What Homebuyers Need to Know

What Homebuyers Need to Know


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In order to dive fully into the buying process, homebuyers need to be confident. In order to be confident, homebuyers need to be educated.

To allow yourself as smooth of a home buying process as possible, here are some things that homebuyers need to know.

How much home can you actually afford?

Buying a home is a big investment which (for most homebuyers) requires a home loan. In order to receive this loan homebuyers also need hefty down payment.

So the question is: how much home can you actually afford?

While the answer depends on a number of factors, in general, experts recommend that your house payments (mortgage, maintenance, taxes) should not exceed 28% of your gross monthly income. Therefore, if your monthly (before-tax) income is $6,000, multiply that by 0.28 and you’ll see that you shouldn’t pay more than $1,680 a month on your home.

When determining this number you can use an online calculator. But keep in mind that online calculators only provide a ballpark figure. For a more accurate assessment, homebuyers should meet with a lender for mortgage pre-approval.

During this process, your lender will assess your credit history and other factors, then tell you whether you qualify for a loan, and how much. Homebuyers who have pre-approval can put home sellers at ease, since they know you have access to the cash to back up your offer.

Bust the “Perfect Home” Myth

It is easy to romanticize the home buying process – especially if it is your first home. Chances are that you have been thinking about this place of your own for a while now and you don’t want to settle for anything less than perfect.

The sooner you can get the idea “perfect” out of your head, the better off you will be. Real estate is about compromise.

In general, most homebuyers prioritize three main things in the home buying process: price, size, and location. Realistically though, homebuyers can expect to achieve only two of those three things.

For example, you may get a great deal on a huge house, but it might not be in the ideal part of town. Or you may find a great house in a great neighborhood, but the price is a little higher than you were budgeting for.

Understand that these compromises are part of the deal. For that reason it can be easier to find something you can live with, grow into, and renovate to your taste.

Research

You’ve found a house and your offer was accepted. Now you are ready to move in asap.

Slow down.

Before you sign any paperwork you want to make sure you have conducted the necessary due diligence on the home. You will also want to consider adding some contingencies to your contract.

Contingencies essentially state that you have the right to back out of the deal if something goes wrong. The most common contract contingencies are:

  • a home inspection (which allows you to request a resolution for issues (e.g., a weak foundation or leaky roof) found by a professional)
  • a financing contingency, which gives you the right to back out if the bank doesn’t approve your loan
  • an appraisal contingency, which lets you bail if your lender values the home at less than what you offered.

Because you will be in the home for a long time, you don’t want to regret making the wrong decision. The homebuyers who make the effort to educate themselves on their financial situation and their market are the ones who experience success.

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