Everything you ever wanted to know about owning a home

Before you start looking for a home, ask yourself what type of residence fits your needs, how much you can really afford to buy or renovate and who to look for when looking for a home. It helps you.

The actual process of buying a home includes: finding the right location, financing, making an offer, obtaining legal documents related to the property or home and finalizing and closing the deal.

As a new homeowner, you need to keep your place but also to save money. Don’t rely on selling your home to fund your retirement, no matter how the housing market is doing.

Use this information and the rest of the content in the complete guide to home buying to navigate the complex process of getting started, budgeting for a home, finding a home, inspecting it, learning the key concepts of buying and getting a mortgage.

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Considerations before buying

The first thing you need to determine is what your long term goals are. Then consider how homeownership fits into those plans. Some people are just looking to turn all those “wasted” rent payments into a mortgage that actually leads to owning something tangible like stock. Others see home ownership as a sign of independence and enjoy the idea of ​​owning their own home. Then, it makes sense to think of buying a home as an investment.

Analyzing and narrowing down your big goals will guide your home ownership in the right direction. Here are six questions to ask you:

1. What type of home suits your needs?

When buying a residential property, you have several options: a traditional single family home, a townhouse, a condominium or unit for sale, a home from housing cooperative or a multifamily building or apartment with two to four units. Each option has its pros and cons, depending on your home ownership goals.

It is up to you to decide which type of property will help you achieve those goals. You can also save on the purchase price in any of the above categories by choosing an advisor (although the amount of time, equity and money involved in hiring an advisor for your dream home may be much more than you bargained for).

2. What special features will your ideal home have?

While it's good to maintain flexibility on this list, you may be making the biggest purchase of your life. You deserve to have that purchase match your needs and wants as closely as possible. Your list should include basic requirements such as neighborhood and area to smaller details such as bathroom layouts and kitchen essentials. Real estate websites can be a valuable tool for researching properties that meet your wants and needs for your new home.

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3. What mortgage do you qualify for?

Before you start buying, it's important to get an idea of ​​how much a lender is really willing to lend you to buy your first home. You may think you can afford a 500 million IRR loan but lenders may think you can only afford 200 million IRR depending on factors like how much you owe, your monthly income and how long you've been in your current job.

Before making an offer to buy a home, make sure you are pre-approved for a loan. In many cases, sellers won't even accept an offer that doesn't come with a mortgage pre approval. Additionally, many real estate agents will not spend time with clients who have not determined how much they can afford. Start by researching lenders and comparing interest rates and fees. Then submit your mortgage application and submit supporting documents requested by your lender to verify your income and debt.

4. What kind of house can you actually buy?

Sometimes the bank will give you a loan for a more expensive house than you really want to pay. Just because a bank says they'll lend you 500 million IRR doesn't mean you should actually borrow that much. Many first time homebuyers make this mistake and end up in "home poverty” meaning that after making monthly mortgage payments, there is no budget left for other expenses such as clothing, utilities, vacations and entertainment.

When deciding how much borrow, you should look at the cost of the entire home, not just the monthly payment. Consider what property taxes are in your chosen neighborhood, how much homeowner's insurance costs, how much you anticipate spending on home maintenance or improvements and how much your closing cost will be.

5. Do you have serious savings?

Even if you qualify for a substantial mortgage, there is a significant down payment that includes your down payment (3.5% to 20% of the purchase price) and moving and agency fees.

When it comes to investing to buy a home, a short term goal, one of the biggest challenges is keeping the savings in an accessible and relatively safe account that still yields returns. If you have one to three years to reach your goal, a certificate of deposit may be a good option. It won't make you rich but you won't lose money either.

The same idea can be applied to buying a short term bond or fixed income portfolio, it gives you some growth but protects you from the volatile nature of stock markets.

If the home purchase is within six months to a year, then you want to cash out. A high yield savings account can be the best option. It's important to make sure it's insured so that if the bank does not accept, you still have access to your money up to 250 million IRR.

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6. Who will help you find a house and guide you in buying?

A real estate agent will help you find homes that meet your needs and are within your price range. Then they make an appointment with you to view those homes. Once you've chosen a home to buy, these professionals can help you negotiate the entire buying process including making an offer, getting a loan and completing paperwork.

The expertise of a good real estate agent can protect you from any pitfalls you may encounter during the process. Most agents receive a commission that is paid out of the seller's revenue and profits.

Purchase process

Now that you've decided to start, let's take a look at what you can expect from the home buying process itself. It is a chaotic time with many offers and counter offers that are changing wildly.

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1. Find a home

Make sure you use all the options available to find a home on the market including using your real estate agent, online searching and driving around your favorite neighborhoods to look for real estates. Share some of your feelings with your friends, family, and business contacts. You never know where a good reference or lead on a home could come from.

When you're serious about buying a home, don't go into it without an agent or advisor (or at least be prepared to name the person who is supposedly advising you). You can see and experience that it may not be in your best interest to start your transaction with the seller's representative before contacting one of your own.

If you're on a tight budget, look for homes that have not reached their full potential. Even if you can't replace the ugly bathroom wall tile with a beautiful one right now, it might be worth living with the ugliness for a while in exchange for getting into a home you can afford. If the home meets your needs (in terms of big things that are difficult to change) such as location and size, don't let physical imperfections distract you from your goal.

