Comprehensive Guide to Buying a Home

It's official. You're ready to make a big move and buy your first home. Congratulations! Buying a house is a huge decision, but it's also exciting. There's an incredible amount to think about - from finding the right neighborhood to budgeting for renovations - and it can be tough to know where to start. Don't worry, though; this comprehensive guide will walk you through every step, from getting preapproved for a mortgage to closing on your new home. Determining your Purchase Power The first step in buying a house is figuring out how much you can afford. Determining your purchase power will help you narrow down your search to homes that fit within your budget. Several factors go into determining your purchase power, including: Your income: Lenders will look at your income to see how much you can afford to borrow. Include each source of income, such as salaries, bonuses, investments, and child support.Your debts: Your monthly debt payments (including credit card bills, student loans, and car payments) will be deducted from your income to figure out how much you have left over for a monthly mortgage payment. Ideally, lenders like to see a debt-to-credit ratio of 36% or less and a debt-to-income ratio of 43% or less.Your down payment: The more money you have for a down payment, the lower your monthly mortgage payments. An ideal down payment is typically 20% of the home's purchase price because it helps you avoid paying for private mortgage insurance (PMI).You can get in for less, however. For example, a VA loan offers some veterans and active military members the option of buying a home with no down payment, while other programs like FHA loans allow for down payments as low as 3.5%. Also, as a first-time homebuyer with a conventional loan, you could pay as little as 5% down.Your credit score: Your credit score is one of the most critical factors when determining your purchase power. A higher credit score shows the lenders that you're a lower-risk borrower, which could lead to a lower interest rate on your mortgage. While you can find a lender that will give you a mortgage with a lower credit score, a score of at least 720 will get you the best interest rates.Once the lender pulls your credit, don't do anything that could lower your score. For example, when you are offered a new credit card to save 10% on your daily purchases, say no thank you. Don't miss any payments, and don't charge anything new if you can avoid it.And once you are under contract, this is even more important. For example, if you buy a car, lease furniture, or take a vacation, you could lose your ability to qualify for the mortgage.Finding a Real Estate Agent Finding a Real Estate Agent While you don't need a real estate agent to buy a house, working with one can be helpful - especially if you're a first-time homebuyer. A good agent will have an intimate knowledge of the area you're looking to buy, and they can help guide you to neighborhoods that fit your budget and needs.Your agent will also be able to help you navigate the home-buying process, from submitting an offer to negotiating with the seller. And, perhaps most importantly, a good agent will be looking out for your best interests, not the seller's interests.The best way to choose an agent is through a friend or family referral, selecting someone known in the neighborhood you want to buy in, or checking Google reviews for top agents in the area. Read the reviews. You deserve the best representation. Making a Wants and Needs List You've been dreaming of this day for years. Finally, you've saved up, you're preapproved, and now it's time to start house hunting. But where do you even begin?There are so many neighborhoods, styles of homes, sizes, and prices - it can be overwhelming. Making a wants and needs list is an essential first step in the home-buying process.Start by creating two lists: one of the things you need in a house and another of features that would be nice. Your needs might include:-A certain number of bedrooms and bathrooms-A garage or off-street parking-A specific school or district-A home office-A certain amount of square footage On the other hand, your wants might be:-A fireplace-A fenced-in backyard-Granite countertops-Hardwood floors-Stainless steel appliances The key is to be realistic. It's unlikely that you'll find a home that has everything on your list, so prioritize your needs and be flexible on your wants. Consider the future when making your lists. For example, if you plan on starting a family in the next few years, you might want to buy a house with more bedrooms than you need now. Choosing a Neighborhood The neighborhood you choose will be just as important as the house you buy. After all, you're not just buying a home - you're buying into a community.When looking for a neighborhood, there are a few things to keep in mind:Location: How close is the neighborhood to your work, schools, and other important places?Safety: What is the crime rate like? Your agent is prohibited from expressing opinions on "good and bad" neighborhoods. It will be on you to go online and do some research.Amenities: Does the neighborhood have parks, playgrounds, restaurants, or other amenities you might want?HOA: If the neighborhood has a homeowners association, what are the dues and restrictions? Are you allowed to rent out your home, build a pool, or ride skateboards on the sidewalks? For some, these can be deal-breakers.Schools: What is the quality of the schools in the area? Even if you don't have children, this can be important, affecting your home's resale value.The best way to get an impression of a neighborhood is to spend some time there. Drive or walk around on different days and times to see what it's like. Talk to the neighbors and see if they're happy with the area. The Home Tours Now that you've chosen a neighborhood, it's time to start touring homes! The home tour is often the most fun part of the process, but keep your head on your shoulders and don't get too attached to a single property.Before going on the home tour, spend some time online looking at pictures and