11 Steps to Buying Your Dream Home
Home prices are rising across the country, and the real estate market is as competitive ever, even as home construction booms in many places. If you want to improve your chances of snagging your dream home, you'll first have to put in a little work. That means figuring out exactly what you want, what you can afford, and how you will go about getting it. Here are 11 simple steps to landing a house that you'll love.
It takes time to save up money, and you'll definitely have to put money down if you want to buy a home. The more you put down upfront, the less you'll have to pay in mortgage payments. If you want to avoid paying for private mortgage insurance on top of your monthly home payments, you'll have to put 20 percent down. For a $300,000 home, that's a $60,000 down payment, which can be especially hard for first-time buyers. The average down payment is now 6 percent, or $18,000 on a $300,000 home, CNBC reports. Depending on credit scores, that means mortgage insurance costs of anywhere from $1,400 to over than $3,000 a year.
Here's an easy way to begin your house hunt. In fact, you may already be doing it, daydreaming about your new home as you scroll online listings. If you haven't already, start looking online and take notes on what's available in areas where you would like to buy. Redfin, Zillow, and Trulia are all good places to start. Real estate agencies have their own websites with listings as well.
Jot down all the key features/requirements you want in your new home, says David Crowley, a real estate agent at One Boston Real Estate. How many bedrooms and bathrooms? How big of a yard? What about a fireplace or a two-car garage? What would be your ideal town or neighborhood to live in? This is not the time to edit yourself -- think of it as your wish list.
As you look at homes online, keep an eye out for upcoming open houses. While you can learn a lot looking at online listings, it's not the same as walking through a house and getting a feel for it. You don't have to be serious about buying the homes you're visiting. Rather, the idea is to get a better idea of what you want and don't want in a home, and what's out there in different price ranges. If you are buying with a significant other, this can help you both to sort out your real estate desires.
Teaming up with a veteran broker who knows the area where you are house hunting can be key, especially in a tight market. "Hire a seasoned real estate agent who will listen to you and understand your priorities," says Crowley. "Your best friend from college might be a great person, but if she just started in the business, she might not be the best choice to find your dream home and negotiate the best terms and conditions for you."
A few people may be able to pay cash for a house, but most buyers need a mortgage. Getting pre-qualified for a mortgage involves sitting down with your lender and discussing your income, assets, and credit in order to get a general idea of the amount of money you may be able to borrow. However, the lender won't approve you for a mortgage until it is able to verify all those numbers -- a more extensive process. Getting pre-approved is a good first step, though.
What your bank will lend you and what you can afford to comfortably pay are not necessarily the same thing. Your bank or lender could very well approve you for a larger loan than what you originally had in mind. One rule of thumb: The price of the home should be no more than three to four times your annual income. But when you start heading toward four times your income, you had better be sure you can really afford that home. You'll need to look at your total debt and expenses -- current and upcoming. If you're planning on having kids, factor in daycare costs.
Most buyers are not going to be able to get everything on their wish list, so they will need to prioritize. If a large house is important, they may have to decide whether they can afford to buy closer to a city, where prices are more expensive, or go deeper into the suburbs. The number of bathrooms, bedrooms, yard, neighborhood, and school district are also things to discuss and list in terms of priority. List items in order from "must have" to "wished for," or weight items on a scale of 1 to 5.
You've hired a broker, gotten pre-approved for a mortgage, and done enough research to understand what you want and what you can afford. Once you've found the house you want to make an offer on, Crowley advises asking your agent a simple but direct question: "What will it take for us to get this property?" In the end, this question will help both you and your agent zero in on what you will need to do to snag the house you want.
You may face a competing bid from another buyer, so you'll need to decide how much you are really willing to pay for your dream house. You'll also need to think about whether you want to write a personal appeal or letter to the homeowner. "Letters can be hit or miss, but when they hit, they can be truly be a home run," Crowley notes. You might consider dropping the standard home inspection contingency. While inspections are meant to protect homebuyers from unexpected repairs and structural problems, other bidders may have dropped the contingency to make their offers more competitive.
The final step before you can take ownership of your dream house is the closing, where you sign all the paperwork and pay closing costs related to the processing of the transaction by the bank, attorneys, and others involved. That amounts to anywhere from 2 percent to 5 percent of the cost of your home -- or $3,750 to $7,500 on a $150,000 house. Closing costs can vary greatly between different banks and lenders, so it always pays to shop around. On top of that, there are a multitude of things that can go wrong at closing.