Purchasing a home is one of the biggest financial decisions people have to make. Being such a major financial step, it’s no surprise that buying a home can also be incredibly complex. Compared with smaller day-to-day expenses and even significant purchases like a vehicle, buying a home certainly requires a bit more planning.
It can be a daunting and confusing process for a first-time buyer. Not to worry, in this article, we will explore the main things to consider when purchasing a home. Let’s dive right in!
Consider what kind of home you want:
It’s important to settle on the specifications of the kind of home you will want to buy. First is the home type. You have to ask yourself if you want a detached house or some other structure. Another factor to consider is the kind of neighborhood you’ll want to have. There might also be some unique requirements you might have for your home. These factors would significantly affect your buying cost.
Create a housing budget:
You must be clear about your financial position when considering purchasing a home. You should evaluate your income and expenses to create a realistic budget for your home purchase. Notably, the buying cost is not your only concern. There are maintenance costs and down payment, and you might even have to hire a home inspector.
Taking all the relevant costs into account, you should set a budget that still allows you to afford your other bills like utilities, groceries, and tuition. Other factors to keep in mind include your savings and credit, as these directly affect how much capital is available to you at the point of purchase.
The biggest issue for most people when purchasing a home is securing the necessary funding. Selecting the wrong financing option can cost a great deal of time and money. Therefore, it’s essential to research thoroughly to enable you to choose a mortgage that works best for you.
Here are some mortgage options you can consider:
- Conventional Loans: These mortgages are not backed by the government. They are typically issued by private lenders and tend to be fixed-rate. They have stricter requirements than other loans, such as online payday loans, and are usually the most difficult to acquire. The general requirements to secure conventional loans include having a credit score of at least 620, a debt-to-income (DTI) ratio lower than 50%, and the capacity to afford a bigger down payment.
While conventional loans are undoubtedly challenging to secure and have higher out-of-pocket costs, they are less costly over the loan’s lifetime.
- Federal Housing Administration (FHA) Loans: These loans are backed by the Federal Housing Administration (FHA). FHA loans tend to have less stringent requirements than conventional loans since the government insures the risk of default. So, you can qualify for an FHA loan without a very high credit score. Similarly, these loans for down payments as low as 3.5%
You should, however, note these loans are also more expensive since you will have to pay a mortgage insurance premium alongside your regular mortgage payments.
- US Department of Veteran Affairs (VA) Loans: It’s a type of loan available to veterans. The Department of Veterans Affairs guarantees these loans, allowing them to obtain mortgages with favorable terms. Typically, borrowers do not even have to make down payments with this loan.
To apply for these loans, you must request and receive a certificate of eligibility issued by the Department of Veteran Affairs.
- Bond loans: These are quick loans you can obtain to purchase your house. Bonds are typically sold by governments and corporate entities and can also be leveraged for house purchases. Mortgage revenue bond (MRB) loans, in particular, are very useful in helping people with limited income purchase homes. You can check out what is a bond loan to learn about this type of loan.
Get your mortgage pre-approved:
Before setting out to place an offer on a home, it’s advisable to get your loan pre-approved. It might be a requirement for a seller to entertain your offer. You will need to apply for the mortgage and fill out the necessary paperwork to get your mortgage pre-approved. It’s also vital that you shop around before choosing a loan. Interest rates can vary widely. For instance, a conventional loan would likely have a lower interest rate compared to a quick loan like an online payday loan.
Once you have settled on a loan and a lender, the necessary verification will be completed. If you scale through in terms of credit score, DTI, and employment requirements, the lender may pre-approve you for a specified amount.
Go house hunting and make an offer:
Once your mortgage is pre-approved, the next step is to check houses that fall within your budget. It’s generally recommended to visit prospective homes in person. This way, you know for sure if the options are suitable for you. If you find a home you believe is ideal, you can make an offer.
You can also hire a real estate agent to facilitate the process of checking out houses and making an offer. The agent can leverage their expertise to help you decide the right amount to offer as well as negotiate with the seller.
Buying a home is certainly a complex and daunting process. It underscores the need for extensive research on your part to enable you to make an informed decision. Furthermore, it’s advisable to enlist the help of professionals like real estate agents to help you understand the process better.
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