reading descriptions. Researching ahead of time will help you narrow down your search and make the most of your time.When you're on a tour, pay attention to the important things to you. If you have made a list of "must-haves," make sure the home meets those criteria. Once you have seen several homes, you'll begin to forget which house was which. Take notes and pictures. Pay attention to things like:The home condition: Are there any obvious repairs that need to be made?The layout: Does the home flow well, or are there a lot of confusing changes in direction? Are there home additions?The neighborhood: Spend some time walking around the block. Are the homes well-kept? Do the neighbors seem friendly?The noise level: Is the home on a busy street? How close are the neighbors?After the tour, spend some time thinking about the homes you've seen. Which ones did you like the best? Why? And which ones would you want to put an offer on? Making an Offer Once you've found the perfect home, it's time to make an offer! Making an offer can be a nerve-wracking experience, but remember - you're in the driver's seat if it's a buyer's market. If it's a seller's market, you'll have less room for negotiation.When making an offer, there are a few things to keep in mind:Your budget: Don't forget about your original budget! Just because you found your dream home doesn't mean you should go over your budget.The market: Have homes in the area been selling for more or less than the asking price? This data will give you a good idea of how much wiggle room you have.The home's condition: If the house needs a lot of repairs, you'll want to factor that into your offer.Your timeline: Are you in a hurry to close on the home, or do you have some flexibility?Your agent will provide you with an estimated value of the property. Then, depending on the market, you'll notice a range and can offer on the low side, in the middle, or the high side.Once you've made your offer, the seller will have a few options. They can accept your offer, reject it outright, or make a counteroffer. If they make a counteroffer, you can accept it or continue to negotiate.You may be asked to make your "best and final offer in a heated bidding war." Once you've reached an agreement, it's time to move on to the next step - a home inspection! Home Inspection A home inspection is critical when buying a house. The home inspection is your chance to dig into the property's condition and make sure there are no major red flags.Your home inspector report on things like: Structural problems Water damage Mold Pest infestations Electrical issues Heating and cooling system problems The home inspection is also an excellent time to ask questions. For example, how old is the roof? When was the furnace last serviced? Are the solar panels under contract?Once the inspection is complete, you'll receive a report detailing any problems with the property. If there are significant issues, you can use this report to renegotiate your purchase price or walk away from the deal entirely.You're almost ready to close on that dream home if everything looks good! Closing Costs Closing costs are the fees associated with buying a home. These can include things like: The appraisal fee Home inspection fee Attorney's fees Lender's origination fee On average, closing costs are about 2-5% of the home's purchase price. So, if you're buying a $200,000 home, you can expect to pay between $4,000 and $10,000 in closing costs.Most lenders will give you an estimate and request to see those funds in a bank account while you are under contract. This requirement is to ensure you have the money available at closing. Homeowners Insurance In most cases, if you are getting a loan, you will be asked to choose a homeowners insurance company.You can look around for the best insurance rate, but make sure you're getting enough coverage to rebuild your home if there is significant damage down the road. Make sure your insurance covers things like: Water damage Theft Wind damage Fire Most people choose to escrow their homeowner's insurance payments with their mortgage company. Every month, along with your mortgage payment, escrow will set aside a little extra towards your homeowner's insurance bill.Doing it this way makes it easier to pay your bill when it comes due, and you won't have to stress about saving up the money ahead of time. Homeowners Association Dues If you're buying a home in a planned community or condo complex, you'll likely have to pay dues to the Homeowners Association (HOA).These dues maintain common areas, like swimming pools or gyms, and can also include trash service and security.Dues vary widely, so be sure to ask about them when considering a property.You'll also want to know if any special assessments are being considered or scheduled. For example, the HOA may charge additional fees to all homeowners in the community for things like major repairs or capital improvements. Closing on the Home Finally, it's time to close the deal. The closing happens when the deal is finalized and you become the legal owner of the property.In some states, all papers are signed and recorded, and keys are distributed on the same day. You'll go to the closing table a few days before the sale records in other states. You'll get your keys once it records.Ask your agent which type of closing you will be experiencing.Schedule your utilities in advance, so you aren't walking into a dark and cold house on closing day!At closing, your agent, the seller's agent, and representatives from the title company might be there. Depending on the property location, it could be an attorney, the sellers, and you. In another state, it might just be you signing in person. You may also choose to have a notary bring the paperwork if permitted. You'll sign a ton of paperwork, including the deed to the home and the mortgage documents.You're officially a homeowner once everything is signed, sealed, and recorded! Buying a home is a rewarding experience. Unfortunately, it can also be scary and exhausting. The more empowered you are with the knowledge of the process, the less overwhelming it will be.