Buying a home is pretty intimidating. You may have found the home of your dreams or had your eye on a fixer upper for a while. However, knowing what you want is just the beginning. You need to know what you can afford, what your options are, and all of the costs associated with a home purchase.
It’s hard to navigate the home buying process on your own, which is why we have put together a home buyer’s guide to help you understand all the details as you move forward with your new home purchase.
Introduction to Home Buying
Whether or not you are a first-time home buyer, the real estate sales process is complex and changes frequently, making it more than a little intimidating. Before signing any paperwork or falling too deeply in love with any property, make sure you understand the basics.
Your Home Buying Process
The first thing you need to consider before starting the home buying process is your long-term goals, both financially and personally. Why do you want to buy a home? Are you tired of paying rent? Are you looking to make a long-term investment? Do you see home ownership as a critical part of adulthood and independence? When you understand the reasons you want to buy a home, you can better position yourself to find the right home for meeting those needs in terms of size, features, quality, cost, and more.
Assessing Financial Readiness
Once you understand your goals as a home buyer, it’s time to look at the next step: evaluating your finances. To make this process quicker and smoother, it’s important to prepare in advance. Start by gathering the critical financial paperwork your lender will ask to evaluate, including recent pay stubs and two years of W-2 forms, self-employment income, and bankruptcy or divorce paperwork, if applicable. Make sure you can also verify funds for your down payment and closing costs. With this information in hand, take some time to do an honest assessment of your financial position regarding buying a home.
Evaluating Your Financial Health
Once you have all your financial paperwork prepared, it’s time to take an honest look at your situation and see how much you can really afford to pay for a monthly mortgage. Remember, there is more to owning a home than converting a rent payment into a mortgage payment. You also need to make sure you have enough cash saved for additional expenses associated with buying a home, including a down payment, inspection fees, lawyer’s fees, closing costs, and any taxes associated with real estate expenses.
One way to understand the extent of these expenses and how they correlate with your current financial position is to work with your bank or credit union. The lending professionals who work at your financial institution can look at your current accounts to help you assess your financial health as well as help you predict exactly how much cash you will need up front to cover all the expenses that go along with buying a home.
Understanding Additional Costs of Home Ownership
Once you purchase your home, there are still more financial considerations to make. When you are transitioning from renting to owning, it will be necessary to account for additional monthly costs besides the mortgage itself when you prepare your monthly budget. For example, you will need to pay property taxes, homeowners’ insurance premiums, and private mortgage insurance (in some cases). Depending on the area you live in and the type of home you purchase, these costs can vary a great deal, so make sure you take accurate figures into account.
Additionally, be prepared for the repair costs associated with the property. You are your own landlord as a homeowner, so you will have to pay for repairs and replacements when something breaks. Ask questions such as, “How old are the furnace, roof, and water heater?” and “What is the yearly cost for heat?” This will help you prepare an accurate budget that accounts for a certain amount of unexpected expenses.
Understanding Mortgage Options
When deciding on a mortgage, you can choose between a fixed rate mortgage or an adjustable rate mortgage (ARM) with different loan periods. Ultimately you should choose what is best for you, but it’s important to know your options.
Types of Mortgages Available
An ARM offers you a low rate for a set period, and after that time expires, the rate adjusts each year based on the mortgage rates at that time. According to the National Association of Realtors, Americans live in their homes 13 years, on average. However, if you are using this home as a starter home or planning on refinancing in the future when rates could be lower, an ARM may be a good fit for you.
In contrast, a fixed rate mortgage will provide a set interest rate that remains constant during the life of the mortgage, regardless of whether rates increase or decrease. The fixed rate is easier to understand and manage because you will pay the same rate throughout the life of the loan. Monthly payments would only change if other costs in the mortgage payment, such as school, city, town, or village taxes, increase or decrease.
Getting Pre-Approved for a Loan
Regardless of the type of mortgage you choose, it is important to start the home buying process by getting pre-approved for a home loan. Mortgage pre-approval accomplishes a couple of important things. First, it helps you better assess your financial position by establishing a relationship with a lender and understanding your buying power. Second, it shows sellers that you are serious about buying, which may encourage them to accept your offer.
Finding the Right Property
When you are looking for a new home, the best way to set yourself up for success is to make a wish list and rank the items on that list in order of importance. It’s important to consider several essential elements when making that list, such as:
Choosing the Right Location
The phrase “location, location, location” is associated with the real estate business for a reason. Where you want to live can have a huge impact on both the cost of the home itself as well as the taxes associated with it. In addition, where you live has a significant impact on your everyday life, including your commute time as well how much time it takes to get to commonly visited places, such as schools and shopping areas. Families with children and pets may also want to consider proximity to public parks and green spaces.
