How To Buy a House Within Your Budget

Buying a house is exciting, but it’s a long process that can be filled with emotional highs and lows. If home buyers make too many of their decisions based on emotions alone, they’ll run the risk of buying a home that leads to financial strain and regrets. First time buyers can find the process of how to buy a house overwhelming.

Fortunately, home buyers can learn how to buy a house they love that also fits their needs and their budget.

1.Determine Whether You Are Financially Able to Buy A Home

For many people, purchasing a home fulfills one of their life goals. When done thoughtfully, a home can contribute to your financial stability and become a place filled with family memories. But, buying a house that is too expensive for your budget can lead to long-term financial hardships.

To avoid being burdened by your home, it’s crucial for you to have adequate money saved to apply to your home purchase, have a strong credit score, and set a realistic house-buying budget.

Save for a down payment

You’ll have to make a down payment to purchase a home if you’re getting a loan. This payment is the amount of money you’ll pay to the home’s seller at the time of purchase.

The amount of your down payment will vary based on the total price of the home and the loan you set up with your lender. Ideally, you should save up enough money to pay for 20 percent of the home’s purchase price.

By putting 20 percent down on the house, you can avoid having to buy private mortgage insurance (PMI). PMI helps minimize the lender’s loss if a buyer defaults on the loan. However, having a PM will increase your monthly mortgage payments.

Another benefit of having a down payment ready is to show lenders that you’re prepared for home ownership, which can help you get a better loan.

If you have other significant debts or loans, such as student loans, you’ll ideally want to pay those off first before starting the home buying process.

Save for closing costs

When you purchase a home, you’ll pay for the down payment plus closing costs. Closing costs are the various fees from the title company and lenders that you are working with on your transaction.

Be sure to save approximately three percent of your home’s price to cover these costs. However, some parts of the country may have higher closing cost rates than others, so check with local lenders to help you decide the amount to save.

Know your credit score

Your credit score will impact your ability to qualify for a loan. A lender will have more confidence that you’ll repay your loan if you have a higher score.

If your credit score is low, especially below 620, you could end up with a home loan that will cause you financial stress and become a burden. In that circumstance, it would be better to wait to purchase a home until after you’ve improved your credit score.

It’s essential to be realistic about your financial situation to make sure that you purchase a home at the right time for you.

2. Become Pre-approved for a Mortgage

Unless you’re buying your home with cash, you’ll need a home mortgage loan to purchase a house. Before looking for a house, you’ll first need to get pre-approved for a mortgage. This process ensures you can get a quality loan. Plus, it will help you determine the price range you can afford.

When looking to become pre-approved, you’ll need to provide the potential lender with your financial information so that they can verify it. They’ll want to know your income, savings, and any investments you have.

During this process, they’ll inform you of the amount they’ll lend you. This will help you determine the amount you can spend on a home.

Don’t rush this part of the home buying process. You want to find a loan that works for you and keeps you on a reasonable budget.

Sometimes buyers get approved for a loan that is more than they expected. But, before looking for more expensive houses, use your judgment on what makes sense for your needs. Homes aren’t a one time expense. They require regular maintenance and come with unexpected repairs. While Americans are known for buying large homes, be smart and only buy what you need.

3. Searching for a Home

Looking for your new home is fun. It’s exciting to see all the potential opportunities and places where you could live. It’s also at this stage that people run the risk of expanding their budget because they get swept up in the emotion of house hunting.

To stay focused on how to buy a house you need that fits your budget, try these techniques.

Write down a list of your must-haves before looking at houses. These are the items that you won’t negotiate on, like the proximity to work, school district, or an attached garage.
Write down a list of your wishes before looking at houses. These are the items you’d like the house to have, but they aren’t necessary. These are often the cosmetic elements of a home, such as hardwood floors and top-of-the-line appliances. It’s these elements that can sometimes lead people to buy a house that exceeds their income. If you find yourself wanting to expand your budget, make sure it’s not due to these wish list items.
Evaluate the bones of the house such as the water pressure and the electrical systems. Ask lots of questions such as the age of the air conditioner, the water heater, and the heating system. Find out the age of the roof, and open windows to make sure they work.
Explore the neighborhood. Are the other houses well-maintained? If you have a family, are there signs of other children living there? How close are you to the places you need to go like grocery stores, restaurants, and work. If you buy a great house in an area that doesn’t fit your lifestyle, you won’t be happy in the long run.
Look at home values in the area. Ideally, you want to live in an area where home values are either growing or stable. If home values are going down, there is the potential that the area is on the decline. To help with your evaluation, look at whether businesses are expanding or shutting down.

