Homebuying remains at the top of every American’s wish list, that is, it is part of the bigger American dream. Buying a home can be hectic as there are several tasks, requirements, and steps that you have to undertake while avoiding getting yourself into an expensive mistake, especially for first-time homebuyers.
While homebuying is a big decision, it does not have to be complicated especially for first-time homebuyers. Fortunately, first-time homebuyers enjoy certain benefits that are meant to encourage them to continue investing in the real estate industry. It’s crucial to know your budget with prior considerations in mind such as the cost of selling your home, the type of mortgage you can get, the amount you can borrow and what home you like.
The United States Department of Housing and Urban Development (HUD) has several benefits like state programs, tax breaks, and federally-backed loans in place for first-time homebuyers. Therefore, while it is natural to be emotional about your home buying dream, ensure that you make rational choices instead of getting trapped in the dream of owning a home. We have prepared a brief but elaborate guide on the top factors that homebuyers must consider before purchasing a home.
Continue reading to learn more about these considerations and why they are a crucial part of the home buying process.
1. Financial Health
It is important to do a thorough audit of your finances before clicking through pages of online home listings. The main reason for the audit is to assess whether you are financially prepared to take the big step of owning a home. Financial wellbeing is among the top considerations for owning a home and it must be treated with seriousness. The audit can take place in the following ways:
- a) Look at your savings. Do not contemplate home buying if you do not have an emergency savings account with three to six months of living expenses. Buying a new home comes with upfront costs which include the down payment and closing down payments.
- b) Review Your Spending. You must consider how much you spend each month and in the calculation of your monthly spending, you must include things like utility costs, food, car maintenance, and payments for student debt, clothing, kids’ activities, retirement savings, entertainment, regular savings, and miscellaneous items.
- c) Check Your Credit History. You will need a good credit history of paying your bills on time to qualify for a home loan. Remember lenders nowadays prefer limiting house expenses to about 30 percent of borrowers’ monthly gross income though this varies with the local real estate market.
2. Type of Home and Specific Features
Fortunately, when it comes to buying a home you have multiple options to choose from (duplex, single-family house, multi-family house with two to four units, or a condominium).
Each residential property option has its advantages and disadvantages depending on your homeownership taste and preference. Thus, you need to choose a home that meets your specific homeownership goals.
In terms of specific features of the home, your purchase should try to meet your goals and wants as possible. Therefore, your list needs to include basic desires like size, neighborhood, bathroom layout, and even smaller details like a kitchen fitted with functional and durable appliances. To get a sense of the price and availability of residential properties with features crucial to you, you need to scan various real-estate websites.
3. What Mortgage do you Qualify for?
Before you start scanning real estate website homes, you need to consider how much mortgage you qualify for.
For instance, while you may think that you can afford a $450,000 home, the lenders might think you are only good for a $200,000 home based on factors like your debt, monthly income, and how long you have been at your current job.
Additionally, most real estate agents might not be ready to work with you if you haven’t disclosed how much you can afford to spend. Therefore, you need to get approval for a home loan before placing an offer on a home. You can get pre-approved by applying for a mortgage and completing the necessary paperwork.
4. How Much Can You Afford?
While a bank may be ready to lend you $300,000, it does not mean that you should borrow that much.
You need to consider how high the property taxes in your chosen neighborhood are, how much borrower’s insurance will cost, the cost you anticipate spending on maintenance and improvement of the house and the closing costs. Thus, home shopping with a smaller amount will make your financial life more flexible.
5. The Guide During the Homebuying Process
A real estate agent is the best shot for home buying process guidance and they will help you locate a home that meets your needs and are within your price range.
Once you’ve chosen a home to buy, they will negotiate on your behalf and be responsible for the entire purchase process like making an offer, getting a home loan, and completing the paperwork. A good real estate agent through their expertise and experience will prevent you from costly mistakes.