How to buy the right home?
It’s normal to be cautious when you’re shopping for a home. After all, a house is a huge investment, and you’ll want to be sure that you’re making the best decision possible. How you’ll know that you’ve found the right property can vary by person. Some people have gut instincts. Others may need more convincing. Some indicators can tell you if you’ve found the right property for you.
If you want to know how to buy a house, you’ve come to the right place!
When you start thinking about buying your first house, it’s easy to let your emotions run the show. Before you know it, you’re stalking homes for sale on your home-browsing app, rearranging your schedule so you can do drive-by viewings, and researching creative financing options that would allow you to buy a house with next to nothing down.
It’s all too easy to land a house you can’t afford, and that mistake can affect your ability to build wealth in the long run. But understanding the steps of the home-buying process empowers you to make smart decisions about your home purchase.
Buying a home is a very emotional process. If you allow those emotions to get the best of you, you may fall prey to a number of common home buyer mistakes. Since homeownership has far-reaching implications, it’s important to keep your emotions in check and make the most rational decision possible.
You aim to end up with a home you love at a price you can afford, but unfortunately, many people do things that prevent them from achieving that dream. Let’s look at some of the top house-hunting mistakes people make—and how to find a house the right way.
Understanding how to find and finance the perfect home for you
Buying a house requires a lot of time and effort, but these ten steps can help make the home buying process manageable and help you make the best decisions possible.
Step 1: Start Your Research Early
As soon as you can, start reading Websites, newspapers, and magazines that have real estate listings. Make a note of particular homes you are interested in and see how long they stay on the market. Also, note any changes in asking prices. This will give you a sense of the housing trends in specific areas.
Step 2: Determine How Much House You Can Afford
Lenders generally recommend that people look for homes that cost no more than three to five times their annual household income if the home buyers plan to make a 20% down payment and have a moderate amount of other debt.
Step 3: Get Prequalified and Preapproved for credit for Your Mortgage
Before you start looking for a home, you will need to know how much you can spend. The best way to do that is to get prequalified for a mortgage. To get prequalified, you need to provide some financial information to your mortgage bankers, such as your income and the amount of savings and investments you have. Your lender will review this information and tell you how much you can get. This will tell you the price range of the homes you should be looking at. Later, you can get pre approved for credit, which involves providing your financial documents.
Step 4: Find the Right Real Estate Agent
Real estate agents are important partners when you’re buying or selling a home. Real estate agents can provide you with helpful information on homes and neighbourhoods that isn’t easily accessible to the public. Their knowledge of the home buying process, negotiating skills, and familiarity with the area you want to live in can be extremely valuable. And best of all, it doesn’t cost you anything to use an agent – they’re compensated from the commission paid by the seller of the house.
Step 5: Shop for Your Home and Make an Offer
Start touring homes in your price range. It might be helpful to take notes (using this helpful checklist) on all the homes you visit. You will see a lot of houses! It can be hard to remember everything about them, so you might want to take pictures or video to help you remember each home.
Make sure to check out the little details of each house. For example:
- Test the plumbing by running the shower to see how strong the water pressure is and how long it takes to get hot water
- Try the electrical system by turning switches on and off
- Open and close the windows and doors to see if they work properly
It’s also important to evaluate the neighbourhood and make a note of things such as:
- Are the other homes on the block well maintained?
- How much traffic does the street get?
- Is there enough street parking for your family and visitors?
- Is it conveniently located near places of interest to you: schools, shopping centres, restaurants, parks, and public transportation?
Take as much time as you need to find the right home. Then work with your real estate agent to negotiate a fair offer based on the value of comparable homes in the same neighbourhood. Once you and the seller have reached agreement on a price, the house will go into escrow, which is the period it takes to complete all of the remaining steps in the home buying process.
Step 6: Get a Home Inspection
Typically, purchase offers are contingent on a home inspection of the property to check for signs of structural damage or things that may need fixing. Your real estate agent usually will help you arrange to have this inspection conducted within a few days of your offer being accepted by the seller. This contingency protects you by giving you a chance to renegotiate your offer or withdraw it without penalty if the inspection reveals significant material damage.
Both you and the seller will receive a report on the home inspector’s findings. You can then decide if you want to ask the seller to fix anything on the property before closing the sale. Before the sale closes, you will have a walk-through of the house, which gives you the chance to confirm that any agreed-upon repairs have been made.
Step 7: Work with a Mortgage Banker to Select Your Loan
Lenders have a wide range of competitively priced loan programs and a reputation for exceptional customer service. You will have many questions when you are purchasing a home, and having one of our experienced, responsive mortgage bankers assist you can make the process much easier.
Every homebuyer has their priorities when choosing a mortgage. Some are interested in keeping their monthly payments as low as possible. Others are interested in making sure that their monthly payments never increase. And still, others pick a loan based on the knowledge they will be moving again in just a few years.
Step 8: Have the Home Appraised
Lenders will arrange for an appraiser to provide an independent estimate of the value of the house you are buying. The appraiser is a member of a third party company and is not directly associated with the lender. The appraisal will let all the parties involved know that you are paying a fair price for the home.
Step 9: Coordinate the Paperwork
As you can imagine, there is a lot of paperwork involved in buying a house. Your lender will arrange for a title company to handle all of the paperwork and make sure that the seller is the rightful owner of the house you are buying.