4. Take Your Time and Look for Wedge Deals

A wedge deal is when you find a property that is selling for below market value. Many times these homes will need some cosmetic fixes, but even when you calculate in those costs, these homes can provide you with value.

Finding a wedge deal can take time and patience. So, be prepared for your house hunt to take longer. The benefit is that you end up with a great deal.

5. Making an Offer on a Home

Once you’ve found a home, you’ll need to make an offer and sign a contract agreement with the seller.

You’ll come to an agreement with the seller on the terms and conditions of the sale. By being pre-approved for a mortgage, your offer will be more appealing to a seller. If it’s possible, being flexible on the closing date can also help make your offer more attractive to a seller.

Sometimes negotiating terms and conditions go smoothly. Other times, it can become a struggle. Compromising on items that aren’t as important to you can help. However, be sure to insist on certain contingencies, such as a home inspection. You don’t want to buy a home that you thought was in good working condition only to find out that it needed significant repairs.

Occasionally, you may find yourself in a bidding war. In this case, determine the maximum amount you’re willing and able to bid. While you may not end up bidding the full amount you’re ready to pay, this will help make sure you don’t get swept up in the process and offer more than you can afford.

6. Getting a Home Inspection and Finalizing Your Loan

Once your contract is accepted, you’ll move on to having a home inspection and finishing all the paperwork.

Do not skip the home inspection. As stated before, you don’t want any surprises as to the condition of the house. Be sure to find a reputable home inspector. This person will look for anything that needs to be repaired from minor issues to major structural problems.

Don’t panic if the inspector finds issues. They will explain each problem so you can judge how significant it is. Once you have the inspector’s report, you can then ask the seller to fix the problem, reduce the price due to the issues found, or cancel the contract.

If you’re getting a loan, your lender will require a home appraisal to evaluate the value of the property. Your lender requires this step to make sure you aren’t paying more than what the house is worth.

Lastly, you’ll need the final approval of your mortgage if you are getting a loan. It’s essential to not have any significant changes to your finances during this process. Don’t open any new credit cards, change jobs, or take on additional debt during this time as it might impact your loan.

7. Closing on Your New Home

You’re now ready for the home closing process. However, be prepared to be patient. The whole closing process can take one to two months, if not more, to complete. Several key processes occur during this time, including:

completing any negotiated repairs,
ensuring the title is cleared of any judgments or liens,
conducting a final walk-through of the home,
making sure the loan is secure.

The actual closing day typically takes only one to two hours. It involves signing several papers. Fortunately, you’ll receive all the documents ahead of time, so be sure to read them carefully before your closing date. Ask questions during the closing about anything confusing. On the closing day, you’ll also need to pay for closing costs, prorated property taxes, any applicable homeowner’s association fees, and homeowner’s insurance.

8. Consider What Repairs Your New Home May Need Before Moving In

You’ve now closed on your home. But, in some cases, you may decide to delay moving in a little longer to make repairs.

Any repairs that the seller was to complete should be done before the closing. However, you may have negotiated for the seller to reduce the cost of the sale or to pay a specific amount for repairs instead of having them do the repairs themselves. If that was the case, you might need to schedule those repairs before moving in.

Additionally, some homeowners decide to make upgrades, such as updating flooring, before moving in to avoid having to live through construction.

9. Planning a Low Stress, Low-Cost Moving Day

Moving into your new home is thrilling, but it can also be expensive and stressful. With some pre-planning, you can cut your costs and make moving day stress-free.

If an employer is relocating you, see if they’ll cover the costs of moving. Some employers will pay for a moving company to pack and move your belongings.

When moving yourself, you can save money by:

finding your own moving supplies instead of buying boxes,
reducing your belongings by either selling or donating unnecessary items,
moving during the off-season if possible,
renting a truck yourself instead of hiring a company,
packing your items yourself instead of a moving company,
comparing rental truck companies and looking for rental deals and discounts.

Learning How to Buy A House Can Save You Time and Money

Buying a house is a rewarding experience. However, it’s essential to be prepared. Along the way, you’re likely to encounter problems, delays, and you may even lose out on the home you initially wanted. Learning how to buy a house is possible.

By sticking to your budget, asking lots of questions, and following each step of the process, you’ll end up with a home that is perfect for you.