Everything You Need to Know before Buying Real Estate of Your Dream

 

When you finally decide on buying real estate as your first home, you should know that it takes a lot of responsibilities AND you will have to deal with a lot of things. Buying a house isn’t just about buying a house. There are things to be prepared with, and you will have to be ready for the worst case scenarios.

If you are one of those first time buyers, you will need to know all of these things and factors before you move on with the real purchase. So, what should you know and what are the things to prepare?

What Most First Time Home Buyers Should Know

As the first-time home buyers, you should know that buying a house is a huge decision that can impact your life as well as your finance in the following years to come. That’s why you should never underestimate it or take it lightly. The first thing you should do is to define both your financial and also personal goals. Starting a family, for instance, can affect a person’s decision to buy a house or not.

If you don’t plan on starting a family, for example, it’s always easier to rent. Moreover, after you make a decision, you also need to consider other factors, such as price, ideal location, and what kind of amenities you want from a house. 

Ask yourself these questions:

• Does buying a house seem like a logical and reasonable for you?
• How would it affect your finance?
• What about renting and how it affects your (financial) standing?
• Are you up with the responsibilities and the tasks for maintaining a house? Would you be able to do it financially and mentally?
• What things would be important for you when it comes to a house? Is location your number one priority? What about amenities? What about the possibility of growth and development, especially if you have kids?

After you go with the initial steps, it’s time to check the credit score. Do you know that credit score can help you determine the financing options when buying real estate?

Mortgage lenders aren’t really happy with risky borrowers, or those with low credit score. When you have good or even impeccable credit score (and history), you will have better chances to secure the financing. And you can also enjoy the best rates as well as the best terms.

Start out by having a credit report on a yearly basis from TransUnion, Experian, or Equifax for free. You can also contact your bank and ask whether it’s possible to have access to your credit score report. Most banks have this kind of service. The higher the score, the easier (and also cheaper) your mortgage is.

The next thing you should do is to prepare your finance. This is one huge crucial element in your purchase. If you don’t have the money, then you won’t be able to buy the house.

But you should also keep in mind that a realistic budget will help you a lot in managing your finance, including giving you information about the all in costs and what are the things you can actually afford.

Most buyers would be able to buy the house, but then, they forget to consider other expenses, such as maintenance costs (seasonal type or yearly type), homeowners association fees, emergency funds, and such things alike.

You may be able to afford the down payment and the mortgage, but it doesn’t always mean that you are able to afford other (long term) costs, especially after you move.

The Mortgage Rates

If you are planning on buying real estate, you should know about the mortgage rates. Naturally, you can compare loans (from one provider to another) to get the best deal.

But you should also know that loan estimates are generally filled with complicated calculations, figures, and facts. The mortgage rate refers to the amount of money you have to pay when taking out a loan. It’s basically the owed interest (annually) that is reflected through the total loan balance’s percentage.

The rate can be adjustable or fixed. The latter refers to the consistent percentage throughout the loan’s entire course. For instance, you have a 4% (fixed) rate for a loan worth of $200,000. It means that you will have to pay 4% of the loan balance yearly until you can refinance it, pay it, or sell it.

However, if you go with the adjustable rate, the interest would go up and down, affecting your payment too. The most popular adjustable rate is the 5/1 ARM. It means that you have a set (or fixed) rate for the first 5 years, and then the rate would adjust itself each year afterwards.

The Budget Planning

When buying real estate, you will have to consider setting up a special budget to finance the purchase. However, before doing so, you need to do some of these things.

Asses the Spending

You will have to check into your spending. When you purchase a house, it means that you will take a new expense. Knowing your current spending will help you determine your financial standing. It can also help you decide whether you can afford a house or not.

You should have a realistic view on your spending patterns. You can do these things:

• Aside from looking into your credit score, you should also view your checking account, especially within the last 6 months or a year
• Record all of your spending. If it’s difficult, use a spending tracker.
• It’s also possible to sign up for a special tool for personal financial management which can help track the spending
• Create a monthly budget for your current budget. When you do, don’t forget to include emergency spending or miscellaneous category. You need to be prepared for the extra unexpected spending.
• Check several months back, making sure that you don’t miss out any minor expenses, such as medical expenses, tuition, family member support, charity, vacations, and others.
• Add them up and then compare the budget to your monthly income. How much would be left? Check the bank statements, ensuring that the budget has been realistic.

Make a New Budget

You should develop a new budget when you think about buying real estate. This budget helps you ‘see’ how you should spend the money during the purchase preparation and also after the purchase.

