Readying Yourself Financially
Calculate the upper limit of your budget to see what you can afford. The average person can typically buy a house up to 3 times their annual income before tax. When searching for homes yourself, keep this upper limit in mind so you can take a look at the entire list of houses that are within your budget. It will also allow you to decide if you want to splurge on one you can feasibly afford, instead of going with a cheaper option. If you’re looking to buy a home with someone else, remember that you can look at houses 3 times your combined annual incomes.
Work to eliminate as much of your debt as possible. Having less debt will afford you more borrowing power when you go to get a loan from your bank. Banks will see how much of a percentage of your income is used to pay off your debts, and will issue you a loan if this debt ratio isn’t considerably high. Most banks consider a 16-19% debt ratio to be a moderate amount. Some may allow up to a 42% ratio before you’re not allowed to be issued a loan. At that high a ratio however, you will be lent less money than you would be with less debt. If your debt is 6% or lower, the bank will allow you to borrow as much money as you are eligible for. You don’t have to pay off the remaining 6% for any increased benefits.
Save up to place a higher down payment to increase your buying power. Though 0% down payments exist, you’ll get less of a loan from the bank, and you’ll pay more for the house over the course of time. You may also not win the bid for it, as you might with a larger down payment such as 20%. With this amount, you’re more likely to entice the homeowner to sell to you. You may even be able to afford a house costing 4 times your annual income if you make a 20% down payment, especially if you have minimal debt to pay off.
Check your credit score to see if you’re eligible for a loan. Though you won’t be automatically denied a loan with bad credit, the better your credit is, the lower the interest rate on your mortgage will be, resulting in cheaper monthly payments. It also won’t affect you negatively if you can’t make a higher down payment. A credit score of 700-759 is generally considered good credit, with those 760 and above considered excellent, and those below 700 fair or poor. Most banks won’t issue you a loan with a score below 660.
Searching for a Home
Decide on a location that fits your lifestyle. Wherever you’re thinking of moving to, take into account the demands and quality of life of these areas, and if they meet your standards for living. Several immediate factors to consider are the cost of living in the area, your proximity to family or other relatives, how close you are to your work, and how the commute or transportation services are there. You also want to consider the innate aspects of living in certain places, such as congestion and high traffic in urban locations, or large distances between places in more rural ones, requiring a car. If you rely on public transit, a city may also be your only option.
Make a list of the features you want for your home. Begin with what is absolutely necessary for the home you’ll be buying to have. Important factors to consider are how many bedrooms and bathrooms your family needs, whether you want an attached garage, or if you need an office space for working in. After you list out all your needs, then consider the luxuries you want, such as a finished basement or a large yard. Another crucial detail to keep in mind is if the home’s layout works for you and your family. You’ll need open kitchens, dining rooms, and living spaces if there will be lots of people using the space frequently. In contrast, if you’re living by yourself or with just another person, you may prefer having less space. Narrow your search so you’re only visiting homes that meet your criteria.
Look around the neighborhoods you’re interested in moving to. Walk or drive around the area, taking in the houses there, and noting any that may be for sale or listing an open house. Check the area out at multiple times of the day, especially at night, to get a feel for the neighborhood’s dynamic. This is important to see how comfortable you’ll feel being there at any given time of day. If you can, knock on someone’s door and say how you’re interested in moving to the area. Ask what their thoughts are on it, and any concerns they might have. It may seem daunting, but if the locals act unkind towards you in the first place, it might be an indication it’s not the best place to move. Information about any neighborhood in the United States, such their demographics, quality of their school systems, crime statistics, or weather patterns, can be found here: https://www.city-data.com.
Use real estate search engines to find the newest listings. They help cater your search to look for homes meeting the needs you listed earlier, such as a certain number of bedrooms and bathrooms. They can also be used to look up houses located in specific neighborhoods, or within certain price ranges to accommodate to your budget. Some free search engines you can use are https://www.trulia.com/, https://www.zillow.com/, or https://www.redfin.com/.
Go to as many open houses to try and match your dream home vision. For such a huge investment, you want to take in wide ranges of choices to decide from. Try to find a house that you ‘’really’’ love, rather than finding something merely acceptable. Look for a house that excites you at the thought of living there, or gives you ideas for possible living arrangements. Make these houses your first choices. Bring a camera and pen and pad with you to take pictures and notes, so you’ll clearly remember how each house and its location looks. EXPERT TIP Nathan Miller Nathan Miller Property Management Specialist Nathan Miller is an entrepreneur, landlord, and real estate investor. In 2009, he founded Rentec Direct, a cloud-based property management company. Today, Rentec Direct works with over 16,000 landlords and property managers across the United States, helping them manage their rentals efficiently. Nathan Miller Nathan Miller Property Management Specialist Take a video when you tour the house. Real estate entrepreneur, Nathan Miller, tells us: "When I’m looking at a house, I want to see the basics of the house: is it aesthetically pleasing to me, does it have enough room, are there enough windows? I’ll usually turn on my video camera on my smart phone and I’ll take a video as I’m walking through. That way when I’m at home and I’m thinking, “How big was the pantry?” I can just go to the video."
Consult with a real estate agency if you need help catering your search. A real estate agent will show you listings for homes that meet your specific needs while fitting within your budget. They have access to a special database for houses not listed to the general public, allowing you the chance to look at a wider variety of places that may be more exclusive than what you could find on your own. The seller of the house pays commission to their and the buyer’s agent from what you pay for the house (usually 3% of the total cost of the house). When deciding if you want to use an agent, keep in mind the home’s cost will include the real estate agent’s payment. If you don’t use an agent, you may be able to negotiate a lower cost from the seller due to them not having to pay commission.
Evaluate the benefits of a new home versus an old one. A newer house might be more expensive than an older home, but in the long run you might be able to end up saving a lot on maintenance costs by not needing to make frequent repairs. However, the build quality of some newer constructions just might not be as good as an older home’s, so be sure to keep this in mind when comparing houses. If a new home is built with energy-efficient features such as solar panels or automatic temperature regulation to avoid wasting heat and A/C, it might lower the cost of your utility bill each month, saving you money in the long-term.
Wait 3 months before settling on which house to buy. Give yourself that amount of time to view as many houses as you can to see if any of them come close to your envisioned dream home. If after 3 months you haven’t found something quite perfect, go ahead and settle on the next best one.
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