The Authoritative Guide to Buying a New Home
Buying a new home is an important milestone in most people’s lives. Not only does it give you a place to settle down with your family, but real estate is also one of the most solid investments that you can make.
Not everyone knows how to go about the homebuying process. Fortunately, though, we have tips that can help make it easier.
Not sure where to start? Don’t worry, we’ve got you covered.
Let’s take a look at everything you need to know.
How to Begin Your Search
Before you start looking for a home, you’re going to need to keep a few things in mind.
Mainly, you’re going to need to set a ceiling for how much you’re willing to spend on your home. While most of us would love a multi-story house with an amazing view, it’s not always practical to spend that type of money.
So, take some time to separate your ‘wants’ from your ‘needs’ when it comes to looking for a home to buy. For example, another bedroom for your children may take priority over a space for a home gym or a three-car garage.
Afterward, research the area that you’re looking to purchase your home in. Things like nearby school quality, the distance from your place of employment, and community amenities are attributes to consider.
Once you’ve found a home within your budget in an area you’d like to live in, it’s time to move on.
Consider Your Down Payment + Financing
How much you put down on your home will affect how much you pay later on, and this isn’t only due to the interest rate on your mortgage.
If you put down less than 20% of the home’s value (this number is often the recommended minimum down payment to make), you’ll need to purchase private mortgage insurance (PMI).
This coverage is meant to protect your lender from financial loss if you fail to make payments in the future since those who make a small down payment on a home are seen as more of a risk.
When it comes to financing, you have a handful of options to consider.
Federal Housing Association (FHA) Loans
These loans are insured by the Federal Housing Association and offer borrowers the opportunity to put forward down payments as low as 3.5%. For those who don’t have much cash on hand at the time of purchase, this is a reliable option to consider.
Department of Veterans Affairs (VA) Loans
Although not everyone will qualify for this type of loan, those who do may not have to put any money down at all. You can visit this resource to learn more about whether or not you’re eligible for this type of loan.
Most people will opt for a conventional mortgage, and there’s nothing wrong with that— there’s a reason it’s one of the most popular forms of financing.
It’s not impossible to find lenders that require a down payment of as little as 3% of the home’s value. But, as previously mentioned, your interest rate will often be higher and you’ll need to purchase private mortgage insurance.
One of the best ways you can speed up the homebuying process is to get a pre-approval letter from your prospective lender. After examining your debts and finances, your lender will give an official estimate of how much they’ll be willing to lend you for the home.
This pre-qualification will immediately set you apart from buyers who haven’t gone through this process, and it will show the seller that you’re serious about purchasing the home.
Keep in mind, though, that pre-qualification often lasts for only 30-60 days, so you’ll need to move forward with the buying process before that time period is up. Otherwise, you’ll need to obtain another letter from your lender.
Prepare For Closing + Extra Expenses
A common mistake that homebuyers make is not budgeting appropriately for the closing costs they’ll incur. While the actual amount will vary, it’s typically somewhere between 2% and 5% of the amount of your loan.
Part of your closing expenses will be from home inspections, title searches, and homeowners’ insurance. But, you have the opportunity to browse through different providers and services in order to find the lowest cost possible. Some home builders offer to pay closing costs if you work with their preferred lenders.
Even if you find reasonable prices for everything, though, these are still expenses that you need to keep in mind. Buying a home can be financially-straining enough— you won’t want to dig yourself a deeper hole by not preparing for closing.
The Financial Benefits of Home-Ownership
The home buying process can seem expensive and complicated at first, but the benefits of homeownership strongly outweigh the negatives.
For starters, owning a home allows you to ensure that your monthly payments are relatively static. Those who rent from landlords may find one day that their rent is going to be increased, which is something that many people are unable to budget for.
You’ll also be able to deduct the interest you pay on your mortgage and the property taxes you pay from your annual income. This will allow you to save money when tax season comes around.
Buying a New Home Can Seem Difficult
But it doesn’t have to be.
With the above information about buying a new home in mind, you’ll be well on your way to ensuring that the process goes as smoothly as possible.
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