Those who are considering buying a home should understand that it can be a long process that requires good planning throughout. Knowing how much you can spend on a home, where you want to live and how you are going to pay for the house ahead of time will make the shopping and loan application process easier. What does an effective home buying plan look like?
Figure Out What You Need From Your Home
The first step is to figure out what you need from your home. Do you want a big backyard, a finished basement or two bathrooms? If you plan on growing your family while in the home, you may want to buy something that has more than two bedrooms. It is also a good idea to consider the style of home that you want as not all styles are good at maximizing space.
Where Do You Want to Live?
Once you determine what you want from a home, it is time to determine where you want to live. If you have kids, you may place a premium on living in an area with good schools. Those who are single or young professionals may wish to live close to work or close to the nightlife that the area has to offer. By looking at multiple places to live, you can get a feel for how much it would cost to get what you are looking for in a particular part of town.
How Much Can You Afford to Spend?
Once you know where you want to live, the next step is to determine if you can afford to live there. Most lenders will not allow borrowers to spend more than 43 to 55 percent of their income on expenses, which includes your monthly mortgage payment. Therefore, if you make $3,000 a month, you wouldn’t be able to spend more than $1,200 to $1,500 a month at most. This amount includes taxes and insurance. In addition to the mortgage itself, you should be ready to pay closing costs and make a down payment.
Know Where to Find Down Payment and Other Assistance
Government programs sponsored by the Federal Housing Administration offer programs that enable first-time buyers to put as little as 3.5 percent down. Traditional mortgages require you to put up to 20 percent down in addition to closing costs. On a $100,000 home, you would only need to put down $3,500. However, this money can come from any source as long as the source is documented. Other state and federal grants may allow you to pay for your closing costs or other upfront payments without having to pay the money back as long as you stay in the home for a specified length of time.
Get Pre-Approved Before You Start Putting in Offers
According to The Wright Team of Keller Williams Realty, “the most important part of the home buying process is to have a pre-approval letter before you start putting in offers on homes. If you are not approved ahead of time, you may not be taken seriously by sellers. If an offer is accepted, it could delay closing as you try to get a mortgage to pay for the home.”
If you are in the market to buy a home, good planning makes the process less stressful for all involved. Therefore, know what you can afford and what you want out of a house before you start shopping and putting in offers. As with any other transaction, do not be afraid to shop around as this could add leverage that could result in a better deal.
