Planning on buying a home for the first time or looking for a new home but want the process to go a little more smoothly? This To-Do list may help you achieve just that!
Buying a new home can be a huge step in your life, whether it is your first time buying a home with years of savings or this is just another property being bought. This big step can also be inconceivably more difficult if you tackle the process unprepared, so knowing this, here is a small to-do list that can potentially make this important step in your life a little more simple and streamlined, including getting yourself a Top Real Estate Agent!
1.) Determine an Affordable Price
This is a good place to start for any homebuyer, new or experienced, as you don’t want to start perusing the market before you have a good determination of what your budget is. After all, you don’t want to start scouring the market and find a property that is well out of your grasp. A good place to start with determining your budget is to figure out what your “debt-to-income” ratio is. This ratio is luckily fairly self-explanatory as it's a ratio of monthly expenses versus your monthly income. When calculating this, be sure to include all monthly expenses, including debts like student loans, recurring bills, car payments, or child support payments. Once you have these expenses all accounted for it is all of those accounted-for debts divided by your gross monthly income.
When trying to qualify for a mortgage from most lenders, your debt-to-income ratio should be no higher than 43%. However, remember that 43% shouldn’t necessarily be the number you are trying to spend. Depending on your situation, sitting too closely to that ratio can put you in a position of being “house poor”. This term refers to a situation where a buyer spends so much money on a home that they have little room to play around within their budget. As important a step as buying a home is, you will still want to budget for expenses outside of the home purchase like getting furniture, unexpected repairs that may have to be made, and even having money on the side for a better quality of life should be something you are considering when deciding on a budget for a home.
2.) The Down Payment
The mortgage price is only a single piece of the puzzle that is purchasing and budgeting for a home. Another important piece includes the down payment for a home mortgage. Making a sizeable down payment on your loan can be a great way to save some money over the longevity of your loan. So when deciding on how much to put up in a down payment, here are some things to consider:
A down payment of 20% or more will make you exempt from private mortgage insurance (PMI). This insurance is a fee that a lender can leverage as protection from a payer defaulting on a loan, which means to walk away or abandon a home. While the cost of this fee can vary depending on factors like your debt-to-income ratio and credit score, this is one fee that can be avoided with proper preparation!
A bigger down payment can also very often result in a lower interest rate. This is due to a lower “loan-to-value ratio” decreases a lender’s risk
A larger initial payment towards the principal will also decrease the amount of interest paid over the lifetime of a loan which can save a buyer thousands of dollars
A higher down payment also will make monthly payments smaller as there is that much less of a loan to be paid off
On top of being more financially manageable, making smaller payments on a loan can positively impact your lending power.
Some Tips for Saving:
Knowing all of the benefits that having a larger down payment for a home can provide is sure to make saving money a little bit easier, but here are a few tips on getting started on saving for that big down payment:
Building A Budget: Since you should already be in the process of building a budget to figure out your price range for buying a house, this is also a good time to take track of your financial outflow and plug any holes of unnecessary spending!
Automatic Saving Options: Most banks have a way to set up an automatic system to take out some of your paycheck to be put into your savings account.
Get a side job: This may not be tenable for everyone’s situation but if you notice that you have a good portion of free time available, it’s never a terrible idea to get a simple and temporary side gig to help increase the amount of monthly income!
A good thing about all of these options for saving is that they all can help you increase your credit score while saving extra money for that down payment!
3.) Finding a Real Estate Agent and Pre-approval
Although you haven’t gotten to looking at properties quite yet and may think finding a real estate agent at this stage may be premature, it isn’t. At any point in the process of getting ready to purchase a home, getting a hold of a trustworthy real estate agent can be a lifesaver and make the very involved process of buying a home a little less hectic. A real estate agent can also help with the process of helping you find the right mortgage lender so that you can get pre-approved on a loan. Being pre-approved on a loan helps inspire confidence in a seller that a buyer will be able to go through on an offer made on a property.
However, if you decide that going solo during this process is better for your situation when going through mortgage lenders, be sure to go to plenty of different lenders and allow competition between the lenders to ensure you get the highest and best options available!
