Sure, the homebuying process may be among the most stressful, expensive and challenging times in the lives of many Americans - but does it always have to be so bad? When homebuyers arm themselves with knowledge at every step of the process, they are more likely to emerge from it not only with a great new home, but with some money saved and plenty of stress alleviated. Take this advice from real estate experts at every step of the way to ensure your next purchase is one you can be proud of.
Are you ready to own?
Owning a home is a major milestone and long-term goal for so many Americans. But with all the costs associated with it, we also know that it's not for everyone, at least for now. The New York Times
"Take a look at your financial situation to understand how much home you can afford."
recently built an online tool that uses almost every detail related to a hypothetical home purchase - from list price to taxes and insurance - and compares it against the cost of renting a similar home. Using fairly standard variables, like assuming a total home cost of $250,000 and plans to stay around seven years, The Times calculator found that a family could break even or save if they found a similar rental property for $947 per month.
While this might not be reasonable given what you need in a home or your location, it's essential for first-time buyers to consider the facts of their situation. If renting is still looking better than ownership, try to calculate the costs of your ideal home, particularly the down payment, to come up with a savings goal to strive toward.
How much should you save?
Speaking of down payments, they may be among the most misunderstood facets of the homebuying process. According to research cited in U.S. News and World Report, many prospective buyers - particularly younger ones - underestimate the true cost of a standard 20 percent down payment. At the same time, the average owner today only pays around 11 percent of the home's purchase price up front, and there are a variety of programs available in which buyers could pay even less than that.
So is it better to aim big with a down payment, or keep things small? If you have the cash upfront, as well as a little extra for emergencies later, putting more down upfront generally produces big savings and less risk over the long run. Lower down payment programs make initial ownership costs less burdensome, but they need to be made up in higher monthly mortgage fees, and they reduce your equity stake at a time when you may be financially vulnerable. Consult with a trusted mortgage advisor to get a more accurate idea of your best down payment options.
How should you shop?
If you've saved diligently and the numbers seem in your favor, you might have already gotten over the biggest challenge in the process. Now comes one part that's gotten relatively easier lately: searching for a home. There are a vast number of online resources at your disposal to help you find a home that's within your budget, in the right neighborhood and includes all the features you're looking for.
Before picking out the perfect pad, though, you will need to pick out the right loan. According to the Consumer Financial Protection Bureau's guide on home loans, it's helpful to compare and contrast different aspects of a home loan to find the right combination of terms for your needs. Some of the major components of any mortgage include:
- The loan term, or how long it will take to pay off the loan assuming consistent monthly payments and the quoted interest rate. The 30-year fixed-rate mortgage is held as the standard term for a home loan since it provides lower monthly payments, but there is a tradeoff from higher interest rates and higher final cost.
- The interest rate, not only the actual percentage but the type of rate. Under a fixed-rate loan, monthly payments are always the same, making it easier to budget and plan. Buyers could opt for an adjustable rate instead, which can offer more savings up front but includes less predictable costs.
- Any special programs that the loan might be part of. This includes government financing programs like what the FHA offers, and can impact both the down payment and monthly payments required by homeowners.
Of course, there is no one tried-and-true process for buying a home in any circumstance. It's important to find a mortgage lender you can trust in order to get the ball rolling in the right direction, then utilize all available resources for finding a new place to call home.
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