“A house is more than a shelter. It should uplift us spiritually and emotionally.”
These are the immortal words of John Saladino, an American interior designer, garden designer, and furniture design wizard. For the past six years, the American housing market has been experiencing exponential growth. Although the number of investments in real estate has begun declining, many people are still investing in homes.
Despite changing generational attitudes towards consumption, buying a home remains one of the single biggest milestones in most people’s lives. At Zumbly, we want to help you find the best deal for your price range. Here’s our guide for everything you need to know when buying your first house.
Ready to Buy?
This is a question that plagues those who dream about owning a home: How do you know if you are ready to buy? Simple – when the following factors no longer hinder your progress.
Any type of loans from student to auto loans will hamper your ability to access financial aid, in turn hindering your ability to purchase a home. A loan of any form already signals to lenders that the individual doesn’t have enough money to begin with, and indicates a higher level of risk. Lenders will always look at the credit score and credit history to tell whether they can trust the borrower with their funds. A credit score of 700 and above is typically fair.
Monthly mortgage payments
Can the individual make their monthly payments towards the mortgage? For most people, their mortgage payment is probably similar to what they’ve been paying in rent anyway. However, that doesn’t factor in additional ownership costs like property taxes, city assessment costs, water, insurance costs, and sewerage.
As a renter, these costs fell upon the landlord to pay but as a homeowner they fall on the individual to pay. These costs add significantly to the monthly payments that accompany the mortgage.
Down payment lump sum
A down payment is the up-front lump sum of money paid towards the purchase of a house at the begin of the process. It significantly reduces the amount of money one ends up borrowing and it’s typically up to 25% of the total value of the house.
The down payment proves to lenders that the borrower has their own money. Ultimately, the larger the amount paid on the down payment, the less the amount borrowed to finish the house payment.
Buying a house is always a good idea when you’re ready to settle down and put down roots. The home provides stability for a family and builds equity. Settling down doesn’t necessarily mean starting a family, but single people can settle down where they set up their businesses or near loved ones.
The process of buying a house
1. Save up
The process of acquiring a house is not just time-consuming, it’s also a financial drain. So before even shopping for a house, one must save money for the down payment and all other relevant payments. Apart from saving, one must also ensure that their credit score is good – which means all pre-existing loans are paid off to reflect a pristine credit history.
2. Get pre-qualification or pre-approval
It is crucial to get pre-approved or pre-qualified to determine what type of house one can afford and the amount of loan they have access to. For pre-qualification, the borrower must provide financial information regarding savings, income and any types of assets or investment they may have. This information enables the lender to ascertain how much they can lend without taking unnecessary risks.
Alternatively, the lending institution will pre-approve the borrower for credit, meaning they will perform a background check to verify the financial information given to them. Once this is verified they will approve a certain amount of credit based on the amount from the financial assets the borrower has.
3. Hire a real estate agent
Hiring a professional real estate agent is crucial for first-time buyers. Not only are they walking encyclopedias on the real estate laws and regulations of the locale, they’re resourceful and come equipped with much-needed negotiation skills.
The purchase of a home involves a lot of paperwork and fine prints which can go unnoticed to the lay eye. It’s important to have an experienced hand to guide you through the ins and out of owning property.
4. Identify the house
It’s time to shop. This is perhaps the second-best part of the process (the best is actually owning the house). With some recommendations from the real estate agent, there will be appropriate houses to look at in your preferred location. The agent will send a list of houses to choose from and dates for open houses or a pre-arranged visit.
5. Make an offer
Once the house is identified, making an offer should follow soon after. The offer opens the door to communication with the seller and a possible sale. To quote Koki Adasi, real estate agent extraordinaire, “The house you looked at today and want to think about until tomorrow, might be the same house someone looked at yesterday and will buy today.”
Time is always of the essence, especially if the house is located in a popular neighborhood.
The Inspections and Appraisals
Lenders always insist on an appraisal of the property they are financing to establish the value. This ensures that should the homeowner default on the mortgage payments, they can still sell the property to recover their money. The borrower will pay for the appraisal and the report is sent to the lender.
One more thing to remember with appraisals it that if the amount in the appraisal is less than the sale price, the lender will give you the lower amount. But if the property is appraised at a higher price the lender will give you the loan amount initially asked for.
Buying a house is a crucial step towards establishing permanent financial security. However, it’s always recommended to take one’s time and not make any hasty decisions – it’s a marathon, not a spring. What may look excellent on the outside may have tones of structural issues like plumbing, bad gutters or leakages among other things.