Learn. Educate yourself on the market by communicating with your real estate agent about property values in different neighborhoods. Take advantage of publicly available information to research recent sales of comparable properties. Just keep in mind not all openly available information is 100% accurate.
- Due your due diligence. As exciting as it can be finding what you think is THE home, do your homework. Your real estate agent will help you obtain information about the house such as any renovation or major repairs that may have been done to the property itself and the house.
UNDERSTANDING THE PROCESS FROM BEGINNING TO END
Like most big purchases, buying a home is a process:
Consult with a mortgage broker, bank or financial advisor
Before you begin looking, you need to determine your budget. If you are going to finance the purchase, then you must know the loan size for which you qualify based on your personal finances. That in turn will dictate your purchase price which is key for you and your realtor as you embark on the search for your new home. If nothing else, this process is a great financial check-up!
Get pre-approved for a mortgage
Once you have determined your budget, you should obtain a pre-approval letter from a lender or mortgage broker. Your real estate agent will need this letter to submit with any purchase offers to demonstrate your credibility as a buyer.
Find a home
The timeframe for finding your home will vary depending on availability, and can range from one week to many months. It is best to give yourself plenty of time, two to three months if possible. Come up with your top three to four criteria for your ideal home, for example:
- Neighborhood (click to read my guide on selecting a great neighborhood)
- Building type
- Quality of local schools
- Home amenities
- Quick access to work, entertainment, etc.
Make sure to communicate these to your real estate agent.
Once you have identified the property you want to purchase, your real estate agent will guide you through the negotiation process. While purchase price is very important, there are other important terms to consider including timing for close and contingencies. Be prepared to negotiate all of these terms and use them to your advantage.
MORTGAGE AND LENDING BASICS
Since securing a mortgage can be overwhelming, it’s best to:
Start early and be prepared
To obtain the best terms, you will need a strong credit score and extensive paperwork including tax returns and a thorough accounting of your income.
Speak with several banks and mortgage brokers to learn about different loan products and obtain several quotes for terms. Choose the best product and terms for your needs.
Closing costs vary depending on whether you are purchasing or selling your home. As closing costs can be significant, it is important to have an understanding of them as you plan for your purchase. Your real estate agent and mortgage lender can help you understand your closing costs.