How do I buy a home?

How do I buy a home?

The real estate market is soaring.

But Millennials shouldn’t feel pressure to get in on the action, according to financial experts. They’re the largest group of homebuyers in the market today.

Buying a home is one of the most — if not the most — significant purchases of your adult life. So, you’ll want to make sure you’re really ready.

Here are three steps that’ll help you do that:

 

Sort your money out

First and foremost, get your finances in order before skipping off to find your dream home. This means understanding your total income and what it can buy.

While there are lots of online calculators out there to give you some quick numbers, approach with caution.

“Calculators online can be deceiving in that they don’t consider all expenses,” says Brett Spencer, a financial planner with D3 Financial Counselors.

The general rule according to experts is to spend no more than 30 to 38% of your monthly (pre-tax) income on housing costs. This includes all costs involved in homeownership — from monthly loan payments to insurance. Next you’ll need to figure out exactly how much you should have saved.

Sure, you’ll need enough to afford a down payment on the house — typically about 10% of the purchase price. In some cases you might be able to put down significantly less, though you’ll probably be required to pay mortgage insurance as well.

Budgeting is a big part of the process, so allocate what money you’ll need by setting up a savings account toward getting your future house.

 

Get Preapproved

Since a home is a pretty big purchase, you’re probably going to need a loan. But there are a wide variety of mortgage options to choose from. Work with a professional mortgage provider before house shopping to go over the options and figure out what you qualify for.

The best lender you can go with is known as a broker. This means they work with multiple banks instead of working with just one. This is a benefit because that means they can shop rates as well as conditions that will favor your buying process.

The most common mortgage is a fixed interest rate over a number of years usually either 15 or 30. The main benefit of a fixed rate is consistency, meaning steady payments over the life of the loan. While 15 years of payments will save you money on interest and allow you to pay off your loan sooner, spreading the loan out over 30 years might make the monthly payments more affordable for you.

The mortgage qualification process is called pre-approval. If you get pre-approved for a mortgage of a certain amount, the lender will give you a letter that you can present to sellers to show you have access to the money for the home you’re bidding on.

To move forward with the pre-approval process you’re going to need good credit, at least some money to spare, and a steady job.

 

Find a home

It’s finally time to shop for your dream home. When looking at a house, put the time in to get familiar with the place. And know that while you’re shopping around, just because you make an offer does not mean you’re committed to buying that home.

Pay attention to the layout and structure of the house. Hire a good home inspector, and ask lots of questions about the property. These are your first line defenses against a bad buy, according to experts.

Spending a little more money on help in finding the cracks can save you a lot down the road. Knowing the facts before signing a contract can also help you negotiate a lower price on the property or walk away from thousands of dollars in repairs.

If you find problems with your future house, let the seller know and ask for a discount. The last thing you want is a property with a lot of problems that you didn’t anticipate.