9 Steps To Buying A Home You Can Afford In Texas
Buying a home will be, for most of us, the single biggest purchase we ever make. The scale alone makes it a complex process; you need to take steps to ensure you end up in a house you can really afford. This nine-step checklist is a good framework to use:
1. Check Your Credit And Income
Checking your credit score is the best place to start budgeting for your house. Your score will dictate the interest rate you get on a mortgage; the higher the score, the lower the rate. Good credit can take a healthy bite out of your monthly mortgage payments. If your score looks bad, you might want to consider delaying your home purchase and taking some time to improve it.
When you start thinking about how large a mortgage payment you can afford, look at how much money you’re currently taking home. Personal finance experts suggest that you should consider 30 percent of your monthly income as an absolute maximum for your mortgage payment.
This is also the time to start thinking about how long you plan on staying in your new home. You’ll save money if you prepare yourself for a long stay – 10 years or more. Selling this home later will oblige you to turn over a hefty chunk of the selling price (typically six percent) over to your Realtor. If you only stay in the house a few years before selling it, this sales cost can easily offset any growth in the value of the property. Remember that moving is often a significant expense, too.
2. Build Up A Strong Down Payment
Modern home financing opens up some options that will allow you to buy even if you don’t have the cash for a down payment. Your finances might not be ready for purchasing a home if you can’t put together a down payment of at least 10 percent, though.
The ideal down payment to shoot for is 20 percent. This is a magic number because your lender will require you to buy private mortgage insurance if your down payment is less. PMI gives the bank an added layer of protection if you can’t pay off the mortgage. Depending on your down payment and your credit score, PMI can inflate your mortgage’s total cost by 0.3 to 1.5 percent.
3. Try To Expect The Unexpected
Fitting your mortgage payments into your monthly budget is a good start to planning outsmarts home purchase. Remember that other expenses come along with owning a home! You’ll have to pay for insurance, property tax, and maintenance expenses. The addition to your monthly expenses can run into the hundreds of dollars.
Consider a full range of known and potential expenses when deciding whether or not you’re ready to buy. Look past the mortgage. Do you have the resources to handle taxes, renovations, closing costs, maintenance, inflation, and fees?
4. Get Your Lender To Pre-Approve You For A Mortgage
By this point, if your finances are ready for buying a home, you should have a pretty good idea of how much you can afford to spend. You want to resist any temptation to exceed your limits when you start looking at houses.
If you start the process by talking to a lender, you can go into it with a pre-qualification letter that sets out your financial capacity. This is a handy tool for you, potential sellers, and real estate agents. Having a pre-qualification letter makes you a more attractive buyer if a seller is considering multiple offers.
Applying for pre-qualification means picking out a lender and being fairly committed to borrowing from them. Speak to multiple banks and mortgage brokers before you finalize your decision.
Remember that there’s no penalty for spending less than you’re approved for. In the long run, you’ll be doing yourself a favor if you buy a home that doesn’t use up every last penny of the financing you’ve lined up.
5. Pick The Right Agent
The best real estate agent to work with is one who understands your goals and has the right skills and experience to work toward them. Be aware that some agents specialize and you need a suitable one. If you’re buying a primary home and looking to raise a family, you don’t need the expertise of an agent who specializes in investment property.
Making a good match with an agent can pay off big in the long run. One scheme that’s worth considering is signing a contract that adds client satisfaction bonuses into your agent’s compensation scheme. This can make a dramatic difference in the level of service you receive, and working with an agent who prioritizes satisfaction will make the whole buying experience easier for you.
6. Add Your Home Needs To Your Price Range
The previous steps should have provided you with a pretty clear budget for your home. Now is the time to start combining your financial resources with your specific needs. Where do you want to live? How much space do you need? Do you have school zone preferences?
Thanks to internet tools, you can do far more preliminary research than ever before. You can get a very good grasp on your local housing market before you ever set foot on a piece of for-sale property. The more effort you’re willing to put into the research process, the better your results are likely to be.
7. Check Floor Plans Before Visiting
You need to be aware of the potential drawbacks of modern, online house-hunting, too. Photos are a huge part of selling modern homes – and photos can be deceptive. Look out for camera trickery that can make rooms look bigger than they are. Are the blinds always closed in the photos posted online? Chances are, the views are underwhelming.
The most honest depiction of a prospective home you’ll find online is the floor plan. The goal is to find a place that you can make into a home, so you should study floor plans and make sure that the layout of a home that interests you is really suitable.
8. Don’t Step Outside Your Comfort Zone When Putting In An Offer
Buying a home can be an exciting, emotional process, but you always need to keep a clear sight of the financial stakes. Hang onto your budget and stay rational about what you’re spending your money on. If you develop an interest in a broadly appealing house, you may find yourself in a bidding war. Don’t overextend yourself and offer more than you can afford in the mistaken belief that any given house is “the one” for you.
By the same token, don’t settle for a home because the buying process has exhausted you. You’re going to miss out on some great homes and pass up some stinkers before you strike the right deal.
9. Close Wisely
After you make an offer and the seller accepts it, the sale will be contingent on the closing process. This means securing your mortgage and passing all the necessary inspections, including your own walk-through of the property.
Don’t get tripped up by the many expenses involved in closing! Plan to pay for appraisals, attorneys, transfer taxes, inspections, and title insurance. As a rule of thumb, expect closing costs to be roughly five percent of your total mortgage cost. Your specific closing requirements will vary according to the state you’re buying in. Review the details with your agent and/or lawyer so you know what to expect.
Before making a decision, let one of the experts at The Texas Mortgage Pros help you find out exactly what loan is best for you. Feel free to contact us or call us today!