Buying a house is pretty exciting! Knowing the walls, yard, flowerbed and everything else on the property is all yours, not some landlords, is enough to get anyone pumped up. Going for that house is also a great investment. Why line someone else’s pocket when you can receive that money back, should you ever decide to sell? Buying a house can also be down right stressful if you don’t know the ins and outs. Whenever you talk with someone who has bought a house before, they will always tell you things they wish they had known or done differently. Everyone makes mistakes, kind of part of life, right? But if you can limit some of these mistakes when buying a home and stick to these buying basics, you’ll breeze through the buying process on your way to your very first home. Keep Reading
So What’s the Deal With That Down Payment
Plenty of people check out homes before they are ready to buy. However, you may want to hold off on that. Yeah, it’s like looking under the wrapping paper on Christmas morning before parents wake up and let you open your gifts, but the problem is you might fall in love with a home that is long gone by the time you’re set up with the down payment. So maybe you take a few peeks when you’re almost set with the down payment, but while saving up, it is best to avoid doing so.
Now, how much money should you have for that down payment? It all comes down to how much the house is. The down payment percentage can vary, but it is usually best to aim for 20 percent. Some loans only kick in if you cover the first 20 percent. You’ll also nab a lower interest rate. That lower rate can save you thousands of dollars, so shoot for that. If you have less than 20, your credit report needs to be higher with a better credit score. Some banks require you to have that much of a down payment, but that is between your bank and you, so talk it over with a lender, just to find out what plans are out there.
So, you’ve got that sweet cheddar sitting in your bank account, just looking beautiful with all those numbers and zeros. You’ve done your job saving up, nice one! Now, you need to move into the pre-qualifying stage. This is where you head out to the bank and apply for a mortgage. The bank will tell you how much you qualify for. Now how does the bank know this? Usually it is based off of your last two tax returns, your income, how much debt you currently carry and how much of a down payment you have.
Let’s talk about those tax returns for a bit. If you have the traditional 9-5 job, you receive your income and that’s that. Now, what if you have a sweet serving, bartending or other service industry gig where you make most of your income off of tips? When you nab straight cash, it’s pretty easy to pocket this and not claim it on taxes. Heck, most people do. Here’s the thing though. You want your gross and net income to be higher in order to push up that approval amount. So, if you have dreams of buying a home, you best start claiming these tips on your taxes. Yeah, it means you’ll be paying more in taxes, but it will help with your approval.
Are you self-employed? This kind of brings up another issue. Banks and credit unions love knowing you have a straight forward job and a straight forward income. Being self-employed raises a few red flags, because what happens if the work tanks? Yeah, big problems and the banks want nothing to do with it. You might earn way more than the next girl over, but if she has a traditional job, she might land a better mortgage than you. How do you avoid this problem? No, you don’t need to quit your dream job and find something sitting in an office. You just need more proof of income. So, hold onto as many older tax returns as possible. Instead of two, bring in four years (especially if these are good years). You want to show continual income that is steady.
Finding That House
Alright. Here’s the fun part. You have your down payment. You have your pre-approved mortgage. Now it is time to window shop. You can talk with a real estate agent, or you can start just checking out what’s available online. A good way to go about it is look at the houses online, sift through the pictures and find a few you like that fits into your budget.
A few things about your budget. You don’t need to max out what you’re pre-approved for. Look over your finances and determine what you really can afford based on your lifestyle. Maybe you like to take extended vacations. Maxing out the approval amount might prevent you from doing this. So decide on the max you actually want to spend. Then, when searching for homes, don’t go over this. It’s probably better to not even look at anything above your amount. No need to see what you can’t afford.
Going through a real estate agent once you find a house can prove most helpful. If you find the house yourself it is still a good idea to be represented by an agent. You want to make sure that your best interests are looked after during the entire transaction. A poor agent can cost you the house of your dreams.
Closing the Deal
So you’ve found a house and you want to put in an offer. You don’t just pay what the asking amount is. Your agent can bring up what the average house in the area is going for (it’s likely less) and show you a few other price points. They can also tell you how long the house has been on the market before. Based on this, you can offer what works for the current home. If it has been on the market for a while, you may be able to negotiate more into the contract on your behalf.
If the offer is accepted and everything is signed off, you will wire your deposit into escrow and start making sure all line items in the contract are being performed by all parties.
There you have it! Buying a house should be an exciting time. Just make sure to focus on the end goal and not the little hickups along the way.