For most people, purchasing a home is the single largest financial commitment they will ever make. Whether you’re a first-time buyer or a long-time owner looking to downsize, the excitement of purchasing a new home may be tempered by the onerous home-buying process. While HGTV manages to fit the entire home purchase (and reno) process into 30 minutes of television, the actual process is much more complicated. Thankfully, there are a number of steps to proactively take so that when you do find the perfect home you can feel confident in your decision to move ahead with the purchase.
- Determine Your Budget. Touring gorgeous houses only to find that they’re well outside your budget can be a letdown. To save yourself both the time and heartache, first determine how much home you are able to comfortably afford—a common rule of thumb is to spend no more than 2.5 times your annual salary. Sites like realtor.com offer a number of tools, including a Home Affordability Calculator into which you can easily enter details about your income, monthly debts, and down payment. Lending institutions will only have a partial view of your finances, so they may offer a larger loan than you can truly afford. Review your bank statements and determine how much you’re paying each month for things like ongoing medical costs, groceries, the cable bill, fuel, entertainment, etc., as those items can quickly eat into your disposable income.
- Get Pre-Approved for a Mortgage. A good way to stand out in a competitive sellers’ market is going to the extra effort to get pre-approved for a mortgage, rather than just getting pre-qualified. Pre-qualification means that lenders estimate how much the buyer can qualify for based upon information provided by the buyers themselves. On the other hand, pre-approval is when the lenders verify the borrowers’ assets, income streams, and credit worthiness to determine exactly how much the institution is willing to lend. Although pre-approval is not a loan commitment, it does help speed up what can be a lengthy underwriting and loan-approval process. Generally, pre-approval letters are valid for 60-90 days.
- Hire a Professional. Though you may be inclined to go the home-buying process alone—relying on the wealth of information available on the Internet—hiring an experienced real estate professional can save you both time and money while offering much-needed peace of mind. In addition to walking you through dozens of forms, reports, and disclosures, real estate professionals have access to more listings, are experts in local markets, and can connect you to their networks of home inspectors, interior designers, brokers, etc. If you do choose to hire a professional to aid you in your search, it’s important to know the difference between an agent and a Realtor®. Although each state has their own requirements for earning a real estate license—typically taking a minimum number of classes and passing a test—generally speaking, anyone with a license can be called a real estate agent. However, a Realtor® is an agent who is a member of the National Association of Realtors (the largest trade group in the country). The key difference between the two? Realtors® are held to a higher ethical standard than licensed agents and must adhere to a Code of Ethics.
- Limit Credit Use. Did that perfect living room set you’ve had your eye on for months finally go on sale? Think twice before applying for store credit or putting that purchase on a credit card. Your lending institution has the ability to run your credit at any time until the loan is closed, and any abnormal financial activity could alter the terms of your deal or even doom it. In case of an unavoidable situation, check with your loan officer to see how the action may affect your application.
- Consider Sleeper Costs. If this is your first time owning a house, you may be unfamiliar with “sleeper costs” (expenses that may be overlooked when calculating your budget), and instead just focus on your mortgage payment. Sleeper costs can add up quickly and may include property taxes, homeowner’s insurance, homeowners’ association dues, repairs, yard maintenance, and utilities. Failing to properly budget for these costs could severely cut into your disposable income, and possibly hinder your ability to pay your mortgage.
Purchasing a new home, especially for the first time, can be one of the most exciting moments of your life. However, as with any other major legal and financial decision, it’s important to be as informed as possible. Though these tips are a good place to start, there are many more items to consider when buying a home. As a wealth management firm, one of our goals is to provide simplicity and peace of mind. Please talk to a Balentine Relationship Manager if you have additional questions about purchasing a home or need recommendations for experts to help you navigate this process.