The Beginner’s Guide to Buying a House
By: Finn Pierson
Tags: Mortgage, Real Estate, Real Estate Investments

Photo via Pexels

Something most people want to accomplish in their lifetime is buying a home. However, the process may seem intimidating to many. While it can indeed be complicated and require many steps, you can ease most of your fears by learning more about the process. With that in mind, below is an overview of some of the basics.

1. Budgeting

The first step to finding a house should always be determining your budget. This budget should have a maximum cap that cannot be exceeded. Since buying a home is such a big financial investment, going over budget can have serious consequences for your financial livelihood. You could even end up losing the house and be forced to rent again, putting you back at square one.

However, how do you budget? You need to consider your annual income. Do you have a steady income with a career with good job security? If that is the case, you should look at houses with a price of about two to three times your yearly income. That way, you’ll eventually be able to pay off the mortgage. Also, in regards to the monthly mortgage payments, try to obtain a mortgage in which the monthly payment does not exceed 28 percent of your monthly income. A bit less than that may be preferable.

You will also of course, need to make a down payment. This can range between 5 and 20 percent of the price of the house. Without enough money to make the down payment, you will be denied the mortgage. Other costs you should budget for include costs related to maintenance and home improvement. This is especially the case if you aren’t buying new.

2. Finding Your Home

Once you have a budget in mind, as well as other criteria regarding your preferences for rooms, space, etc., you should begin actively looking for a home in the right location. Before you speak to a real estate agent, do plenty of your own research. Check out listings online as well as in print. In many restaurants, you can find little free booklets printed on cheap paper that list homes in that area for sale including the price.

You should also take advantage of real estate investor software. While you may think this software is only for people that use real estate as a form investment instead of as a home, this is not the case. The average home shopper can reap plenty of benefits from the tools included in such a software program. For example, BirdDogBot can allow you to investigate real estate for sale in a specific area, track those properties over time and perform complex calculations to analyze the value of the real estate in question.

3. Choosing the Right Mortgage

Once you have a better grip on your budget and the kind of home you want, you should get serious about obtaining a mortgage. Begin shopping around for mortgage lenders. Choose one that has good ratings for both customer service as well as quick closings. Make sure you choose a lender who is open to answering all the questions you may have about the process and getting approved.

You will also need to choose the kind of mortgage you will buy. There are several different varieties. The most common are fixed rate mortgages and adjustable rate mortgages also referred to as ARMs for short. Fixed rate mortgages maintain the same interest rates throughout the life of the loan. The interest rates for adjustable rate mortgages, however, can and will fluctuate in reaction to market forces.

Choosing the correct kind of mortgage is important. Certainly factor into your decision the likelihood of the performance of the economy changing interest rates in the future. It could result in you loosing or saving money on interest as a result. In general, however, fixed rate mortgages may be preferable for individuals that plan to live in the same house for the rest of their lives. Due to the possible fluctuations of an ARM’s interest rate, you may eventually end up paying much more for your mortgage than you planned.

Mortgages can also differ by the term of the loan. 15-year and 30-year mortgages are the most common. However, 30-year mortgages may be preferable for the average homeowner. 15-year mortgages may be a better choice for the wealthy that do have the ability to pay off a home loan much quicker.

4. Pre-Approval

Last, you’ll need to try to get pre-approval for your mortgage. During this process, the lending institution will do a close examination of your financial situation including your credit history, W2 forms from your employer, bank statements and more. After you are pre-approved, you will have a stronger bargaining position to negotiate with the lender on a fair price based on the home’s value as opposed to your financial situation.