Many people dream of buying their first home, and for some, it can be reduce monthly housing costs to do so. While there is a lot involved in the process of buying a home, it does not have to be difficult or confusing. The biggest thing to remember is that buying a home almost never happens overnight. For most, it will take at least several months to get through the process. Read on to learn how to buy a house for the first time.
Go over your finances. Gather up all of your bills and pay stubs. How much money do you have coming in and how much do you have going out each month? You will need these amounts and this paperwork if you will be applying for a home loan. Two ratios used in calculating how much house you can afford are the front-end and back-end debt-to-income ratios. The front-end ratio simply looks at how much of your income will be eaten up by your monthly mortgage payment, interest, property tax and insurance (PITI) costs. Ideally, it will be 30 percent or less. The second ratio adds up all your monthly debt expenses, including your mortgage, and calculates what percentage of your income will be used to pay down that debt. Ideally, the number will be less than 40 percent. There are many free online calculators that will give you rough debt-to-income ratios. Before you go any further in the process, you may want to run your numbers through a few free online calculators. If you like the results, move on to the next step. If you do not like the results, figure out how you can improve your numbers by reducing your debt or increasing your income, and make those changes before proceeding further.
If you can reasonably afford a house payment (PITI) along with the added costs of home repair and maintenance, the next thing to think about is what kind of home you want and where you want to live. Do you want an attached home such as a condo or townhouse, or do you want an unattached single family home? There are many styles to choose from including, but not limited to split-level/split-entry, ranch, and mobile/manufactured. You will need to consider how many bedrooms and bathrooms you want, along with whether you want an attached garage, an unattached garage, a carport, or uncovered parking, along with how many cars the parking will need to fit. If you have children, you may want to consider what school district you want to live in, and what neighborhoods will put your children in the schools you want. Do you want extra rooms such as a workshop, study/den, home office, playroom or bonus room? What kind of cooling and heating do you prefer? When choosing the kind of home you want there are many things to consider, and it helps to be flexible about some things. Decide what are the most important aspects of the home you are looking for, and be sure if you enlist the aid of a Realtor, that her or she understands the importance of those particular aspects.
If you need financing, gather up all of your financial paperwork. This will include previously filed taxes, pay stubs, bank statements, investment and savings information and copies of your bills along with the total amount of debt owed with each. If you do not need financing, skip the financing steps and move on to the other steps.
Contact multiple mortgage companies and get appointments with them for free pre-approval. The difference between a pre-qualification and a pre-approval is that a pre-qualification is an estimate by the mortgage company as to what they think you can afford to pay for a home based upon a cursory look at your finances. A pre-approval is a commitment from a mortgage company to finance you for a certain amount, provided there are no surprises. For a pre-approval, your finances and credit have been checked. A pre-approval carries a lot more weight with sellers and Realtors, and is better for a buyer to have than a pre-qualification. Though the pre-approval consultation may be free, there may be a charge for running a credit check. Ask them in advance if there is any cost involved or if the pre-approval is completely free of charges. Some brokerages will waive the credit check fee altogether or just put the charge in with the closing costs bill. While with the various mortgage brokers, ask about what types of financing they think will work best for you, and get the specifics from them regarding the terms, interest rate and requirements. Be sure to ask about community, state or federal grants you may qualify for. A first time home buyer program through HUD requires participants take their first time home buyer course, and get the certificate from the course before funds will be released.
If you need to take classes before you can be financed, begin them while you take on the next step--finding your home. If the classes are offered free, they may be good to attend even if you will not be getting the associated grants, because they generally have experts on hand to ask specific questions you have during the process.
With your pre-approval letter in hand, begin your search for a home. Search on your own, or enlist the aid of a Realtor. Generally, the Realtor’s commission comes out of the sale price of the home so it is technically the seller paying their commission.
Remember that every home, even newly built homes, will have a few things wrong with them that will need to be fixed. The most important thing to look at is the foundation elements of your home: the structure, the wiring, the plumbing and the heating/cooling. Carpet, paint/wallpaper and such can all be changed easily and relatively inexpensively. If there are problems with the structure or systems, you could be buying a money pit. When you find the home you want to buy and can afford, arrange to pay for a home inspection. A licensed home inspector will give the home a thorough check and write up a report that will let you know in advance what you can use to negotiate price over, and what you will need to consider or fix should you purchase the home. Have the inspector physically walk you through the home after the inspection. If you have friends or family who are qualified in contracting, plumbing, wiring, heating/cooling and other home-related issues, arrange for them to come on the walk-through with you. Take notes, ask questions, and get estimates of what will be involved as far as work and cost to make the necessary repairs. You can use this information in your price negotiations as well as in your final decision as to whether to buy the home or not.
Once you have chosen your home, prepare yourself for frustration. For many people this part of the process is actually the most stressful as they have to go through negotiations, more paperwork, problems popping up, giving notices, preparing to move, and dealing with the little surprises the will most certainly occur during this time period. Signed paperwork does not ensure there will not be problems or that the process is complete. Don’t be obnoxious about it, but do track the progress of your broker and Realtor as the process progresses. Sometimes things get overlooked, misfiled, and pushed aside. Be kind, be patient, and be understanding.