Considering Property Sizes and Their Advantages
Another big consideration when looking to buy a home is the size and type of property you want to own. According to the U.S. Census Bureau, in 2023, the average size of a newly built single-family home was 2,233 square feet, and the average size of an owned multi-family unit (or condo) was 1,345 square feet.
Many home buyers make the mistake of assuming that bigger is better — and extra space does come with some distinct advantages — but it’s also important to consider the cost of that space. The total cost involves not only the literal cost per square foot, but also utility bills and maintenance for the home over time. On the other hand, larger homes are sometimes necessary for larger families and people who work from home and need office space in addition to their normal living areas.
Utilizing Real Estate Agents and Online Resources
Especially as a first-time homebuyer, it’s important to have help and guidance throughout the search process. To start, many online resources are available that allow you to search for homes in a specific area based on specific search criteria, such as square footage and number of bedrooms. This will give you a good basic idea of pricing in the market.
However, when you are ready to advance to seriously looking at homes, it’s also important to reach out to an experienced real estate agent. Experienced agents have access to the most up-to-date listings as well as inside information about the market and advice about what to look for and how to avoid common pitfalls.
Negotiating and Making Offers
Another great benefit of working with a real estate agent is that once you find a home you like, the agent can help you figure out a good price to offer the sellers. Indeed, several factors affect both what you can and should offer for a home as well as what a seller is likely to accept, so it’s important to understand the basics of real estate offers before you get started.
The Importance of Home Inspections
Make sure that you get a home inspection between your initial offer and signing your final contract to buy. Even homes that look flawless on the outside can have issues on the inside that will affect the cost of ownership. After you get the home inspected, if issues exist that could cause future problems or repairs, you can use that information to ask the seller for concessions; in response, they may perform the repairs themselves or lower the final price of the home so that you have the cash available to take care of them yourself.
Understanding the Components of an Offer
While it starts out simply enough, a real estate offer is the beginning of a serious, binding legal contract between you and the seller. The documents include a lot of fine print, but the four main components of an offer that you definitely want to examine closely include:
- Money – This, of course, includes the purchase price, but it also includes how that breaks down on your side in terms of cash (down payment) versus loan dollars. Earnest money, or a deposit equal to about 1-3% of the purchase price, is also part of the contract, as are any closing costs estimated by your lender.
- Contingencies – These stipulations protect both the buyer and seller in case something happens to jeopardize either the home itself or the buyer’s ability to pay for it. Common contingencies include the results of a home inspection, appraisal value, and HOA disclosures.
- Timing – Because both buyers and sellers are negotiating more than just a sale, timing can be a huge factor in the ultimate success of a real estate sale. Buyers may need to move in to the home before the end of a lease, and sellers may need to complete the sale to qualify to buy a new home somewhere else.
- Disclosures – Each state, county, and municipality has its own rules regarding real estate disclosures. This may include revealing factors such as lead paint, brokerage relationships, noise concerns, pending violations, and outstanding liens on the home.
Closing the Deal
The final step in the home buying process is closing the deal. During the several steps involved with this phase, the seller officially transfers ownership of the property to the buyer. There are four main steps to the closing process:
- Conducting the final walk-through – Right before sitting down to close the deal, usually around 24 to 48 hours beforehand, buyers and their agent do a final walk-through of the property to ensure that all agreed upon repairs were completed, no new damage is present, and that the seller properly emptied and vacated the property.
- Signing documents – Part of the transfer of ownership is making sure all legal paperwork is in place. This means signing everything from your loan paperwork to the deed to the property.
- Making payments – Once all the documents are signed, all parties will receive the money owed to them as stipulated in the real estate contract. This includes the seller receiving the money from the sale, your lender receiving closing costs, and agents receiving commission checks.
- Receiving the deed – Once all the steps above are complete, you (the buyer) will receive the deed to the property, the keys, and any other important paperwork associated with ownership of the home.
Choose HRCCU for Your Next Home Loan
Buying a home is a big step — one that needs a lot of careful, long-term planning. If you are a member of Hudson River Community Credit Union (HRCCU) or eligible to become one, let us help with this process. Our experienced mortgage professionals are experts in walking first-time home buyers through the process, and HRCCU also offers a program to help first-time home buyers buy their first house. The details for the HRCCU First-Time Homebuyer Dream Program can be found here.
We are also ready and able to help experienced home buyers find the best deals. We can help you every step of the way from saving for a down payment to starting a home repair savings account to applying for a mortgage. Contact us today to learn more and get started on your home buying journey.