Step 10: Close the Sale
At closing, you will sign all of the paperwork required to complete the purchase, including your loan documents. It typically takes a couple of days for your loan to be funded after the paperwork is returned to the lender. Once the check is delivered to the seller, you are ready to move into your new home!
Best-Kept Secrets for Buying a Home
Keep Your Money Where It Is
It’s not wise to make any huge purchases or move your money around three to six months before buying a new home. You don’t want to take any big chances with your credit profile. Lenders need to see that you’re reliable and they want a complete paper trail so that they can get you the best loan possible. If you open new credit cards, amass too much debt or buy a lot of big-ticket items, you’re going to have a hard time getting a loan.
Get Preapproved for Your Home Loan
There’s a big difference between a buyer being pre-qualified and a buyer who has a preapproved mortgage. Anybody can get prequalified for a loan. Getting pre approved means a lender has looked at all of your financial information and they’ve let you know how much you can afford and how much they will lend you. Being pre approved will save you a lot of time and energy so you are not running around looking at houses you can’t afford. It also gives you the opportunity to shop around for the best deal and the best interest rates. Do your research: Learn about junk fees, processing fees or points and make sure there aren’t any hidden costs in the loan.
Buying Secret #8: Avoid a Border Dispute
It’s essential to get a survey done on your property, so you know exactly what you’re buying. Knowing precisely where your property lines are may save you from a potential dispute with your neighbours. Also, your property tax is likely based on how much property you have, so it is best to have an accurate map drawn up.
Don’t Try to Time the Market.
Don’t obsess with trying to time the market and figure out when is the best time to buy. Trying to anticipate the housing market is impossible. The best time to buy is when you find your perfect house, and you can afford it. Real estate is cyclical, it goes up, and it goes down, and it goes back up again. So, if you try to wait for the perfect time, you’re probably going to miss out.
Bigger Isn’t Always Better.
Everyone’s drawn to the biggest, most beautiful house on the block. But bigger is usually not better when it comes to houses. There’s an adage in real estate that says don’t buy the biggest, best house on the block. The largest house only appeals to a very small audience, and you never want to limit potential buyers when you go to re-sell. Your home is only going to go up in value as much as the other houses around you. If you pay AU$500,000 for a home and your neighbours pay AU$250,000 to AU$300,000, your appreciation is going to be limited. Sometimes it is best to buy the worst house on the block because the worst house per square foot always trades for more than the biggest house.
Avoid Sleeper Costs
The difference between renting and homeownership is the sleeper costs. Most people focus on their mortgage payment, but they also need to be aware of the other expenses such as property taxes, utilities and homeowner-association dues. New homeowners also need to be prepared to pay for repairs, maintenance and potential property-tax increases. Make sure you budget for sleeper costs so you’ll be covered and won’t risk losing your house.
You’re Buying a House – Not Dating It
Buying a house based on emotions is just going to break your heart. If you fall in love with something, you might end up making some pretty bad financial decisions. There’s a big difference between your emotions and your instincts. Going with your instincts means that you recognize that you’re getting a great house for a good value. Going with your emotions is being obsessed with the paint colour or the backyard. It’s an investment, so stay calm and be wise.
Give Your House a Physical
Would you buy a car without checking under the hood? Of course, you wouldn’t. Hire a home inspector. It’ll cost about AU$200 but could end up saving you thousands. A home inspector’s sole responsibility is to provide you with information so that you can decide as to whether or not to buy. It’s the only way to get an unbiased third-party opinion. If the inspector does find any issues with the home, you can use it as a bargaining tool for lowering the price of the home. It’s better to spend the money upfront on an inspector than to find out later you have to spend a fortune.
The Secret Science of Bidding
Your opening bid should be based on two things: what you can afford (because you don’t want to outbid yourself), and what you believe the property is worth. Make your opening bid something that’s fair and reasonable and isn’t going to offend the seller. A lot of people think they should lower the first time they make a bid. It all depends on what the market is doing at the time. You need to look at what other homes have gone for in that neighbourhood, and you want to get an average price per square foot. Sizing up a house on a price-per-square-foot basis is a great equalizer. Also, see if the neighbours have plans to put up a new addition or a basketball court or tennis court, something that might detract from the property’s value down the road.
Today, so many sellers are behind in their property taxes, and if you have that valuable information, it gives you a great card to negotiate a good deal.
Sellers respect a bid that is an oddball number and is more likely to take it more seriously. A nice round number sounds like every other bid out there. When you get more specific, the sellers will think you’ve given the offer careful thought.
Stalk the Neighborhood
Before you buy, get the lay of the land – drop by morning noon and night. Many homebuyers have become completely distraught because they thought they found the perfect home, only to find out the neighbourhood wasn’t for them. Drive by the house at all hours of the day to see what’s happening in the neighbourhood. Do your regular commute from the house to make sure it is something you can deal with on a daily basis. Find out how far it is to the nearest grocery store and other services. Even if you don’t have kids, research the schools because it affects the value of your home in a very big way. If you buy a house in a good school district versus bad school district even in the same town, the value can be affected as much as 20 per cent.
Buying your first home is exciting, but there’s a lot to think about before you start looking. Start by getting all your finances in order and using online tools to compare mortgage rates and manage your credit score.