Understanding how to find the perfect home for you and your family
Finding the perfect home requires a lot of time and effort. As long as you adhere to the following basic steps to home buying, the process can be extremely fulfilling, and you will be able to make the best decisions possible.
Step 1: What and When Can I Afford to Buy
Lenders have a recommended rule of thumb that people look for homes that cost no more than three times their annual household income. It is preferred that home buyers make a 20% down payment and have a low to moderate income to debt ratio. This helps avoid the dreaded PMI that could significantly increase your monthly payment. So saving up is preferred but if 20% seems like an impossible goal, many lenders have access to programs that allow buyers to get in for as little as 3.5%. Check with your lender for available programs and eligibility. Start researching and contact a lender as early as possible.
Step 2: Prequalified or Preapproved; Now Get Your Agent
Now that you have provided all of the required financial information to your mortgage lender, such as your income and the amount of savings and investments you have, your lender will tell you how much they are willing to lend you. Never under estimate the value in finding the right lender and real estate agents. They should be looked at as partners in this process because ultimately you are paying them. You should have confidence in their knowledge of the home buying process, negotiating skills, and familiarity with the area you want to live in can be extremely valuable. I forgot to mention that in this part of the process it is very important to shop around. Finding the right lender and agent takes time. You could lose out on the perfect home or waste a lot of time if you don't have the right partners in this process. It is the difference in having a great experience or being the worse experience of your life.
Step 3: Shop, Find, and Evaluate
This is the part where discipline is important for many. Shop for homes in your price range and compare them to your predefined list of required characteristics. What the lender will loan you and what you can afford are not always in sync. Stick to your budget.
Make sure to check out the little details of each house like water pressure, light switches and outlets, and operation of fixtures, latches, hinges, and locks. Don't forget to evaluate characteristics outside of the home, like the community. This is especially important for parents and the schools their child will attend. Work with your real estate agent to negotiate a fair offer based on the value of comparable homes in the same neighborhood once you have selected the home of choice. This is where being fair while trying to get the best deal can be tricky, and where the right agent earns their commission. Once the offer is accepted the agent will assist to get the house inspected for major issues and could be an opportunity for you and your agent to negotiate a better deal. Next the lender should have an independent third party appraiser provide an estimate of the value of the house you are buying. This is the true test of whether it is a good deal or not.
Step 4: Coordinate the Paperwork and Close
Now it's time for the lender to really earn their keep. There is a lot of paperwork involved in buying a house and your lender will arrange for a title company to handle all of the paperwork and verify all of the parties with a vested interest in the house you are buying. If the lender has done a good job of communicating what is happening during this process and needed at closing, there shouldn't be any surprises at closing and you will be well prepared. At closing, you will sign all of the paperwork required to complete the purchase, including your loan documents. Every transaction is different and in the past it typically took a couple of days for your loan to be funded after the paperwork is returned to the lender. Today that can be done in the same day and the check is delivered to the seller. You can get the keys and you are ready to move into your new home immediately following closing!
