ABC’s of Buying a Home
Buying a home is one of life’s most exciting decisions! Although it may seem complicated or even scary, it is a very manageable process if you take it one step at a time.
Aim for a home you can really afford.
The rule of thumb is that you can afford a house that runs about two-and-on-half times your annual salary. If your salary is $50,000, and your credit is good, you could look at homes selling for $125,000.
Questions surrounding “down payments” can be easily answered as well. One attractive option is an FHA-backed loan that allows you to buy a house with as little as 3% down. Conventional loans frequently require a higher percentage of the total home cost as a “down payment.” Taking advantage of the FHA loan program is a great way for first time buyers, or anyone with a shortage of down payment funds, to buy a home.
For an FHA-backed loan, your monthly housing costs should not be more than 29% of your total monthly income BEFORE taxes or expenses are taken out. Total monthly housing costs include the mortgage principal and interest, property taxes, and insurance. Those four terms are often lumped together, and referred to as PITI.
Begin by looking at your credit. Clean up your own house before buying one!
Since you most likely will need to get a mortgage to buy a house, you must make sure your credit history is as clean as possible. Before you start house hunting, get copies of your credit report. Make sure the facts are correct. Fix any problems you discover. The three major credit-reporting agencies are:
As an example:
Monthly income X .29 = Maximum PITI
For a monthly income of $3,000, that means $3,000 x .29 = $870 Maximum PITI
Consult with the experts! Get homeownership counseling and professional advice throughout the buying process.
Experts in homeownership counseling and real estate sales know all the problems – and how to avoid them! Enroll in a homeownership counseling course and use an agent or broker. Look for an exclusive buyer agent, if possible, who will have your interests at heart and can help you with strategies during the bidding process on the home of your choice.
Do your homework! Research before bidding.
Your opening offer on the home of your choice should be based on the recent sale prices of similar homes in the neighborhood – a professional real estate buyer agent can supply you with these figures and provide advice on your specific situation. If homes have recently sold at 5 percent less than the asking price, you should make a bid that’s about eight to 10 percent below the listed price.
Enlist a home inspector.
Your lender will require a home appraisal in the area where you are buying. Separately, you should hire your own home inspector preferably an engineer with experience in doing inspections. An experienced, outside professional is worth every penny. His or her job will be to point out potential problems that could require costly repairs down the road. This is your best chance to carefully evaluate the property’s systems and structure. A home appraiser is NOT an inspector. Also, shortly before closing do a comprehensive walk-through of the home. Make sure that everything you thought was included in the purchase agreement remains on the property.
Closing Thoughts
The steps outlined here are general guidelines. You will encounter issues specific to your location and your transaction, issues that can best be explained and handled by your real estate broker, your lender, your attorney, your closing agent, or others who are helping you complete the deal.
Don’t hesitate to ask questions! Ask as many questions as necessary to help you understand the entire home buying process. You are making a long-term commitment and you’ll feel much better about the transaction if you stay informed and understand what’s happening every step along the way!