Buying a home can be the biggest purchase a person can make in their lifetime. For first-time home buyers this can be the most overwhelming and stressful experience they could go through. Here is a general breakdown of the steps you need to take to buy your home.
The first step is to figure out how much can you afford. The most common formula used to figure out how much to spend on your home purchase is equal 3x your annual income. Keep in mind, your mortgage payments together with your other monthly bills should not exceed more that 36% of you monthly income.
Next, you will want to save for a down payment. Depending on the loan you qualify for, you will need anywhere between 3%-30% for the down payment.
Once you have your price in mind and a down payment saved, get a pre-approval letter. This is incredibly important to have before you start your home search. You can get a pre-approval letter from any bank, but you are not locked into an agreement to get your mortgage from that bank. Having the letter can mean the difference between getting your dream home or getting lost in a pile of other offers.
Understand that not only will you need the down payment for your mortgage but closing costs and the other costs that come up in buying a home such as lawyer fees, inspection costs, etc.
Once you have the price and monies ready, begin a list of wants verses needs for you home. Do you really need walk-in closets? How important is a fireplace? Is size or location the top priority?
Now you will want to start talking to Realtors. Make it clear to your Realtor what your price range is and what you want and need in your new home. There are many different reasons to choose a Realtor: their experience, your past relationship with them, accessibility, etc. The most important factor is an understanding of what you want and for you to understand what your real estate agent will do for you.
Now that you have your priorities and a Realtor to help you navigate the real estate market, start seeing places in person that fit your criteria. Don’t feel discouraged if or when your lists of wants and needs change. You may go into this process with one idea of what you want and then you end up with something completely different.
Once you find the home for you, talk to your Realtor about making an offer. Your Realtor will explain what is the best price to offer based on a comparative market analysis. This will show you what comparable properties have recently sold for. Whether it is a buyer’s market or seller’s market, listen to your Realtor and make sure you understand the data they are presenting you. The comparative sales indicate market value for the given property which will dictate the best amount to offer. Your Realtor will help guide you through the contingency addendum. The contingency addendum protects the buyer’s interest and deposit money and allows the buyer to re-negotiate or withdrawal the offer based on the results of inspections preformed during the due diligence period. It’s important to do your due diligence about the house you are trying to buy but the more unnecessary contingencies you put in your offer, the less attractive your offer becomes to a seller. If you check off any contingency, you are not only costing yourself more money by having these tests done, but you are inadvertently telling the seller that you want as many ways out of buying the property as you can get. Many sellers would prefer to go with another buyer or even leave the property on the market instead of accepting an offer they think will fall through.
After your offer is accepted this is where the paperwork starts and lawyers become involved. This is when you actually preform your due diligence and have your potential home inspected and tested. If everything comes back to your satisfaction, time to sign the Purchase and Sale (P&S) agreement and to start choosing paint colors and furniture placement.