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The Ultimate Guide to Buying Your First House

The Ultimate Guide to Buying Your First House

Author: Admin

Buying a house for the first time is one of the biggest decisions you’ll ever make. After hours of watching HGTV and Million Dollar Listing, we all think we’re experts but it can be much more complicated than that. To simplify the process and ensure a successful first home purchase, just follow the six steps below and you’ll be a homeowner before interest rates go up.


 

Step 1: Know how much house you can afford.

Ideally, you’ve eliminated or paid down the majority of your debt at this point as one of the best indicators of what you can afford is your debt-to-income ratio. It’s also one of the key factors for mortgage lenders in deciding whether or not to give you a loan, and what your interest rate will be. You should have a debt-to-income ratio of less than 36%. Find out your ratio at Bankrate.com.

How much you have saved for the down payment will also determine what you can afford. Most lenders will look for a 20% down payment but some programs are as low as 3%, depending on the price of the home, the market you’re in, your income, etc. Keep in mind that a down payment below 20% usually requires that you carry Private Mortgage Insurance or PMI, which can add to your monthly payment.

The last piece of the puzzle is what you can afford to pay monthly for your mortgage payment. Use the Bankrate.com Mortgage Calculator to determine the approximate payment for the homes you believe are in your price range.

There are additional costs to consider in the purchase process including attorney fees, title insurance and title search, inspections and appraisals, surveys, points to get a lower interest rate and recording fees. Don’t forget to factor in moving costs, HOA dues, any necessary renovations, and you’re going to need furniture and other decorations to fill your new home.

Step 2: Pre-qualify for a loan.

At a minimum, buyers should be pre-qualified before they begin shopping for a new home. By getting pre-qualified you’ll know exactly what loan you can obtain, what house you can afford, and you’ll learn if there are any red flags with your credit. One step better is getting pre-approved for a loan. Final loan approval happens when an appraisal is done on the property you’re buying but a pre-approved buyer can make a seller much more comfortable with your offer and shortens the timeline from offer accepted to close. If you’re competing for a house, the pre-approved buyer can usually win with the same or even a lower bid.

What will you need to get pre-approved?

  • Proof of income usually with two years of W-2s and recent pay stubs, plus copies of your past two tax returns.
  • Employment verification which may mean a call to your employer or previous employers to verify employment and salary level. (Self employed buyers will need to provide additional information on past and future income.)
  • Proof of assets with bank statements showing proof of funds for the down payment and reserves.
  • Good credit with 740 and up getting the best interest rates and 580 or below scores required to make a bigger down payment. For approval on an FHA loan, most lenders are looking for 620 and above. Drivers License and Social Security number are needed to pull the credit report.

The sooner you can start this process the better so you know what you’re working with and can resolve any problems long before you find the house of your dreams.

Step 3: Hire a real estate agent.

No matter where you live, there are a lot of agents to choose from and there are multiple options for how the buyers agent is compensated. The traditional arrangement is a 3% commission paid by the seller. There is also now the option to pay for agent services unbundled, on-demand with GoldenKey. With this approach you’ll pay for what you need and receive the 3% agent commission back as a rebate back after close. The money saved can be used to cover moving expenses, renovations or go back into savings to fill up your coffers after the down payment.

Step 4: Find the house you love.

First off, location matters. How busy the street is, how good the school district is, what the properties around it look like all play a part. Make sure to take a close look at the surrounding area and see if there is anything detrimental to the property or the view. Also, be sure to listen. Buzzing power lines, fire stations with frequent sirens, road noise and more can all make a great house a bad decision. Now you may get a discount if it’s near a highway or a cemetery, but you’ll have to sell at a discount too.

Take a walk through the house and gather your first impressions. What do you like? What don’t you like? Try to ignore the cosmetics like current paint and existing furniture. Those are easy fixes. If the floorplan doesn’t work for you or the kitchen needs all new countertops and appliances, those fixes start to be expensive. Once you’ve walked the house once, go back through and look closer. You’d be surprised how much you’ll forget once you’re gone so take pictures of each room on your second time through.

If you’re buying with a spouse, partner or significant other make sure to talk through what you both like and don’t like as you’re touring. And both of you should see the house, if possible. You may have different wants and different tastes, so compromises might have to be made to find a house with most of what you both want.

It’s a good idea to come back and visit the house at different times. Is the street congested in the mornings? Is the area quiet after dark? You never know what you’ll discover when you come back.

Step 5: Negotiate your best price.

There is a lot of skill and a little bit of luck in negotiating. Your best bet is to clearly understand the value of the home. Look at previous sales in the neighborhood. Drive by and compare them to the home you’re looking at. Have your realtor pull comps for the area. Check out Zillow and Redfin to learn about recent sales nearby. Are there going to be a lot of people submitting offers? Bidding wars are not fun and neither is overpaying for a house.

Remember that everything is negotiable. Find out the motivations for the seller. Maybe they want a nice family to take over the house where they raised their own children. A retiring couple may not want to see major renovations happen to the house they love. A relocating family might want to close faster. An affordable rent-back might give the sellers more options. They might just want a simple and easy transaction without being nickel and dimed through the process. Point being, there is a lot more to negotiate than just price. So get creative and work with your realtor to write an offer that will stand out and provide a solution for your seller.

Don’t be afraid to include something personal too. Many an offer has been accepted when it was accompanied by a letter explaining why the buyer loves the house, or how they can picture raising a family there.

Step 6: Inspect for everything.

Your realtor can recommend a good home inspector. It’s a great investment for the few hundred dollars it will cost for a pro. Depending on what part of the country you live in, you’ll probably want to go beyond the standard home inspection and check for mold, termites, radon or whatever is common in your location. Read the inspector’s report carefully. Anything structural, or major issues with the roof, plumbing or electricity are big red flags. These and more minor issues can be credited back equal to the cost of repairs, used to negotiate the price down, be fixed by the owner, or taken as a sign that this isn’t the right house for you.



Next steps? Sign up with GoldenKey and request MLS alerts, start looking at houses in your area with a GoldenKey agent, or get expert advice directly from a realtor without signing a contract. Good luck on your search for your first home.



 

Topics: Buyers