Buying a house is one of the most important decisions you
ever take in your life as it is going to take a huge fortune and you are going
to spend your life in it. Thus, every step of the house-buying process must be
planned and executed properly. It may
look to some people that how much complicated this can get, you just need to
decide which house you want and, then go buy it. Well, let me get this
straight, it’s a whole lot complicated process. There are a million of things
that you have to take care of in it. As you are reading this blog, I have
presumed that you are planning to buy a house, but the problem is you don’t
know where to begin with. No need to worry, I have prepared a comprehensive
step-by-step pre-planning guide for you. With this, you would get a clear idea
about the things you have to do/decide before starting your hunt for the dream
home.
Stage 1: Determine
What You Can Truly Afford
In every capital decision, the first step is to decide the
budget. Keeps it clear in your mind that it is not being about what you can
buy, but about what you can truly afford? Here are the steps for you to help
you determine your budget:
·
The first rule here is that you have to look for
houses whose prices are up to three times of what you earn annually. You have
to remain on the safe side. Thus, you have to make sure that you would not end
up taking a huge mortgage loan which you would not be able to pay back in the future.
·
The monthly payment that you make towards the mortgage
loan should not exceed more than thirty percent of what you earn monthly. You
have to remain realistic about this. If there are other significant monthly expenditures
like medical bills, tuition fees, or other similar expenditures, then I would
recommend you to further lower the ratio of monthly mortgage payment to the total
monthly income. If you think that your financial management situation is kind
of complicated and it is difficult to apply these general rules, consider going
to a financial management expert. He will help you classifying your
expenditures in a reasonable manner and further, will make your mind clearer about
how much mortgage payment you can afford monthly.
·
So, you have decided your budget by now. Let's move
to the next part, i.e. your liquidity situation. You need to have a sufficient
amount of cash reservoir in order to make the down payment for the house. In
general, down payment is approximately around twenty percent of the value of the
house. It is not recommended to take additional loan for making down payment
because it will create too much financial burden on you.
·
After creating sufficient reserves for making
the down payment for the house, the other thing you have to consider while
preparing the budget is that there are a number of miscellaneous expenses
related to buying of a house that you have to take care of yourself like moving
expenditure, cost of first maintenance, the cost of making changes in the
interior and exterior of the house, decoration expenses, etc. You have to be
prepared for these expenses in advance. The point here is that these are
one-time expenditures and can be added to the cost of housing, so remember that
you must not use your funds for emergencies (i.e. funds saved for emergency
repair and maintenance of house) for these.
Stage 2: Evaluate mortgage
options and get yourself pre-approved
·
After evaluating all the costs related to
purchasing of the home and coming up with a budget, the next step is to start
hunting for a good mortgage lender. There are public banks, private banks,
private companies and agencies as well as a number of private money lenders
provide mortgage services nowadays. While choosing your mortgage lender, you
have to be skeptic. There are a number of questions that you are having in your
mind related to the mortgage process, such as, how much time the whole process
is going to take, what is the qualifying criteria, etc. You have to look for
the mortgage lender who answers to all of your questions and who makes sure
that you understand every step of the mortgage process clearly, i.e. you have
to look for the transparency here.
·
There are plenty of different mortgage options
to choosing from. Two of the popular options are Fixed-Rate Mortgage (FRM) and
the Adjustable-Rate Mortgage (ARM). Under the Fixed-Rate Mortgage, the rate of
interest remains constant over the whole duration of the loan. Whereas, under
Adjustable-Rate Mortgage, the rate of interest remains constant for a specific
period of time, then keep on changing after every certain interval of time.
Prefer FRM if you are planning to live is that house for a long period of time
(i.e. at least for the whole duration of the mortgage loan), because in ARM,
interest rates might increase later which will increase the financial burden on
you. Whereas, prefer an ARM if you are planning to live is the house for just
the original fixed period of time (i.e. the period for which the rate is constant).
·
Prefer longer monthly payment term, i.e. if you
have to choose from 30-year payment term and 15-year payment term, go for
30-year. The future is not certain and you have to remain prepared for it. Higher
payments mean lower liquidity position. There is always the possibility that
some important thing might come up in the future for which you need money. So,
lower payment ensures that whatever situation you will be in the future, you
will not be facing financial difficulties in making payments. Further, you can
always pay fast in the future and end your mortgage debt earlier.
·
After deciding the lender and the type of
mortgage you are going to take, get yourself pre-approved for the mortgage
loan. Under this, the banker/ money lender will audit your financial documents
like your bank statement, tax returns, salary slips, etc., on the basis of which
he will approve you for a specific mortgage loan amount at a specific rate of
interest. If the mortgage lender approves you for an amount higher than your
budgeted mortgage amount, do not get persuaded by that, you have to stick to
your budget.
Stage 3: Decide what
are essential and what are lovely extras
·
It is hard to get your dream home within the
budget. There are very few people who get lucky enough to achieve this dream
nowadays. So before you start looking for the house, I want you to imagine your
perfect home and come up with a list of things and features you think are
must-to-have in that house and things that are lovely-to-have.
·
You have to decide that whether you need an
apartment or a duplex. Other things that you have to pre-decide before going
house hunting are the number of bedrooms you need in the house, number of
bathrooms in the house, the type of surrounding you want around the house, backyard
space, gallery and drawing room space you require, etc. The other things to
which you should give importance are proximity of the house to the workplace,
proximity to the closest supermarket, connectivity to important places airport,
railway station, hospital, school, etc., availability of general services in
the society like repairman, electrician, etc., quality of nearest hospitals,
schools, etc. and availability of public transportation services. There are
things to which you need not give importance to such as designing of the house,
pool cleanliness, etc. These things you can modify by yourself after buying the
house.
So you have properly completed all the steps in the above three
stages. Now is the time to do the thing for which you have been waiting, i.e.
starting your house hunt. In this, again, you have two options, i.e. to do the
house hunting by yourself by searching through the internet, advertisements,
magazines, taking help from friends, etc. or hire a real estate agent who would
provide his assistance by helping you get access to the best deals available in
the local region. Further, as being the expert in the field, a realtor makes
sure that negotiation works in favor of you and all the paper formalities are
met properly. As home-buying is a big decision, people get sentimental in it
sometimes. So unless you are completely sure, prefer hiring an agent.
Thank you. Good luck house hunting!