Home Buying Guide

Having your own home is a wonderful luxury to have. It keeps you secure from paying heaps of money to the landlords and you get to live in a place that’s actually yours. 

Buying their first house is the dream for many people. However, it’s not easy for everyone to achieve. There’s the down payment, qualifying for a mortgage, and navigating the whole complicated process. Not to mention, it requires some serious financial planning. But that’s no reason to give up on your dream.

You can use this guide to learn more about the home-buying process and set yourself up for success. In this blog post we’ll cover key terms you need to know, the general steps to buying a house, home-buying tips, and more. Keep reading or use the links below to get on the right track to buy a home.

• Getting Ready to Buy a House
• Key Home-Buying Terms to Know
• 5 Steps to Buying a House
• Special Considerations to Keep in Mind
• 5 Tips for Making the Home-Buying Process Easier
• Take the Next Step to Become a Homeowner

Getting Ready to Buy a House

According to the National Association of Realtors (NAR), out of all homebuyers, 34% are first-time homebuyers. If you are also planning to buy a home for the first time, then you must have thought about some of the important aspects regarding this huge decision:

• What type of home do you need?
•  Are you ready to buy a home?
• Do you have enough monthly income to afford mortgage payments?
• What is your credit history?
• Do your savings exceed the down payment of your home? 
• If you take a loan to be a home buyer, how much of a mortgage can you afford?

Inflation has dramatically affected home buying, so that’s important to consider too. It’s important to invest wisely and be honest with yourself when you’re evaluating your financial circumstances. It might mean that you have to wait a bit longer, but that just means you have more time to get your finances in order.

Key Home-Buying Terms to Know

Before you think about how to start buying a house, there are some terms you should know, including:

• Closing Costs: Fees you pay when you make a real estate transaction. It can be both from the seller and a buyer.
• Down payment: This is a portion of the total amount that a buyer has to pay upfront when buying a new home.
• Escrow: An agreement in which a third party is involved in buying or selling a house.
• Mortgage: A home loan. There are many types of mortgage loans.
• Offer: Proposal made by the selling party or the buying party while selling or buying a home.
• Realtor: A real estate professional who assists in the buying and selling of houses.
• Credit score: A credit score is what lenders use to determine your creditworthiness.
• Credit history: A detailed record of how much debt a person has taken and their history of paying it back.

You’ll likely hear these terms used by your lender, the real estate agent, and others involved in the home-buying process so having a basic understanding of what they’re referring to will be helpful.

5 Steps to Buying a House

You don’t just plan to buy a home and simply invest in it. It is actually a lengthy procedure, but this an overview of the general steps that are involved.

1. Look For a Home That Fits Your Needs

When you have decided what kind of home you want, start finding homes available for sale in the market; go ahead and contact a real estate agent. Approximately 86% of homebuyers in the USA use real estate agents to buy new homes, and there’s a good reason for that. They’re a major asset to helping you find and buy a house.

Drive through the places offering a suitable home or try searching online for the listings. A great idea is to search for on-sale signs around the neighborhood or the area you want to buy a house in. You can also discuss your search with your family, business colleagues, and friends to see if they might have any suggestions. Perhaps a colleague has a nice house already up for sale?

Keep in mind not to visit any house without taking a realtor or their reference with you. If you have a limited budget, you can look for houses that need renovation but are suitable for living until you have the money to fix them up. However, it is recommended to buy the best house for first-time buyers that can help them update their property status. If you’re thinking about purchasing a foreclosed home, make sure you see it first so you know what you’re getting.

2. Determine Your Financing Options

Check your credit score because it’s one of the key factors lenders consider when determining whether you can repay the mortgage or not. Better credit history means that you can have a chance to get a loan at better terms. You can check your credit score with Mint.

Create a budget before buying a home to determine what kind of property you can afford. You should consider all the costs that go into buying your first house. Make a home budget template and use a home affordability calculator to make sure you’re financially prepared.

Typically, you’ll need to make a down payment which means you’ll need to save up. If you want to afford paying mortgage insurance, you should strive to provide a 20% down payment of the house’s total price. As a first-time homeowner, you may be able to loan through the FHA, which means you can get a loan with as little as 3.5% down payment.

3. Make an Offer

Once you’ve looked around and chosen the home you want, you’ll have to make an offer. You want to make it as alluring to the seller as possible so they’ll take your offer over others—this is especially true in highly competitive home-buying markets.

Your real estate agent can help you make an offer that includes all the necessary documentation, like your pre-approval letter, proof of credit history, price, and how much you’re putting toward the down payment.

The seller might propose another offer that might be contradictory to yours. Respond to it if you like it; otherwise, reject it and move on. You might not think so, but there’s another great house out there waiting for you. So, don’t be disappointed if certain offers fall through.

4. Inspect the Home

The overall picture of the house is not enough to know about its structure and mechanical issues. Therefore, you must inspect the home first and ask the seller for repairs. In case they disagree, you can walk away and cancel the contract. It is recommended to take a home inspector with you and mention the duration of inspection in the contract.

Look for a home inspector wisely. You can search for a well-experienced individual online and ask about their past clients for reference. Plus, make sure to check the inspection list to confirm that everything is covered. If you notice any issues, ask the seller to pay the maintenance cost first.

