For years you’ve dreamed of owning your own home. Now it’s time to make that dream a reality. But there’s a lot more to buying a home than picking out the floor plan and deciding on the décor. For many people, a house is the biggest investment they’ll ever make. It takes some serious planning to do it right.
Creating a Budget
Although you might have fun searching Zillow for the most luxurious mansions on the market, when it comes to actually buying a house, you need to be realistic about how much you can afford. Otherwise, your dream house might end up in a foreclosure nightmare.
When calculating your budget, remember that the price of the house won’t be the only expense associated with home ownership. You’ll also need to pay the following:
- Closing costs
- Property taxes
- Repair and maintenance costs
- Utilities
- Homeowners Association fees, if applicable
- Insurance
When deciding how much you can spend on a house, you need to look at your income, as well as your debt and the amount you can dedicate to a down payment. Your credit score will also impact your ability to get a loan.
The Motley Fool has a calculator to help you determine how much house you can afford. It’s based on the 28/36 rule, which says your mortgage shouldn’t be more than 28 percent of your pre-tax income and your total debt shouldn’t be more than 36 percent.
Securing a Loan
Unless you have enough savings to pay cash for the entire value of the house, you’ll need a loan. You should try to get preapproved for a loan before you start looking for a house. That way, you’ll know exactly how much you can afford.
You can secure a home loan through a bank or credit union, or you can go through a mortgage bank that specializes in home loans.
Multiple programs exist to help people buy their first home. The Federal Housing Administration helps people buy a home with low closing costs and down payments as low as 3.5 percent of the purchase cost. Other programs might be available depending on your situation. The VA Home Loan Program, for example, helps veterans buy a house. The USDA program helps low- to moderate-income families buy a house in certain rural areas.
Getting a Real Estate Agent
Buying a home is complicated, but a real estate agent can help you navigate the process. The agent will generally earn a commission that’s paid by the seller, so this won’t cost you anything.
The real estate agent will show you suitable houses based on your criteria. Keep in mind that buying a home is a long-term commitment. Don’t settle for the first house you visit. You need to consider many factors, including:
- The size of the house and whether it is will be large enough for your current and planned family needs
- The quality of the local schools
- The commute to work
- Proximity to restaurants, shops, parks and other amenities
- Crime rates
- Flood zones
Closing on the House
Once you find the perfect house, your real estate agent will guide you through the process of making an offer and closing on the house.
But there’s a chance your offer won’t be accepted. Sometimes your dream house is someone else’s dream house, too. If a property is hot, your offer many be competing against other offers. In addition to making a competitive offer, you should write a letter to the home seller explaining why you love your house and want to live there.
Another way the deal can go wrong is if something serious comes up during the home inspection. If major hidden problems are found, you might be able to renegotiate the details of the deal, or you might ask the seller to fix the issue before you move in.
Insuring Your Home
Once you have your new home, make sure it’s insured. Learn more about affordable homeowners insurance.