Are you tired of the rental game? Wouldn’t it be nice to put your money towards home equity each month? Buying a house can be a smart financial move. In fact, homeowners in 2020 have an average net worth that’s 40 times greater than renters. Overspending on a home, however, can lead to serious financial problems. Maybe you’re asking yourself, “Can I buy a house?” or “What are the steps to buying a house?”. Keep reading to find out more about how to buy a house.
1. Regular Household Income
This is a great place to start. How much money does your household consistently make each year? How about each month?
Understanding your household cash flow determines the number of monthly payments you can afford. Most people will be able to afford a home that’s 2.5 to 5 times their annual income.
You shouldn’t spend more than 28% of your monthly budget on your mortgage unless you have significant savings to offset the cost. This is one of the most important steps to buying a house.
2. Save, Save, Save
Save your money! Before you start looking at homes, pad your savings. This may mean adjusting your lifestyle to find ways to save money. Writing down your goals can help you stay on track with your savings plan.
The amount of money you have saved for a down payment will determine your price range when buying a home. You should have at least 20% of your home price as a down payment.
If you can’t come up with 20%, there are other options. You may end up paying private mortgage insurance or some other extra fees to work things out.
You may also need cash to cover closing costs, so it’s always good to have a little extra saved for those.
You may qualify for an assistance program to help you buy your first home. Organizations like the USDA, Fannie Mae, Freddie Mac, and the Department of Veterans Affairs have first-time homebuyer programs. Check out their websites to find out if you qualify for any of their assistance programs.
3. Bank Approval
Once you’ve crunched your numbers and decided how much you can afford, give your bank or credit union a call. A mortgage loan officer will walk you through a pre-approval process.
Based on your income, credit score, and debt, you will pre-qualify for a loan. The bank will tell you how much they think you can afford. If the bank’s number is higher than yours, go with yours.
You know your financial situation best. In many cases, a bank will approve a higher loan than you may be comfortable with.
4. Realtor or No Realtor?
Many people still prefer listing with a real estate agent or a realtor. A realtor will help you find homes, set up showings, and walk you through the buying process. Real estate agents typically take 3% of the home sale price.
Some home buyers choose not to hire a realtor. If this is you, hire a real estate attorney or a mortgage broker to look over your sale documents before signing them. There are many details involved with home sales, and you don’t want to miss anything important.
5. Cash Buying
You may see ads that say selling my property as-is and get cash. This means someone is likely willing to take much less than their property is worth for a cash offer. It may also mean the house needs repairs.
Make sure the homeowner or company selling the home is legitimate. Next, hire a contractor to walk through the home with you to get an idea of repairs. After this, you can estimate the cost to repair the home and decide if it’s a good fit for you.
So Can I Buy a House?
If you have the finances saved and the bank pre-approval letter, you’re off to a great start! Steps to buying a home vary with each buyer’s situation.
Want to be a homeowner but don’t have quite enough money? Buying a condo vs. a house could be a great way for you to build equity. So, if the answer to “can I buy a house?” is “no”, maybe you can still buy a condo or townhome.
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