Buying a house is one of the major milestones in life. I remember purchasing my first property; I had no idea what I was doing and made some mistakes. During my second close, I underestimated the closing period and almost ended up homeless for a few days! Now, I’m building my own house on a plot I bought with cash in Colorado. Even though I expected this to be the smoothest project, a few unexpected surprises still came up.
So, what does it take to buy a house? First and foremost, patience. We’ve all heard stories about people who rushed into buying and lost money for various reasons. Take your time, especially if it’s your first purchase. Begin by determining how much house you can afford. Most lenders will approve a debt-to-mortgage ratio of around 50%. This means you can allocate half of your disposable income, after other loan or debt payments, to mortgage payments.
However, the mortgage payment you see on calculators isn’t the whole story. You need to account for property taxes, insurance, and PMI if your down payment is less than 20%. Also, the interest rate can greatly affect your payments. Even a small difference of 0.5% can add up to thousands of dollars over the loan term. If you have a low credit score, consider spending a few months to rebuild it before applying for a mortgage.
What the bank says you can afford might differ from what you can comfortably manage. Every household has unique circumstances. Maybe you support a family member monthly or need extra gas money for a longer commute. Make sure your mortgage is affordable. It’s better to compromise on a smaller space than risk having your house repossessed due to missed payments.
Consider various scenarios: Can you still pay the mortgage if your spouse loses their job? If interest rates rise to 8%? If you need an extra $500 a month for college tuition or to support an aging parent?
Once you know how much house you can comfortably afford, and you and your lender agree on that figure, it’s time to go house shopping. This part of the process is exciting, but there are many factors to consider. What are your priorities? How far is it from work? How important is the school district’s quality? Could you recoup your costs if you had to move far away? If not, could you rent it out to cover the mortgage? How much will you spend on renovations and repairs? Will you handle them yourself or hire someone? What are the HOA fees and other costs?
Working with a great agent can make a big difference. Ask for recommendations or check online reviews. Buyers don’t pay for agents, so make the most of their expertise. They can point out things you might miss during the house hunt.
It’s important to define your needs and budget ahead of time to stick within those limits. Sure, having a guest bedroom would be great, but is spending an extra $30,000 worth it for the few days a year family might visit? Remember how overspending on eBay was a mistake? The consequences are far more serious when you’re bidding on an overpriced house.
Once you find the perfect house, go back to your lender to secure financing. You should already have pre-approval, so unless something was missed, it should go smoothly. In the meantime, get an inspection to ensure everything is as disclosed. Don’t hesitate to walk away if you’re unsatisfied, or ask the seller for a discount. Spending a few hundred dollars on a professional inspection can save you thousands by catching issues early.
Allow about six weeks for the closing process. Make sure you can stay in your current home until then, as moving in with friends or family temporarily can add stress to an already busy period.
Buying a house is an exciting, once or twice-in-a-lifetime project. With the right people around you, everything should turn out fine!