4.) Finding the Right Home
This part of the process is a favorite for some while others find this part to be the most overwhelming portion. It’s this overwhelming feature of this part of the process that makes having a real estate agent to turn to so valuable. Weighing in with a local real estate agency or real estate agent can offer insights that you may not have considered on your own. Insights like:
School districts a home sits in
How long a property has been for sale is important as a property that has been on the market longer may have a seller that is anxious to sell.
Help you determine the temperature of the market
Doing your research on the market of the area you’re trying to buy in is important, even if you have a real estate agent, it is important to do your research and visit different properties to get a better idea about the needs and preferences of the home you’re seeking to purchase. Doing your research and looking around will help you build a wider variety of homes and neighborhood qualities and if you outsource to a real estate agent, the agent can then help you narrow down that net of variety you have built over the time of looking at homes.
5.) Making a Smart Offer:
Once you have that property that is just right for you, it’s now time for one of the more technical portions of the process and that is to make a good offer on the property. It’s during this part of the process that having a real estate agent truly shines as they can help go over a set of criteria that will greatly affect how much you should put down for an offer on a property. Some of the criteria they will look at are:
Temperature of the market: Whether a market is competitive or slow will greatly affect the amount an offer should include.
Time the property has been on the market: As mentioned above, sometimes when a property has been on the market for a longer time makes a seller more likely to accept an offer
Whether or not a property already has other offers: If a home already has offers then you will want to make better offers than what has already been made or are less likely to have an offer accepted.
6.) Hiring a Real Estate Attorney
Not all states require you to have a real estate attorney but depending on the situation you are in as a buyer, it may be advantageous to have a real estate attorney ready just in case complex legal situations unfold during the buying process. If you have questions about easement, foreclosures, and short sales are all examples of situations where a real estate attorney’s advice could be invaluable.
Although a real estate attorney may be an additional fee during a time when you are feeling financially overwhelmed it is important to have all of your bases covered during one of the most expensive transactions a person will be a part of in their adult life!
Judging the integrity and condition of every aspect of a home before making an offer can be impossible but that is where the process of home inspections comes into usefulness. Although this fee can fall onto your shoulders, the expense is well worth it as it can be a protection from unforeseen costs and liabilities. Keep in mind that most inspections will show some small issues to be fixed, don’t allow this to dissuade you as these necessary repairs can be used as a bargaining chip during the negotiations on the purchase!
7.) Start of Closing
After inspections clear and there aren’t any massive issues, you are nearing the end of the process and should begin preparations to close. These preparations include making sure that your finances are in order so that all costs associated with the purchase can be paid for.
During the waiting period, the mortgage lender will arrange for a third party to conduct an “appraisal” of the property. If the appraiser finds the home price to be lower than the asking price, the buyer can ask for the seller to drop the price closer to the appraisal price or to assume some of the costs associated with closing.
Another thing to consider during this part of the process is that if you’re considering renovations to the property, seek permission from the owners to seek out contractors who will complete the work. These renovations can sometimes take a long time to schedule and finish so having a good amount of lead time is always a good thing!
8.) Close on the Home
The end of this overwhelming and involved process is almost there at this stage but still have some things to consider and be done. Expect a bunch of paperwork and documents to sign. Luckily, since this is the final stage of the process, this can be an exciting part of the process. When doing this final stage of the process you will need a set of identification and other documents. If you have a real estate agent, they will help you narrow down and specify which documents you will need but here is a small list of items you will need:
Form of identification: Driver’s license or picture ID
Proof of insurance
Checks or cashier’s checks to cover the closing costs
Remember to tackle this final stage with patience as once it is over you will be handed your keys and have successfully taken that big step in your life, so congratulations!
It cannot be stressed enough that doing your due diligence and making the proper preparations during this process is paramount to the success you will find by the end of this process. Lastly, do not be ashamed to reach out for assistance and service as this process is as important and pricey as it is overwhelming and there are countless excellent agents here in Tucson, Arizona that are more than willing to help you during this big step in your life!
