Determine What You Can Afford
Before you begin searching for a property determine how much you can afford to spend on monthly house payments. Make sure you take into account the Hidden Costs of Home Ownership, as these costs will result in your monthly housing expense being larger than your actual mortgage payment. The mortgage you can afford and the mortgage you actually qualify for may be two very different numbers.
Mortgage Pre-Approval and Financing
Pre-Approval is a commitment from a lending institution to provide you with a loan up to a specific dollar amount when purchasing a home. Pre-Qualification, however, is not a guarantee or commitment is more of an estimate of what you may be able to qualify for. If you are serious and intend to purchase a home in the very near future, you want to obtain Pre-Approval (an actual commitment from the lending institution) before you begin shopping, as this will allow you to make an immediate offer when you find the property you want. The majority of banks and mortgage lending institutions do not charge for Pre-Approval. Property Sellers will likely not take you seriously unless you have a Pre-Approval letter from your lending institution. Begin this process by speaking with your bank, credit union, or licensed mortgage lender. Expect to provide extensive documentation to potential lenders in order to receive Pre-Approval. Prepare and organize these documents in advance (in both digital and hard copy format):
- Payroll stubs for past 2 months
- Tax returns for the past 2 years
- Personal Financial Statements
- Statements on all loans (auto, credit card, etc.)
- Bank account statements for the past 2 months
- Retirement and/or investment account statements
Do not be afraid to shop around for a more favorable interest rate or loan terms, and pay close attention to the closing costs or fees for the loan. If you find a home you wish to make an offer on, include with your Offer to Purchase a copy of your Pre-Approval letter. Be aware that some sellers may require you to provide a Pre-Approval letter before they show their property to you.
Determine Your Wants and Needs
Before shopping for a new home, spend time thinking about what you truly need in a home versus what you want. You may spend a significant portion of your life in this home so it is important to find a home which first meets as many of your needs as possible. While you may be attracted to a home based on the initial look or feel, a closer look at features offered in the home may reveal that your needs will not be met there.
Try making a list of what you NEED in a property. Examples of needs may include handicap access, a specific numbers of bedrooms or bathrooms, a garage, a basement, storage space, proximity to work or schools, a fenced yard for animals, or a minimum square footage. Next, make a list of what you WANT in a property. Examples of wants may include granite counter tops, skylights, wood floors, a hot tub, or a lake view.
When looking at properties first identify properties within your price range which meet as many of your needs as possible and then look at the added features which satisfy your wants. You may want a home within your budget offering a gourmet kitchen, but if you have to sacrifice your need for storage space your home will constantly feel cramped with storage bins, boxes, and collectibles stacking up. Remember that you can always upgrade your home at a later date to satisfy your wants.
If you find a property you want to buy, now is the time to leave your emotions at the door. You MUST take the inspection process seriously and you have several options available to you. It is generally the financial responsibility of the Buyer to pay for inspections.
- You can hire a licensed Property Inspector to go over the home and produce a report for you. This usually costs anywhere between $250 and $500. Keep in mind that the property inspector is in no way liable for anything they fail to notice or report to you. If you use a Property Inspector, find an experienced one with a good reputation in your area.
- If you are knowledgeable in construction and the mechanical systems of a home, you may choose to inspect the home yourself. Or, you can bring along a trusted friend or relative who is knowledgeable in home construction. In either case, you should expect to spend several hours going over every system of the home, and take detailed notes on what you find.
- You can hire professionals to look over specific system of the home. For example, you may bring a Licensed Electrician in to look over the electrical systems in the home, an HVAC Certified Technician to inspect the heating and cooling system, a Licensed Plumber to inspect the pipes, a Roofing Contractor to inspect the Roof System, etc.
Consider having the roof, the heating/cooling system, the septic system (septic tank if you have one), and the well (if you have one) inspected by knowledgeable professionals before you purchase a property as repair or replacement of these items can be very costly. These inspections do require time and money but if you are serious about purchasing the home these inspections could save you thousands of dollars and countless headaches.
Remember that you can make an offer on a home subject to the results of inspections. If you make such an offer, consult with your Attorney or Title Company to ensure that the Purchase and Sale Agreement is correctly worded, contingent upon satisfactory results of the property inspections.