Home Buying 101: The Basics
Home Buying 101: The Basics
If you’ve never bought a home before, buckle up. You are in for a wild and exciting ride that may be full of twists and turns you didn’t expect. When you work with real estate professional Franz Redl, you’ll have a guiding light by your side that can walk you through the process. In that spirit, today’s post shares a bit of information on the basics of buying your first home.
Budget
Every home purchase should begin with a quick evaluation of your budget. Keep in mind that this means more than just simply knowing how much you make each month. Lenders want to be certain that you can afford the home that you choose, so they will start by looking at your debt-to-income ratio (DTI). Ideally, you can find a home that is no more than 36% of your monthly take-home pay.
You also need to look at your credit score in the amount of money you have in the bank to put down. Your budget may also be affected by the type of home and type of loan you choose. An FHA loan, for example, is a great option for first-time buyers that don’t have an extensive credit history. If you can’t qualify for a conventional loan, an FHA loan may be a feasible option, but you should ask your lender about property restrictions.
You’ll also need money for closing costs, which can be anywhere from $2,000-$5,000 per $100,000. This means your closing costs can range from $10,000-$25,000 on a $500,000 house. You may be able to lower some of these expenses by asking your seller to pay a portion or looking for a lender/loan with lower fees. If all else fails, consider buying a less expensive home, which might need a bit of elbow grease.
Evaluate Your Needs
While your budget will heavily influence the type of home you buy, you should also evaluate your needs and lifestyle. If you have a home office, for example, you’ll need an extra bedroom or flex space. Gallup asserts that remote work is not going away anytime soon, so it might be wise to look for an office even if you currently work from your company’s main building.
You must also pay attention to the school zone, property taxes, HOA, and proximity to hospitals, parks, and grocery stores. Property taxes and HOA fees can add significantly to your mortgage.
Consider Special Circumstances
Ideally, you have a credit score of 670 or better and a verifiable two-year employment history. But, what if you are a veteran just released from active duty or you’re self-employed? These special circumstances should also be considered as you begin your home search. Veterans may qualify for a VA loan with zero down while self-employed people may have to jump through a few hoops, which your realtor or lender can walk you through.
Determine if You Need a Home Warranty
A home warranty covers the repair or replacement of major home systems and appliances. Consider purchasing a home warranty if you buy an older house, especially if your HVAC or plumbing systems or appliances aren’t in excellent shape. You may not need a home warranty if your home is currently under a builder warranty. Look for major issues within your home inspection report before you decide to spend the money on any type of warranty—this will help determine if it’s worth the cost.
Establish a budget, evaluate your needs, and consider whether you need a home warranty. Once you have these steps completed, then you can begin your home hunt. In today’s market, real estate moves quickly, so you may find yourself going from offer to negotiations to home inspection to appraisal to closing in as little as 30 days.
Think you’re ready to buy? Reach out to Franz Redl and start your home search today!
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