Buying a home is no simple feat. It is a very long and expensive, not to mention
stressful, process. But before you buy a home, or even start looking, you'll
need to familiarize yourself with the main steps toward home ownership. Follow
the information below, and you'll be on track toward owning a home.
Get Your Finances in Order
Perhaps the most
important thing to do before buying a
is to make sure you will be able to afford it. You don't want to go
through the process of buying a home only to realize down the road that you
won't have enough money. By knowing what your financial situation is, you can
get the best home for your budget. Aside from that, any loan provider will look
into your finances to determine whether they will give you a loan or
Mortgage lenders will be more willing to give you the loan if
your monthly debt load is under 36% of your income. That percentage will include
the 25-28% of your income that would go toward monthly
. Thus, all of your other debts, like student loans, car
loans, and credit card payments, should ideally only comprise 8-10% of your
income. If these expenses comprise more than this percentage, you should find
ways to reduce your monthly spending.
It is also good to have some money
put aside for a down payment. Though you could get a mortgage by putting as
little as 5% of the total cost of the home down, you will probably end up paying
higher interest rates. If you can save for a 15-20% down payment, you will get a
much better interest rate.
Get Familiar with Mortgages
In addition to figuring
out your financial situation, it will be smart to familiarize yourself with mortgages
before you try to get one. Since your home loan will be such a big part of your
life (you can spend up to 30 years and a lot of money paying it off), you'll
want to be as informed as possible.
Firstly, you should know about the
different types of mortgages available to you and what each type involves.
Though there are several types, the most common are found below:
- Fixed-rate mortgage - This is the most common type of mortgage. In
fact, 70% of home loans are a fixed-rate mortgage. With this option, the
interest rate will stay the same for the entire term of the loan. This way, you
will know what your monthly payment will be each and every month.
- Adjustable-rate mortgage - With this type of mortgage, your interest
rate can change based on market conditions. The interest rate for
adjustable-rate mortgages will generally start out low, with the assumption that
it will increase over time.
- Government mortgage - For first-time homebuyers or those with low
income, a government mortgage may be your best option. These loans are
guaranteed by the Federal Housing Administration (FHA) and are easier to qualify
for than the other loans. They can be attained with a down payment as low as 3%
and generally have lower interest rates. There are also government mortgages
available to those who are veterans or living in rural areas.
your finances, you should select the type of mortgage that best meets your
Get Preapproved for a Mortgage
Another common step in the
home-buying process is getting preapproved for the mortgage. In this process,
the lender will examine your financial situation to determine how much they will
let you borrow. Although getting preapproved isn't required to own a home, doing
so has plenty of advantages:
- By getting preapproved, you'll have a good idea of what you can afford.
- This will save time as you search for a house, since you can narrow down
your search to homes within your budget.
- By getting preapproved, you will have better bargaining power to negotiate
the price of a home you'd like to buy. Since you have proof that you are in good
financial standing, you may be able to get a home for less than the listed
- Since the mortgage lender will have already examined your financial
situation and preapproved you for the loan, you can close on the home more
In order to get preapproved
for a home loan, lenders will look at your credit
. Though each lender has different standards for granting preapprovals,
your credit score should be above 650. In addition to your credit score, lenders
will examine your finances. As mentioned above, they'll examine your debt-to-income
to determine whether you can handle the financial burden of buying a
Though there are many advantages to getting preapproved,
there is at least one thing to look out for. Just because you get preapproved
for a loan, this doesn't necessarily mean that you'll be able to afford a home.
You could very well get preapproved for a loan that is too big, which could lead
to you defaulting on the payments and potential foreclosure
Finding a Home
Once you have ensured that you can afford the
house, selected the type of mortgage that best meets your needs, and gotten
preapproved for the mortgage, you can shift your focus to looking for a home to
buy. You probably already have a good
of what type of home you're looking for. After getting preapproved,
you'll have a better idea of what you can afford in a home.
housing needs and price range in mind, you can start looking at homes in print
or online real estate listings or by simply driving around a desired
neighborhood. If you decide to work with a real
, he or she can be a big help in finding the right
Once you have decided on a property, you will need to make a formal
offer (which your real estate agent can help you with). If your offer is
accepted, then you will be well on your way to owning a home. Keep in mind,
though, that there are additional costs involved as you finalize the purchase of
your home. In addition to the down payment, you'll need to pay the fees for your
mortgage, relocation expenses, attorney fees, and any other costs involved in
Buying a home is a very complicated process; these are just
the basics of getting one. By figuring out your finances, studying the different
types of mortgages, understanding the preapproval process, and knowing how to
find that perfect home, you can have an easier time procuring a loan and buying