How to achieve a successful homeownership and buy the right home
Buying a house is the largest financial investment decision most people will make in their lives, and the process can be a source of great stress and anxiety for many people. Why? Most buyers go through the home buying process not knowing what they should expect next.
This guide breaks down the entire home buying process into easy to understand steps; you will learn how to achieve successful homeownership including how to get a better neighborhood, a better mortgage, a better house, a better deal altogether.
Are you ready to buy?
Write down a list of your must-haves and nice-to-haves. This will help you find out exactly what you are looking for.
Take a pause and answer these questions:
- Have you reviewed your credit report? Is your score above or below 700?
- Do you have a steady reliable income?
- Do you have money saved for the down payment and closing costs?
- Can you afford to make regular payments on the future mortgage?
Find Out How Much House You Can Afford
The first step in the Homebuying process is not to go out looking for homes, but to make sure you are ready and prepared. This includes knowing how much home you can afford.
As a rule of thumb, your monthly mortgage payment should not exceed one third (1/3) of your after-tax income.
There are other expenses you will continue to have such as food, clothing, entertainment; if your monthly mortgage payment is higher than one-third of your after-tax income, you bought a house that you cannot afford.
Assembling Your Homebuying Team
Who should you call?
Buying a home should be a fun process. To avoid costly buyers’ remorse, you will need to assemble the team that will deliver you to success.
Your team is made of:
- The Real Estate Agent: You will be calling the shots, but the real estate agent is your team’s captain.
- Mortgage broker: You can go to the lender and get a loan directly without a mortgage broker, but if you have not done your homework thoroughly, a mortgage broker can help you negotiate better rates.
- The Home Inspector: will make sure you understand the state in which the house is in, so you know fully what you are buying.
- The real estate lawyer: will assist in closing the transaction, and last but certainly not least,
Get a mortgage pre-approval
A mortgage pre-approval will show the seller that you are serious about buying a home, and it will also give you a solid number of what you can afford.
Keep in mind that a mortgage pre-approval is typically valid for 90 days; if interest rates rise within the 90 days you are protected and guaranteed to get the interest rate quoted on your pre-approval.
Fixed vs. Variable rate
When you look for a mortgage you will need to decide if you want a fixed rate or a variable/adjustable rate.
Fixed rates are the safer choice since your mortgage payments remain the same for the entire term, but a fixed rate can be more expensive than a variable or adjustable rate.
If you’re working on a tight budget I recommend to go safe and choose the fixed-rate, but if your budget allows you some flexibility, you can consider the variable option.
Finding your home
Now is when the fun begins – remember, don’t let emotions drive your decisions. Rely on your plan, and do your homework. Remember that MyHomeAnswers.com has all the tools you need to find and keep track of your progress during the home buying experience.
Here are some of the important factors to consider when looking for your home.
- Pick the neighborhood before you pick the house
- Review school rank ratings
You have your mortgage pre-approval, you have found the perfect home and you are ready to make an offer.
Step 1: Decide on a Strategy
You should decide in advance what will your initial offer and what the counteroffer will be. At this point, you know your price range and you have a very good idea of what the home is worth.
Now try to figure out the seller’s minimum price.
Where the numbers overlap. This is referred to as the ZOPA (zone of possible agreement).
If there is no overlap, there won’t be an agreement and you can simply save yourself time and move on.
It is also very important you identify your BATNA (best alternative to a negotiated agreement).
Imagine there is a house that you wish to buy, but there are 7 other people that want to buy the same house, then you have very little power. The seller has all the power which may result in someone overpaying for the house.
A savvy buyer would always expand their options. What are your options if you don’t get this house? Is there another house you could equally like?
How important is it that you buy this specific house?
If your offer is not accepted on a house you simply walk away and make an offer on another house you equally love. Remember, recognize your emotions, but stick to your game plan.
Your Game Plan
Whether you are in a seller’s market or a buyer’s market, preparation is the key. To be successful in the offer stage, it is best to walk in prepared. And to do that, you’re going to need to work through several steps.
Step number 2: Find out all there is to know about the house.
Ask questions. Learn about their needs. Are they downsizing? Did they already buy another house and need the funds from the current house.
You will use this information to your advantage during the negotiation.
Step 3: Think about concessions you are willing to make or extra things you want to ask for and establish your bottom line.
During the offer, you will see the dynamics move very fast and you could be tempted to become too competitive to the point of going beyond your comfort zone.
The seller will also use negotiation techniques.
A bottom line provides you with a comfort zone. However, DO allow yourself some flexibility room when you establish your bottom line, but find a way to signal to the seller what your bottom line is.
How do you do that?
Let me explain: if the property is listed for $650,000, but you have established your bottom line to be between $610,000 – $620,000, then you decide your first offer will be $609,900 and the seller counteroffers at $640,000, then your next offer is $615,900 (so it went up by $6,000), and the seller counteroffers at $635,000.
Your next offer should go up by less than the $6,000 you went up before; therefore your next offer is $617,900 (up by $2,000 which is $4,000 less than what you went up before).
This will signal to the seller you are coming close to your bottom line, so it is possible the seller at that point could accept your offer before you walk away. You get to use this strategy both in a sellers’ market and in a buyers’ market.
Step 4: Have a back-up plan.
What happens if you don’t get this house? Savvy buyers always create options.
Include the inspection condition
We will review this in detail during the inspection stage, but this is an important step that will keep you protected from a bad deal. Don’t skip it.
It might be suggested that you to meet halfway at say $630,000, and you might think that that sounds fair, and be tempted to offer $630,000, but remember your maximum price is $620,000.
Is $630,000 a fair deal? Not if you only have to pay $620,000.
Trust your instincts, and negotiate. Remember to assess the scenario and try to not push the seller too far or they might lose faith and stop negotiating with you.
Closing the Deal!
The lawyer will coordinate the closure on the mortgage loan, and transfer the deed from the seller to you. In the end, you will walk out a proud homeowner.