• Your budget should include the monthly (home) payment that covers mortgage insurance, homeowner insurance, property tax (or taxes), interest, and mortgage principal.
• Then you should also estimate monthly expenses for water, cable, gas, electricity, and others. You should have enough money to cover these expenses too.
• Imagine about your monthly spending when you already buy the house. Then decide about how much money you want to save on a monthly basis for emergency, basic spending, and other expenses.
• You may have to make some adjustments. You can always cut back some of your regular spending by making adjustments. But even if you make adjustments, they should be realistic. Unrealistic expectations will only lead to financial chaos and mess.

Down Payment Assistance

Besides the conventional loans, you can also get other financial help related to down payment and mortgage loan. In most cases, even the down payment concern can be quite overwhelming.

That’s why you have Down Payment Assistance (DPA) that provides grants and loans for the qualified home buyers. Although DPAs are generally coming from organizations funded by the governments, you can actually find one at credit unions and banks.

If you want to have the help, the DPA operates on city, country, or state level. Find out what programs running in your area. Check the restrictions, eligibility, and also terms of the programs, which may cover these things:

• The limit of purchasing price
• Buying within a certain or specified area
• Income limits
• Completing the (approved) home-buying education course
• Using a mortgage lender that has been approved
• Credit score requirements
• Purchasing the primary residence and staying there for certain length of time
• First time requirements for homebuyer
• Using a certain mortgage loan’s type

Home Maintenance Checklist

As it was mentioned before, you also need to consider about maintaining your house, and it needs regular spending and checking. That’s why you need to have a home maintenance checklist that can help you with the inspection – as well as your financial calculation.

Through this calculation, you can determine whether you can afford these expenses.

These checklists consist of various types, such as:

• Annual home maintenance list
• Monthly maintenance list
• Bi-annual maintenance list
• Fall home maintenance list
• Spring home maintenance list
• Winter home maintenance list
• Summer home maintenance list

You should include various different things within each of these lists. For instance, for monthly maintenance list, you should have:

• Faucets leakage and cracks
• Detectors and alarms test
• Air vents clean up
• Filters check, and replacement
• Sump pump checking
• Pipe clogging checking

Or for your annual home inspection list, you need:

• Dryer vent clean up
• Termites inspection, or the possibility of any infestation
• Water heater flush
• Tree branches trimming

The Next Step

Once you have set the special budget for buying real estate, you can do the following things. Keep in mind that these things are basically flexible. They aren’t set in stone. You are free to skip an option or have an extra, but these are the basic steps

• Hire a Professional Real Estate Agent

You can seriously save up a lot of money, time, and energy when you hire an experienced and skilled real estate agent. You can reach out to several agents, and then have an initial meeting so see which one would be perfect for you. You want someone who can tell whether your budget is realistic or not as well as the one with the local area knowledge.

Make sure to check the agent’s track record, workload, and others. They should also have the knowledge to other professionals, such as appraisers, contractors, inspectors, and others.

• See Several Houses

After you choose an agent to assist in buying real estate, you need to see and visit homes. Don’t rely on listing photos viewing only because you need to know the real neighborhood, the ‘feel, the amenities, and others.

You can attend open houses and make sure to note them down. See what the property can offer you; whether it’s location, promising amenities, and others.

• Make an Offer

Now you can make an offer of the property you are interested in. Talk to your agent about the property you want and they should be able to help you with the preparation of the offer package. However, when you make the offer, everything is possible. The sellers may counteroffer you and others. But when they accept the offer, be ready to sign documents, especially the purchasing agreement. Your agent should be able to help you with it.

Home Inspection Checklist

When you visit a location, don’t forget about home inspection checklist. It would help you to understand the overall property’s value, including the structural and mechanical issues.

Through the inspection, you can decide whether you want to continue with the closing or not. Through the checklist, you may decide to cancel the deal or ask (the sellers) for repair.

You should know that home inspection is basically about visual checking. It should be a noninvasive type that can reveal the underlying issues and problems. Some of the checklist would include:

• Grounds and also exterior structure, such as stained or flaking paint, undamaged chimneys or windows, etc
• Attic, such as contained electrical splices, no decay structure, and others
• Basement, such as absence of moisture or water damage, etc
• Bathrooms, like stable toilet, enough water pressure, leakage proof, and others
• Interior rooms, like the existence of AC and heating vents in all rooms, functional switches and lights, smoke detectors, and others
• Kitchen, such as functional garbage disposal, properly operating built-in appliances
• Cooling and heating systems, like clean air filters, no gas odor, etc
• Electrical systems, such as good condition wiring, secured (and protected) cables, and others
• Plumbing, like no rust for the water heater, no leakage evidence on pipes, and others

Whatever you do, you should have the complete checklist before buying real estate. Even when you buy one for investment (you aren’t going to live in one), you still need to have the checklist intact.

Conclusion

As you can see, you have to deal with a lot of things when you decide to buy a house. Be sure that you consider and cover everything, making sure that you can manage them when buying real estate.