Regardless of if this is your first time, or you are a seasoned veteran of making large asset purchases, the tedious nature of buying a home can be exhausting. Some buyers are too picky, others are too reckless with their finances, and others struggle to find just the right property even if it’s right in front of them with the right price tag.
Many experts say the home buying process is more art than science and to go with your gut, meanwhile others say you should be risk averse and methodical with your process to ensure you land on the right decision. There’s no blueprint that works across the board for every buyer (regardless of if this is your forever home or an investment property). However, you can draw key takeaways from other people’s successful (or failed) ventures to make your experience a more fruitful one. So, we’ve compiled some best practices below that should make the process of buying a house easier for you and your family.
Understanding Your Budget
If you’ve purchased a home before, you are no stranger to the process. However, if until recently, you’ve been a veteran renter, getting a firm understanding of the home buying process will make everything feel less foreign. Additionally, with many of the new social distancing stipulations and increased emphasis on cleanliness for agents, sellers, buyers, and property owners due to COVID, if you haven't bought a home since before March 2020, this will serve as a good primer for this process.
So if you are ready to turn your monthly rent payments into a way to invest your money, the first question you should ask yourself is, “what are my (or my family’s) goals?” Are you looking to purchase a home in a good school district for your children’s education? Are you interested in investing in a property to then turn it into a rental? Is this a starter home for you and your spouse? Having a firm understanding of your goals, and the different properties that align with them is a crucial first step in the purchasing process.
Once you understand the type of property you are looking for, before you start shopping for specific homes, you should start a dialogue with your preferred financial institution to establish how much home you can afford. One of the top mistakes homebuyers make is only talking to one lender, or buying more house than their budget allows for.
While you could qualify for a $350,000 or $400,000 home, how much strain is that going to put on your monthly or annual budget? Additionally, can you sustain payments for a prolonged period of time if something were to happen to your family’s income? The pandemic has shown us that things can change at the drop of a hat, so it’s best to avoid over-leveraging your finances and settling on a home that firmly fits within your financial window.
Conventional wisdom says that, in order to remain financially solvent, your mortgage payment should not exceed 30 percent of your monthly pre-tax income, and as a whole, the best financial experts recommend that you keep your total monthly debt obligations to 33 percent.
House Tours
Once your goals are established, and the bank has confirmed how much house you can afford, it’s time to go shopping. Admittedly this step should take the longest out of any in the process, because it requires all the right pieces to fall into place. Not only do you have to find the right property that checks all of your boxes, it then has to also be in budget, and in a quality neighborhood, AND you have to beat out other offers to put ink on paper.
While this process can feel extremely daunting, and a few failed attempts can let frustration build, experts say that moving too fast on a deal for the sake of making progress is a bad move. Home-buying requires patience. Additionally, the way we view homes in 2021 is completely different from just a few short years ago. Many agents and realtors will offer virtual open houses, or do showings on social media to weed out the general curious shoppers from the more serious ones.
Once you have a handful of prospective properties that could be the one, you should reach out about a formal tour. We have heard cases of delays in this process because some realtors have homes disinfected in between showings to prevent the spread of any sickness and to make buyers and sellers feel comfortable with unknown parties in their homes.
Inspections, Offers, and Closing
So you’ve found a home that is perfect. It’s within your budget, in a great neighborhood for your lifestyle, and it checks all your boxes (who could say no to that master bath?), so it’s time to put in an offer. Due to the current low interest rates, many real estate outlets are reporting that the offer process feels more competitive than anyone in recent memory can remember.
In big cities like Nashville or Seattle, some homes are receiving half a dozen offers within a few hours of being listed, and oftentimes for more than the asking price. Don’t let this frustrate you. Financial experts say this is how you can potentially overleverage yourself by paying more than you can afford. Instead of coming in over the top with price, try and negotiate sweeteners in the deal such as reducing closing costs, or paying broker fees, to make your offer more competitive without breaking the bank. They also say cash is king, so if you can use that to your advantage, sellers will be more likely to hear you out over competitors.
Once your offer has been approved, a critical step stands between you and closing, and that’s the home inspection. The inspection process is to ensure that there aren’t any physical or metaphorical skeletons in the home’s closet. The last thing you want to happen is that you invest hundreds of thousands of dollars into a house that has foundational issues, or a leaking roof. Some experts recommend having a home inspected twice for due diligence to ensure no large expenses will pop up a couple of months down the line. The inspector will put together an itemized list of things he believes could be repaired or upgraded and it’s up to you and the involved agents to come to an agreement on who, if anyone, is responsible for the repairs. Once all parties have come to an agreement, you’re nearly to the finish line!
Now all you have to do is make it to closing day without any bombshell revelations coming to light. On closing day, contracts will be signed, money will be transferred, and the property is now yours. Congrats on the home of your dreams, and good luck over the next few months and years getting settled and decorating to fit your style. If you have any additional questions regarding the process, feel free to reach out to your realtor or turn to the abundance of online resources.
