5 Tips to Know Before Buying a House
- Buying a house is a major milestone in many people's lives.
- The type of home that's best for you will depend on your individual needs, budget, and lifestyle.
- To help make the process go smoothly, review your credit report, develop a home-buying budget, and consult with a real estate agent who can help you navigate the process.
Buying a home is a major milestone in many people's lives, often standing out as one of the most important financial investments a person makes. The home buying process can be both daunting and exhilarating – and for many, a mix of the two. Purchasing a home can be an incredibly significant purchase with long-term consequences, or it can bring increased freedom and satisfaction in owning a home.
From finding the right house to securing financing, it’s easy to become overwhelmed by all the details. However, with careful research and preparation, any new or aspiring homebuyer can ensure they’re getting a great deal. To help you navigate the details and ensure a smooth process, below are five key steps to get you started on your journey.
1. Your Credit Score Matters
Getting familiar with your credit report and credit score before applying for a loan is an important step in the process of buying a home. Your credit score, also called your FICO score, weighs heavily on loan qualification, your interest rate, the fees you will pay, and the number of lenders vying for your business.
If the term ‘FICO score’ leaves you scratching your head on what exactly it is, think of your FICO score as a report card of sorts for your financial health. FICO scores range from a low of 300 to a high of 850. The score tells lenders how trustworthy you are as a borrower.
A score on the high end, for instance, 700 or above, can help you get approved for a mortgage with better terms offered by numerous lenders. Conversely, a score on the lower end, for instance, 580 or below, can make approval challenging.
In addition to a strong FICO score, a credit report that is accurate and up to date is crucial in helping to ensure that your mortgage application is reviewed quickly and approved. Take time to check your credit score and credit report a few months before starting the home-buying process to help ensure that you can resolve any questions and correct inaccuracies.
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2. Determine Your Budget
Just as your credit score is an important barometer that tells banks you are a responsible borrower, your budget is an important indicator that tells you how much money you have and how much house you can afford.
One of the biggest mistakes that first-time homebuyers make is overextending themselves financially. So when coming up with your budget, a general rule of thumb is your mortgage payment should not be more than 28% of your monthly income.
As an example, if your monthly salary is $5,000 per month, then the most that you should spend on your mortgage payment, including property taxes, homeowners insurance, and condo or homeowners' association (HOA) fees, is $1,400.
To determine how much house you can afford, consider using an online mortgage calculator or consulting with a lender or financial advisor.
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3. Decide on the Location
The old saying, ‘location, location, location,’ is popular in real estate circles and is often mentioned to homebuyers when searching for a home. The phrase refers to the importance of considering the location of a property before buying.
Generally speaking, homes that meet the “location test” are typically in highly desirable areas, characterized by low crime, a good school system, close to transportation, and convenient to travel to amenities. So, determining the perfect location is ultimately a subjective and very personal decision.
To help hone in on your ideal location, consider your lifestyle requirements. Then, ask yourself a few questions to help determine your location preference. Those questions may include the following:
- Would you prefer a neighborhood that’s in the suburbs and brimming with playmates for your children or one that’s within walking distance of restaurants and nightlife?
- Do you prefer living close to work or close to your family members?
- Making a list of your preferences can help you (and your real estate agent) decide which location is right for you.
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4. Hire a Real Estate Agent
A real estate agent serves an important role in the home-buying process. The role of the real estate agent is to represent you in the home-buying process and ensure that you purchase a home that meets your criteria and is approved by your lender.
If you are a new homebuyer, it can be easy to get overwhelmed by the many complexities associated with the process, from arranging inspections and negotiating with the seller to filling out paperwork and closing on the property. A knowledgeable and experienced real estate agent can guide you through each of these steps.
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5. Get a Home Inspection
A home inspection can reveal any potential problems with the house, such as leaks, electrical issues, or structural problems. If the home has a well, pool, or septic system, an inspection of these systems, separate from the home inspection, might also be required.
Mortgage lenders require a home inspection to ensure the safety and soundness of the property that they are financing. Home inspections allow lenders to uncover any potential issues or structural defects in the home, as well as identify potential improvements that may increase its value. This helps protect both lender and borrower from any unexpected financial losses resulting from costly issues.
A home inspection also helps lenders ensure that their loan is secure, as a well-maintained property will be easier to resell should the borrower default on their mortgage payments. As such, having a thorough home inspection completed by a qualified inspector is essential for any home buyer looking to finance their purchase.
The home inspection also serves as a helpful tool for the borrower, providing them with information about the condition of their property and any potential issues that must be addressed before closing or issues that are less urgent and can be addressed after the close.
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The Money Wrap-Up
Buying a house is a major decision that can impact your finances and lifestyle for years to come and serves as an important milestone in building wealth. By following the helpful tips mentioned above, you can avoid common mistakes and make a smart and informed decision that suits your needs and budget.
Above all, remember that buying a house is not a decision to be taken lightly. Taking time to research, plan, and consider all of your options can lead to a better outcome. Whether you're a first-time homebuyer or a seasoned pro, these tips can help you navigate the process with confidence and ease.