When buying a house, your emotions can quickly get the better of you. Without you knowing it, you’re already researching financing options that allow you to buy a home with minimal or no down payment, reorganizing your schedule for house viewings, and browsing the internet for available listings. Because this can be an exciting ordeal, you can quickly end up getting a house that you can’t afford.
That mistake will affect your opportunity to build your wealth. Knowing how the buying process will go can help you make wise decisions regarding your purchase. Below are the significant steps you should take in buying a house. Each step will increase your confidence about your purchase.
1. Determine How Much You Can Afford
You should first focus on setting your budget. It’s best to stay away from houses with a monthly premium that exceeds 25% of your monthly income. Doing that will also help you set aside money for home maintenance or other goals like retirement.
That limit includes private mortgage insurance, homeowners’ insurance, property taxes, interest rates, down payment, and homeowner’s association fees.
Use that budget as the basis of how much you can afford for your new house. For most couples planning to buy a house together, you’ll have to discuss so that you can check if both sides are on the same page.
2. Get Pre-approved for Your Mortgage
One of the common ways to purchase a house is by paying with cash. If you can’t afford the price, applying for a mortgage loan is your alternative. Most lenders will prequalify you for the purchase depending on their evaluation of your down payment, assets, and income. Getting pre-approved is challenging because the process is more thorough.
One of the best mortgage lenders in your area will assess your financial information and submit the paper for preliminary underwriting.
It’s best to wait for the pre-approval letter because it’s the most substantial proof you’ll have as a buyer. Having that letter will tell sellers that you’re a serious buyer. Unwise decisions will turn your most significant investment into a liability, which is why you’ll have to apply for the right mortgage loan that fits your needs. That makes it easier to look for the home that fits your budget.
3. Shop Around
After passing the pre-approval phase, you can start shopping around. List down all the features you’re looking for in a house. For couples buying a home together, you’ll need a separate list that you should compare before heading out. Identify the features you want to have so that you can discuss those matters with your realtor.
In addition, you can use that list as the start of your search. Your realtor will help you set realistic expectations and aim your search for properties you can afford. One crucial tip is to think about the property’s resale value while shopping around. It can be after a few months before you can find a house that matches your budget, so don’t be hasty.
4. Conduct an Appraisal and Inspection
Once you reach this step, you’ll have your house in no time. Written contracts will contain contingencies that you should comply with to finalize your home purchase. It’ll also allow you to back out of the deal without losing your deposit if home inspectors discover something. It’s never helpful to let your emotions run wild.
Make sure to read the contingencies to protect yourself during the purchase.
5. Get Your Mortgage Loan Finalized
If you get pre-approved for a mortgage loan, you’ll have to be patient while your lender finalizes your application. They’ll have to dig deeper into your credit score or financial information in this phase, which can take a few months to finish. Make sure to control yourself. You shouldn’t change jobs, take on more debts, or open a new credit card.
6. Make an Offer on Your Dream House
You and your realtor should discuss so that you come up with a solid offer. If you end up in a bidding war with other potential buyers, don’t let your emotions affect the purchase and be on your best behavior. Your purchase agreement will include:
- Closing date
- Contingencies like final mortgage approval, appraisal, or home inspection
- Items (furniture or appliances) that the owner will include in the sale
- Down payment amount, lender information, and purchase price
- Property address
- Buyer and seller information
Getting Your New Home
You still have to finalize the papers before getting the keys to your new home. You’ll have to review your copy of the closing documents to avoid unexpected problems on the closing day. During this phase, you’ll incur closing costs like homeowners’ insurance, homeowners’ association fees, or property taxes. Make sure to clarify the concerns you have in mind before signing the papers. You have to know what you’re getting yourself into.
Despite the endless paperwork you’ll have to track, you’re now getting your new house.