How well do you really understand the homebuying process? Taking into consideration necessary homebuying factors will do more than teach you how to get a mortgage or pull together a down payment. It will help you determine the amount of home you can afford without endangering other lifetime financial goals.
If you think this information is just for first-timers, think again. Real estate markets change, and so do homebuying environments. It is worth considering gathering the essential information each time you’re making a home purchase, especially if it has been a significant number of years between purchases. These homebuying factors can keep you up to date on what you’ll need to know this time around.
Here are some of the major topics a thorough homebuyer should take note of:
1. Homebuying readiness. Explore the general questions around a homebuying decision, such as why you want to settle in a particular area, how long you plan to stay, what kind of property you’re considering and where you are in your career and lifestyle. You may also be asked to answer specific financial questions to support your thinking, which should not be shared with others. This will help you determine answers to the big questions, such as whether you should buy a home or stick with renting.
2. Budgeting and credit. This will help you evaluate how you handle money. Do you have a budget? If not, do you know how to create one? Do you understand your credit rating and what goes into determining your score? If you have debt, how are your efforts going to pay it off? Essentially, what you don’t know about spending and borrowing can limit your ability to buy a home.
3. Preapproval for mortgage financing. Navigate the nitty-gritty of the loan process – what a mortgage is, the various types of mortgages, how they work and what it takes to be preapproved for a mortgage. Pre-approval involves filling out a full mortgage application, typically with a fee to cover an extensive credit check as if you were actually buying a home. Pre-approval, unlike prequalification, allows a potential borrower to receive a loan commitment for a specific amount, which can grease the wheels in a potential purchase.
4. Knowing what you can afford. Analyze the above and consider the reality of what kind of property you can really afford to buy. Look at price limits and locations and ways to get more for your money, including specific local, state and federal borrowing programs you may qualify for. Buying your dream home can seem nice, but it can turn into a nightmare if you can’t afford the home while living within your means.
5. Your home search. Determine how, when and where to shop for specific properties within the neighborhoods you are interested in and how to get the best overall deal for what you’re buying.
6. What you’ll need to close a home sale in your chosen community. Buying a home can also include an introduction to the specific regulatory and cost environment where you’re planning to live. For example, you should take note of such things as community-specific housing laws and zoning restrictions that could affect what you’ll be investing in the property, property tax issues (particularly if an assessment is pending), your home titling process, inspection requirements and the other costs linked to legal processes and paperwork.
7. The aftermath. You should have you a wide picture of the costs you’ll face after the sale and how to manage them so you don’t put the rest of your finances in jeopardy. Being too “house poor” not only puts you at a risk of losing the property, it can threaten other important financial goals.
If you have your eye on a particular property around you, reach out to the owner and ask your questions based on the factors listed above. Also, get a second opinion – if you work with a qualified financial professional, ask what he or she thinks about the the information given by the property owner and its benefits.
Don’t think narrowly about what you can get out of it. It’s not just about getting the mortgage. It’s a chance to ask about how a home purchase may affect other aspects of your financial life – all personal finance goals should be considered equally.
Bottom line: Since the collapse of the mortgage industry , it’s been a new day in residential homebuying. Whether you’re buying your first home or beyond, taking a homebuyer education class can help you understand the mortgage process, improve your credit and shop smarter for a home you can actually afford.