Buying real estate for the first time can be a tricky affair; especially if you are not prudent enough to do some research. The fact that you are going to spend a significant amount of money when buying real estate should reason enough for you to do as much research as possible. However, this is not always easy because it requires you to further invest your time and more money especially if you do not know what to look out for. But it does not have to be that way. In this article, we will give you the beginner’s guide to buying real estate.
Determine If You Are Ready To Buy
The first step in determining whether you are ready to buy a real estate property is evaluating your financial resources. If you do not have enough resources to buy the property on your own, then you should consider taking a mortgage. A mortgage plan can be around the same amount as your rent and sometimes even less depending on your local market. While choosing a mortgage plan, take into consideration additional costs such as taxes, insurance, and homeowner’s association fees where applicable. Most times, the total costs when calculated amount to around 1% of the purchase price.
Beginner’s Guide To Buying Real Estate
Save for a Down Payment
Saving for a down payment is an important step towards buying real estate for beginners. When taking a mortgage, the lender might require you to make a down payment that is equivalent to 20% of the purchase price of the real estate property you are intending to buy. If you do not pay a 20% down payment, you may be forced to pay a private mortgage insurance. A private mortgage insurance is necessary when a buyer cannot raise a down payment that is equivalent to 20% of the price of the real estate they are purchasing.
You can always search for a lender that demands for a lower down payment.
Decide on How Long You Want to Hold the Property
If your aim is to gain equity or financial appreciation, then you should consider holding the property for at least 5 years. Selling your real estate property before 5 years are over will most likely result in a loss. The best you can get when you sell your property after less than 5 years is breaking even. This is because you have to incur closing costs and interest payments on your mortgage. Additionally, in rare cases, real estate property depreciates or stagnates.
Plan for Maintenance and Repairs
Owning a real estate property comes with extra duties and responsibilities such as repairs and maintenance. Unless you have the necessary skills for the job, you will have to set aside some money for repairs and maintenance. Set aside at least 1% of the total value of your property for annual repairs and maintenance. You may incur additional monthly expenses for lawn maintenance, utility bills, and extras if you have a swimming pool.
Have Good Credit and Minimum Debt
For a lender to offer you favorable terms, you need to have a credit score of more than 580 and also a debt that is less than 43% of your income. A good credit score and a manageable debt to income ratio gives the lender confidence in your ability to repay the mortgage.
Get a Preapproval for a Mortgage Loan
A pre-approved mortgage loan grabs the attention of the seller. It shows you are serious about buying the property and convinces the seller to believe in your ability to buy since the lender already does. For you to be pre-approved for a mortgage loan, you need to provide the lender with proof of income, debt history, and assets.
Enlist the Services of a Real Estate Agent
As a beginner, it is important to use a real estate agent when buying real estate. A real estate agent knows what to look out for when buying some property. They have been in this situation many times before and therefore can offer you invaluable insights. Furthermore, real estate agents are paid by the seller not you.
Search Online and Make Visits
After you have decided on what you want to buy, go online and search for real estate properties with your desired features. Narrow down using specific perimeters such as price, neighborhood, size, social amenities, and other desired qualities. After getting several properties, it is time to go out and see for yourself. After all, you are investing a significant amount of money, and therefore you should exercise due diligence.
Make an Offer
Once you have found your ideal real estate property, you should proceed to make an offer to the seller for the same. Take into consideration demand and supply in the area and adjust our deposit payment accordingly. The higher the deposit, the higher your chances of landing the property. When buying real estate in a hot market, stalling may cause you to miss out on a would be great investment. Consult with your real estate agent on the right price to pay. This ensures that you are getting your money’s worth.
Once you have made your offer, you should wait for the seller’s reaction. The seller might accept your offer, make a counteroffer or reject your offer. If they accept your offer, then it is an almost done deal, and you are about to successfully make your first real estate purchase. If they make a counteroffer, you can renegotiate until you both arrive at a price that is acceptable to both parties. If they reject your offer, then you continue to the second best real estate property on your list.
Assuming you and the seller have agreed on the price, it is time to think about final approval on your mortgage, results of home inspection and a clear title for the real estate property. Your real estate agent will help you with working out the closing costs. These include; title fees, attorney fees, the down payment, and prorated property taxes. In total, closing costs amount to around 2-5% of the real estate’s price. Once you are done with this, you can celebrate.