5. Close The Deal

Review all the paperwork after reading the contract and accompanying documents. You can ask questions about the loan terms and fees to confirm everything. Do not feel hesitant when it comes to asking questions. You’re making a big financial decision when buying a home. Ask all the questions you want!

Check your personal information and sign the papers carefully after completely understanding all terms and conditions. Take the keys, entry codes, etc. once the deal is complete. And don’t forget to store your paperwork in a secure place. 

Congratulations! You are a homeowner now.

Special Considerations to Keep in Mind

Home buying might look easy for some, but there are many factors that you should consider first to ensure you don’t experience the ramifications of making a bad decision. This home buying guide highlights some of the key considerations you should keep in mind below.

1. Know How Much You Can Afford

Determine how much you can afford based on your income, expenses, savings, debts, and assets. If you need help figuring out how big a monthly payment you can afford, speak with a financial advisor rather than your banker. Bankers have incentives to make larger loans, and the math they use to determine what you can afford can lead middle- and working-class families to believe they can afford more than they comfortably can.
Generally, you should spend no more than 30% of your gross monthly income on housing. You’ll need a down payment of anywhere from 5% to 20% of the purchase prices (though this can be as little as 3.5% for FHA financing). Online mortgage calculators can give you rough estimates of monthly payments based on mortgage size, interest rate, and term length.

2. There Will Be Hidden Costs

Your monthly payments will not only include loan costs, but also costs like property taxes and homeowner’s insurance. You may be required to buy private mortgage insurance depending on the size of your down payment. The home buying process also incurs many costs. Closing costs may be 2% to 3.5% of the home’s purchase price and covers things like attorney fees and title fees.

Next step: Sign up for Mint and start working on your financial goals like home ownership.

3. Know What Kinds of Loans You Qualify For

Your financial and credit history determine the type of home loan for which you qualify. Lenders examine pay stubs, tax returns, and credit scores when determining eligibility. You’ll qualify for better terms if you’ve been employed at the same job for several years, and lenders treat salaries differently from commissions and bonuses. 

The interest rate you qualify for depends on your credit score. You should obtain free copies of your credit reports and check them thoroughly for errors before applying for a mortgage. Once your lender has all the necessary information, you should receive a Good Faith Estimate spelling out the details of your loan so you know exactly what you’ll get once you sign the papers.

Give complete information to the lender and make sure you keep records of everything.

You can also apply for construction loans to build a home from the ground.

4. Consider Mobility

If your current career path or relationship could take you to another city, state, or country in the next five years, you should think extra carefully about the wisdom of purchasing a home. There’s a chance that you could be stuck having to sell a house in a slow market, or you could end up turning down career opportunities because you feel anchored to the place where you purchased a home. 

Once you consider closing costs and the costs of selling again, you tend to come out better financially by renting if you think you might be moving within five years. 

Reconsidering? Read through our guide to help you decide whether you should rent vs. buy right now.

5. Choose Your Real Estate Agent Wisely

It’s important that you choose a real estate agent with whom you can communicate easily and who will work on your behalf once you find a house you want to buy. Learn about their commission structures and how familiar they are with the area in which you want to find a home. 

Ask questions like how long they’ve been in real estate, and try to get a feel for how easy they are to reach and talk to. You’ll be spending plenty of time with your real estate agent, so take the time to choose carefully.

6. Understand Closing and What Happens Afterward

At closing, your realtor, lender, and an attorney will meet and tackle a big stack of paperwork. You’ll be walked through every page so that you understand what you’re signing. During closing you’ll go through all the paperwork until everything has been initiated and signed. 

When it’s over, you’re given your copies of the paperwork and the keys to your home. After that, you can enjoy the tax benefits and generally favorable investment characteristics of home ownership!

Take note; in a survey, 29% of millennials reported that they thought qualifying for a mortgage was very tough. However, reliable budget tools like Mint can help you set financial goals like mortgage applications, saving up a down payment and budgeting your money carefully so home ownership doesn’t overwhelm your finances. Mint has your back when you’re getting your finances on track for big purchases like your first home.

5 Tips for Making the Home-Buying Process Easier

A step by step guide to buying a house isn’t complete with some tips to make the process easier. Keep these tips in mind as you move through the home-buying process:

1. Visit multiple homes before selecting a home to buy.
2. Spend time finding an experienced real estate agent.
3. Keep your goals clear.
4. Don’t try to hide your financial situation from the lender.
5. Make your offer wisely and maintain the health of your credit scores.

Take the Next Step to Becoming a Homeowner 

Buying a home is not difficult at all (if you know the right way to go about it), and we hope you got to learn useful information after reading this home buying guide. Take note; you have to keep your credit history of applying for a mortgage and choose an excellent realtor to make your work easier.

If you face difficulty managing your financial options, you can use Mint for assistance. Mint can help you in setting goals like saving up for down payments. Mind also has your back when it comes down to making significant purchases like your first home.

Sign up for Mint and start working on your financial goals like home ownership.

Sources: Investopedia | National Association of Realtors | Statista | The Motley Fool