First time home buyers should look for a home that they can add value to, as this will increase property value and equity to help them get on the property ladder.

2. Consider secure financing options

You have a responsibility to make sure your personal finances are in order. In general to qualify for a mortgage, you must have good credit, a history of paying your bills on time, and a maximum debt-to-income ratio of 43%.

Lenders these days typically prefer to limit housing costs (interest, taxes and homeowner's insurance) to about 28 percent of borrowers' gross monthly income, which number depends on the local, state or city real estate market. It can be very different.

After clearing the lender's account and application, the lender will verify all financial information provided (check credit scores, verify employment information and calculate debt-to-income ratio). The lender can pre approve the borrower for a specified amount. Be aware that even if you're pre-approved for a mortgage, if you do anything to change your credit score such as refinancing a car, your loan could be lost at the last minute.

Discrimination in mortgages is illegal. If you believe you have been discriminated against based on your race, religion, gender, marital status, use of public assistance, nationality, disability or age, you can take action. One of these steps is to send a report to the Consumer Financial Protection Bureau or the Ministry of Housing and Urban Development.

When looking for a pre-approval or looking for a mortgage, don't depend on loyalty to your current financial institution: buy even if you only qualify for one type of loan. Fees can vary wildly as can mortgage interest rates (which have a big impact on the total price you pay for your home).

Some authorities also recommend having a backup lender. Qualifying for a loan is no guarantee that your loan will be funded: underwriting guidelines change, lender risk analysis changes and investor markets can change. There may be cases where customers sign loan documents and are then notified 24 to 48 hours before closing that the lender has frozen their loan program funds. Having a second lender that has already qualified you for a mortgage gives you an alternative way to keep the process on or close to schedule.

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3. Make an offer

Your real estate agent will help you decide how much money to offer for the home, along with any terms you want such as a buyer's down payment. Your agent will present the offer to the seller's agent. The seller either accepts your offer or issues a counter offer. You can then accept or keep going back and forth until you reach a deal or decide to walk away.

Before making your offer, take another look at your budget. At this point, include estimated transaction costs (which can be between 2% and 5% of the purchase price), moving expenses and any urgent repairs and supplies you may need before you move. Estimate ahead of time whether you can easily afford higher or unexpected utility bills and property taxes especially if you're moving from a rental or apartment situation that you previously lived in. You have not encountered these cases. To know the average monthly cost, you can request and check the water and energy bills of the last 12 months of the house you are planning to buy.

If you agree, you'll pay the seller a deposit and then the process turns into affidavit. An affidavit has a short period of time (usually around 30 days) which the home seller expects you to buy the home according to affidavit and therefore the seller removes their home from the listing for sale, on the condition that you don't face serious problems in various fields later or during the contract period with him.

4. Home inspection

Even if the home you're considering buying looks flawless, there's no substitute for having a trained professional inspect the quality, safety, and overall condition of your potential new home. If the home inspection reveals serious defects that the seller did not disclose, you can generally rescind your offer and get your deposit back. If you find yourself in such a situation, negotiating for the seller to do the repairs or discount the sale price are other options available.

5. Close or move

If you are able to make a deal with the seller or if the inspection reveals no major issues, you should be ready to make a deal. Closing a deal basically involves signing a lot of papers in a very short time and hoping that there are no last minute hiccups.

Things you'll be dealing with and paying for in the final stages of your purchase may include: home appraisals (mortgage companies require home inspections to protect their interests), home inspections to ensure that no one other than the seller has a claim on the property and the owner, get private mortgage insurance or a credit card loan if your down payment is less than 20% and complete the mortgage documents.

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Congratulation; what should the new home owner do from now on?

You've signed the papers, paid the movers and you're starting to feel like a homeowner in your new place. Let's now go over some final tips to make life as a new homeowner more fun and safer.

1. Keep saving

With home ownership, you may have large unexpected expenses such as replacing rain gutters, roofs or getting a new water heater and package. Set up an emergency fund for your home so you're not caught off guard when these expenses inevitably arise.

2. Perform regular maintenance

With the large amount of money you put into buying your home, you need to make sure you take good care of it. Regular maintenance can reduce your repair costs when the problem is small.

3. Ignore the housing market

It doesn't matter what your home is worth at any point in time except when you sell it. Being able to choose when to sell your home rather than being forced to because of a job transfer or financial problems, is the biggest factor in determining whether you'll see a decent return on your investment.

4. Don't rely on selling your home to fund your retirement

Even if you own a home, you still need to save into your retirement savings accounts each year. It may seem hard to believe to someone who has seen the fortunes that some people made in the housing bubble, you won't necessarily be broke when you sell your home.

If you want to look at your home as a source of wealth in retirement, consider that once you've paid off your mortgage. The money you would have spent on monthly payments could be used to pay for some of your living and medical expenses.

This overview will get you on your way to filling any gaps in your home buying knowledge. Remember, the more you educate yourself about the process beforehand, the less stress you'll have and the more likely you'll get the home you want at a price you can afford.

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 Writer: Mr Saman Sayah