Buying a home is one of the most significant financial commitments that you’ll make in your life. It goes without saying that the process can be highly stressful for people because of this. You’ll need to know plenty of things before getting a new home!
There’s a lot you’ll want to think about, so try your best not to rush into it. We’ve gathered all of the essential information for you in this article, so keep reading! Let’s get started.
Table of Contents
1. You Need a Down Payment
First, you should know about down payments! According to Investopedia, a down payment is the lump sum you pay before your home loan. The more you can put on that down payment, the better, because you won’t have to pay that amount back with interest!
Most of us hear that we need to have at least a 20% down payment to qualify for a home loan. However, you don’t need to have that much. If you are eligible for a USDA or VA home loan, you won’t need to have any money for the down payment! Plus, some home loans only require 3% in their down payment.
If you’re going to want to buy a house, you’ll need to start saving for that down payment as soon as you can! The best way to gather your money is through an automatic transfer from your checking account to special savings account each week. That way, you won’t have to remember to do it yourself.
Overall, don’t forget about the down payment! The more you can pay upfront on your home, the better off your financial situation will be.
2. You Need a Steady Income and Lifestyle
Next, you’ll want to think about your income and spending habits. You’ll need to have a steady, reliable source of income to make your mortgage payments. Plus, many lenders will also look at how steady your money is before deciding to offer you a loan!
Most lenders want to know that you make enough to meet your minimum monthly payments. So, while you don’t need to make a certain amount of income, it’s a good idea to know your debt-to-income ratio or your DTI. Most lenders want you to have a DTI under 50%, but you’re more likely to qualify if you go even lower than that.
Your lifestyle is also essential to consider. You’ll want to know that your career isn’t going to change suddenly and cause a shift in income or cause you to have to move so soon. If you’re moving to a new area, make sure you also consider the cost of living there!
Overall, you’ll want to feel steady and secure in your life before you commit to buying a house. You must be confident you can make your mortgage payments on time!
3. You Know All the Costs
There are many different costs associated with homeownership. On top of the initial down payment, you’ll also need to cover closing costs. Closing costs are a one-time fee that you need to pay to finalize your home loan agreement. These costs usually include about 3% to 6% of your loan amount, although they can go lower or higher.
Next, you’ll need to know that you’ll have to cover your utilities. Sometimes people who come from apartments don’t realize they need to pay their utilities on top of their mortgage. Utilities include monthly bills like electricity, water, trash collection, and gas.
Plus, you’ll need to pay property taxes. The more your home’s worth, the more you can expect to pay in property taxes. However, the exact amount will vary from area to area.
In short, you’ll want to calculate a monthly budget for yourself before you move into your new home. You should make plans now, so there aren’t any surprise bills later!
4. Understand Equity
Once you have your home and start making payments on it, you’ll build up equity. Equity in your home is the difference in what you owe compared to the value of your home. The higher your home’s equity, the better!
Eventually, you can use refinancing to access the equity you built up. Many people will refinance to make home improvements or have a lump sum of cash for an emergency. Plus, refinancing makes it possible to switch lenders and access better loans.
You can access your equity no matter what type of loan you have. VA refinancing is possible and one of the quickest ways to gain a lump sum of money. Overall, you’ll need to understand equity and work towards building it up as soon as you can.
5. Length of Time To Buy a House
The time it takes to purchase a new home is different for everyone. You’ll spend time visiting homes, shopping online, and comparing different mortgage rates. Working with a real estate agent can speed up the process, but it’ll still take a while.
You can expect it to take about five to six months to buy a house on average! If you’re looking to move fast, you’ll need to put in extra work and remain dedicated to finding a home. Once you are under the new contract, it takes between one and two months to close on it.
Buying a home isn’t a fast process! Suppose you find yourself in a housing emergency and need to move immediately. In that case, you may want to move into an apartment first. Then, work on moving into a new home later because the process is a lot longer.
Are You Ready?
Getting a new home and moving is a long, stressful process. You’ll need to make sure that you feel ready to make the leap! You should consider your income, DTI ratio, and mortgage fees before starting the home buying process.
Once you feel ready and comfortable, you can move forward with a clear mind! In short, you need to make sure that you’re ready to get a new home.
