Whether you’re married and looking to move out of your one-bedroom apartment ASAP or rooted in your career and ready to settle down, there’s always one question that comes to mine – how do you buy a new home?
Let’s take the fear out of home-buying and dig in to a few things you need to consider before those keys are in your hands. We’re going to be taking a look at your family, money, paperwork and time.
FAMILY: Are you ready to buy a home?
Before we even get started, let me ask you – are you ready to take this step? It’s easy to say “I’m starting my career, this is an obvious next step,” or “I’m newly married – why waste money on rent?” but it’s another to know that you’re ready for the personal and financial obligations that come with owning a home.
Consider the following:
- Do you have a stable income?
- Is the area of town you’re in safe?
- If you purchased a home today, would it drain your savings if something went wrong?
- Is the home you’re looking align with your three to five year goals?
Owning a home is bigger than wasting money on rent. If you’re newly married and in a one-bedroom apartment, it’s easy to think you need more room. But if you’re both in school and you know your careers or continued education are going to take you out of the state, it may not be a good time to buy a home. If you move but can’t sell your home before moving day, you’re now responsible for two mortgages. If you’re in school and aren’t promised a stable income, what happens when you can’t make your payment?
There are instances where buying a home is a good fit. If your neighborhood is considered unsafe, it’s time to move. If you and your spouse have decided where you want to live for more than three or five years, it’s time to think about purchasing a new home.
MONEY: Can we afford a new home?
Did you know a home owner should anticipate to spend at least 1 percent of the home’s value in repairs every year? On a home valued at $100,000, that’s $1,000 in repairs to the home every year. Can you afford that?
Separate and apart from your mortgage, you have home owner’s insurance, flood insurance, escrow and more. If you put less than 20 percent down at the time of closing, you also have to pay Private Mortgage Insurance. That can be an estimated 0.25 to 2 percent of your loan balance every year you have the loan. And in some instances, your lender won’t remove the PMI after you’ve reached 20 percent of the loan value – you have to call them and request it to be removed.
But what’s with 20 percent being the magic number? When you can have 20 percent down on your home, lenders see you as a less-risky investment. Therefore, lenders don’t charge you the private mortgage insurance because they know you’re guaranteed to make your payments. In sum, the bigger amount you can put down on your home, the better.
Did you know you can buy a home without a credit score? You can do so through a process called manual underwriting. As a Dave Ramsey family, we have to encourage you to find all avenues possible of avoiding debt. Learn more about manual underwriting here.
PAPERWORK: I’m want to buy a home, but what do I need?
Location, location, location. Don’t buy a home until you know that:
- you’re a fan of the area
- you’re as close/far away from family as you’d like to be
- it fits your wishes for a work commute
- you’re going to be in the area for at least two or three years
When you’re ready to sign on the dotted line, you’re going to need to have your ducks in a row. You’re also going to need the best possible team working with you to guide you through the process.
You can work with a home-owner who’s trying to sell your home without an agent. And it may work. But would you go to your grocery store for dental work? The answer is no. We recommend working with a real estate professional when you buy your home because they’re going to know the area, know the business and know how to get you into the home you need.
Paperwork: Extra tips!
When you find a home you want to purchase, get it inspected. Home inspectors look for foundation issues, wiring issues, roof issues – you name it. Our home inspection took a little over two hours.
When you move to actually buying your home, you will work with both a title company and lender. We worked with Brian at Day One Mortgage when we refinanced our home and our experience was nothing short of incredible. He answered every single one of our questions and helped us set up the meeting with our title company. We recommend him to everyone we know looking to finance their homes!
After you’ve bought your home, you’re going to need home owner’s insurance. We work with G and G Independent Insurance for a few different reasons. First, they did the work for us. I didn’t have to call every insurance agency I know. They compiled the data and gave me the three best rates. Second, working with an independent agency allows me the flexibility to move insurance companies if I need to. Finally, they’re local to where I live. I’m not speaking with a representative in California and I don’t need to make sure I call at a certain time of day to account for the different time zone. I’m talking with someone who knows my area and knows where I come from.
TIME: Do I have enough?
While searching for your home, give yourself more than enough time to juggle work, personal responsibilities and physically looking at houses. My husband and I moved very, very quickly; we only looked for two months! Some resources suggest looking at the same home more than twice before you consider buying it! Wow!
When you buy a home, you have a whole new set of responsibilities that take your time and attention. Be sure you allot the time it takes to tend to your yard every week in the summer. Consider the cost and time of repairing something yourself versus hiring out for the job.