If you are planning to buy a big house but are on the edge of your seat about the process ahead, don’t worry; it’s normal to feel this way. Doubts are common, mainly due to the highly competitive housing market.
You might ask yourself, have you done enough research? Are you prepared for the next step? Is the house you want a suitable investment in? How much will the budget be stretched? What should we do with the long-term financial goals? All these doubts can be eliminated if you sit with your partner, understand your financial situation, and create a strategic plan. Here are several practical steps to guide you through the process.
Evaluate Your Debt and Credit Score
Before embarking on the house-buying journey, you need to know your credit score. First, you must examine your debt and see how to reduce or eliminate it. That will improve your credit score and secure a favorable plan.
Next, review your current and future expenses to see how much money you can put aside for the down payment. To calculate this, include the total debt payments and the future mortgage, which should be less than 36% of your pre-tax income. Remember, the monthly housing cost should ideally be under 28% of your pre-tax income.
For example, if your household income is $75,000, the total monthly debt payment should be $2250, while the recommended mortgage payment should be $1750. On the other hand, your credit score will influence the interest rate on the market. So, a higher credit score of over 700 will result in a lower interest rate.
Save for a Down Payment and Build an Emergency Fund
Owning a home means always being prepared for unexpected repairs and maintenance. An emergency fund can help you in these situations without disrupting your budget. Putting a bit of money every month might not seem like a good idea, especially if you want to spend some extra money on traveling or buying new things, but if you don’t do it, in cases of an unexpected need for repairs, you will be forced to go into new debt.
Saving for a down payment means putting aside as much money as you can to get better mortgage options. A 20% down payment can help you avoid private mortgage insurance. The insurance typically costs between 0.5% and 1% of the loan amount, and you need to pay it until you reach 20% of your home equity.
Prepare Your HomeFinancing
The next step is to research lenders and interest rates given by various institutions, including banks, credit unions, and mortgage brokers. First, look around and find the best rates and terms so you are comfortable with the conditions. You must organize your documentation well in advance to prevent last-minute hassles. Here’s what you’re going to need:
- Income documentation, including most recent state and federal income tax returns and two months of pay stubs;
- If you are self-employed, you must provide year-to-date profit and loss statements and two years of income records;
- Expenses and records, including two months of bank statements, a list of all current debts with account numbers, creditor contact info, long balance, and minimum payment amount;
- Investment information, such as the most recent quarterly statement for IRAs, investment accounts, CDs, and 401 (k), shows the vessel balance.
Negotiate and Finalize Details
Before signing any documents, review all the legal details and ensure ownership is clearly outlined in the deed and the title. Keeping your emotions in check during negotiations is very important because you should never forget that buying a home is a business transaction.
How Property Managers Can Assist
Property managers have valuable knowledge, and their insights can make them invaluable allies in the home-buying process. They can tell you about the housing market, neighborhood trends, and property values so you can make informed decisions and avoid overpaying for a property.
They also have access to many resources and a network of trusted professionals, including real estate agents, mortgage brokers, and home inspectors, and can help you out with maintenance tips. This can help you streamline the process and ensure you receive quality services.
Conclusion
Buying a big house can be challenging and nerve-wracking, but it can be a smooth ride with careful planning and financial preparation. Evaluate your debt and credit score, save for a down payment, and keep your emotions in check during the negotiations, and you will confidently cross the finish line of your home-buying journey. Feel free to ask a property manager to help you because their knowledge and expertise can make the process even more manageable.
