One of the dreams of a newly married couple is the dream of purchasing a home together. Often, this will be a first time experience for the both of them. It is also one of the most expensive purchases that they will ever make. As a result, it is important to be cautious and make all the right moves when preparing for, searching for, and buying a home. In doing so they will be more likely to make wise decisions and hopefully avoid purchasing a house that is wrong for them or more than they can afford. To help couples safely and cautiously move toward buying a home, there are certain steps that they should follow.
Unlike a car or a washer machine, getting the wrong home or a home in the wrong neighborhood is a decision that will plague a family for years or even decades. Therefore, the first step in shopping for a home is to determine what one's priorities are. The size and design of a home is a very common and very important priority for home buyers. Those expecting a big family will want a large multi-family home, while single people or couples with no kids will want a smaller home.
Equally as important, however, is the kind of neighborhood in which the home is located. For some people it is a neighborhood with short commutes to great jobs or good schools. Others are looking for areas with low property taxes, while some prefer houses with a set number of bedrooms and bathrooms. Another concern is finding areas where crime rates are low. Eco-conscious home buyers might be looking for homes with solar energy or sufficient yard space for gardens. Regardless of one's priorities, it will be necessary for shoppers to make a list of what is important to them, and narrow their search accordingly.
Once a home buyer has decided on his or her preferences on a home, the next step is to do in-depth research on which homes fit their requirements. The age of the Internet makes this task much easier than it used to be. There are various real estate listing sites that collect information on properties for viewing online. This information includes pictures of the property in question and statistics on the amount of yard space and internal floor layout and space, as well as the potential price of the home. In addition, many include crime statistics, ratings on local schools, unemployment ratings, all pertaining to the neighborhood where the home is located. Shoppers should also seek out information on traffic conditions in the area, as well as whether the property is under a homeowners association. After this, the prospective buyer should visit the area to take a look at the house and to check out the community first hand. Speaking to potential neighbors and acquiring information that is off the record is critically important to making a sound decision as to which property to purchase. Most importantly it is necessary for a buyer to check the maintenance and construction history of the house. Purchasing a house only to find that it is infested with termites is one of the worst nightmares for home buyers.
In addition to researching the ideal home, a prospective buyer should hire a real estate agent to help with their search. Real estate agents are professionals who know how to get in-depth information about properties and steer customers toward the right home. Real estate agents may have knowledge about the area that the customer doesn't, including information that enables them to negotiate a price that's tens of thousands of dollars cheaper than what it is listed for on the market. This includes local market conditions and previous attempts to sell the house in question. They also serve as a firewall between shoppers and eager home sellers who would otherwise pester shoppers who unwittingly give them their contact information. Real estate agents can also discover legal burdens upon the house. This includes tax liens or other issues that could complicate the sale of a home. One major convenience of hiring a real estate agent is the fact that they also handle a lot of the paperwork involved in purchasing a home. The key to working with a real estate agent is to find an experienced agent with a reputation for competency. It is also wise to meet with more than one in order to see which agent is easiest to work with.
In order to finance the purchase of a home, buyers have two main choices. One is to purchase the home outright, and the other is to obtain a loan. Those who can't buy a home with cash will typically need to come up with a down payment for a home loan, also known as a mortgage. Traditionally, lenders desire a down payment of twenty percent of the cost of the home. About 88% of home buyers in the United States obtain a mortgage to finance the purchase. Of the people who obtain mortgages, about 35% of them have a down payment of 20% or more.
In some cases, home buyers with good credit can get away with a down payment of as little as three percent. The FHA offers a 3.5% down payment option. Veterans can pay as little as 0% down with a VA loan. Of course, the higher the down payment, the more likely that a lender will actually finance the purchase of the home. Buyers obtaining a traditional conforming mortgage without putting 20% down will also be required to buy property mortgage insurance (PMI) to cover the risk of default until they build enough equity in the home to have PMI removed. They can request PMI be removed when the loan to value (LTV) falls to 80% &
The following rate table shows how credit score & down payment can impact monthly mortgage payments.
A person's income is another critically important factor in whether they will be accepted for a loan. Typically a monthly mortgage payment should be a little over a quarter of one's take-home pay. This means if a buyer's yearly income is $60,000 a year, their monthly income is $5,000 a month, and they can qualify for, at best, a mortgage with a $1,250 a month payment. The buyer should also factor in insurance, closing costs, and if the loan is a subprime loan, balloon payments as well.
Total debt load is another important factor. People who have a lot of student loan debt or high credit card payments must also include these other monthly obligations in their DTI ratio. Lenders prefer this number to be below 41%, though buyers can qualify with this number as high as 50%. In 2017 both Fannie Mae & Freddie Mac lifted their DTI caps to 50% to offset the increasing student loan debt loads across the country.
Before choosing a home, potential home buyers may consider getting pre-qualified or pre-approved for their loan. Both will tell a potential home buyer how much he or she can afford when buying a home. When pre-qualified, the lender has determined an estimate of how much the borrower would be eligible for given their income and debt level. It does not, however, mean that he or she is actually approved for the loan. Pre-approval of a mortgage loan means that the lender has authorized the loan according to the information provided. Often the pre-approval is valid for a set period.