Home Buying 101

Home buying requires searching for the ideal property, securing financing, making an offer, and concluding the transaction - including various third-party costs such as home inspections and document preparation services.

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1. Get Pre-Approved

Most home buyers use a loan known as a mortgage to finance the purchase of their new house. This decision should be carefully thought through and pre-approval can help home buyers make informed choices and set budgets early on in the process.

Preapproval is an estimate of how much a borrower might qualify to spend on a home, based on their income and credit history. It's important to remember, though, that lenders do not take into account daily expenses or monthly debt payments when providing this estimate.

Home Buying 101

Preapproval, unlike prequalification, involves completing a full application and credit check and is therefore more reliable. Furthermore, it shows sellers that buyers are serious about their offers and can move quickly towards closing on their property.

2. Set Your Budget

Home ownership can be an enormous financial commitment that will have lasting implications on your budget. To make sure that you can comfortably afford both mortgage payments and associated expenses, as well as maintenance expenses for the house itself, it is wise to assess current spending patterns and adjust accordingly.

Start off by taking an inventory of both mandatory and discretionary monthly expenses - such as debt payments, savings contributions, and investments. Also, consider any costs related to homeownership such as homeowners association dues or property taxes that might arise.

As a general guideline, it's best not to devote more than 28% of your income toward mortgage payments; however, this may not apply in every situation. For a more accurate picture, consult recent bank statements and receipts as you set spending goals for yourself in the future. Don't forget about including home maintenance costs and any unexpected repairs into your plan as well.

3. Find a Lender

Finding a mortgage lender is a critical component of home buying, since this financial commitment will likely be one of the largest of your life and requires a deep knowledge of yourself and your finances.

Real estate agents are an excellent way to identify suitable lender recommendations. As they work directly with these institutions on an almost daily basis, they have insight into which offer competitive rates and fees.

Mortgage lenders include banks, credit unions and mortgage brokers. When selecting your lender it is advisable to conduct research online reviews of potential providers; but be wary as reviews can sometimes be biased and taken with a grain of salt. Furthermore, it's essential that the chosen mortgage lender be knowledgeable of down payment assistance programs such as the FHA loan program.

4. Make an Offer

Once you've found the home of your dreams, it's time to make an offer. While this part can be exciting and nerve-wracking at once, your real estate agent can assist in helping determine the appropriate price and terms to include in your offer.

Escalation clauses are a popular condition of purchase agreements, automatically increasing your offer by a set amount if another buyer outbids you for the property. While this could work in a bidding war situation, be wary if using such tactics and only do it if confident you can afford the higher cost.

Your agent may suggest writing a letter of intent, which details why you wish to purchase the property and strengthens your offer in a seller's market. Doing this may give your offer more power.

5. Negotiate

Home purchasing can be an emotional and financial undertaking, but that doesn't mean accepting the asking price as-is. No matter if it's a buyer or seller's market, there may be room to negotiate regarding home price, closing costs and loan terms and conditions.

Buyers can negotiate not only on price, but also cosmetic updates or furnishings and moving/possession dates (if required) in order to meet their timelines. Your realtor can help determine what's feasible in your market and where spending most time negotiating may pay off.