Considering Purchasing a Property? Here are 7 Things You Should Do
Buying a new property can be a hugely exciting experience. However, given the size of investment required to buy a home, doing so also comes with its fair share of risks attached. Given how expensive it can be if you get it wrong, it’s crucial that any prospective homebuyer avoids the biggest pitfalls associated with real estate so that everything can go as smoothly as possible. Here are 7 of the things you should do when starting the homebuying process.
Check and Optimize Your Credit Score
The average house price in the USA reached an all-time high of $374,900 in 2021 and is forecasted to continue to rise. As a result, mortgage lenders tend to be quite particular in who they decide to grant loans to.
The first thing any lender will do is check your credit history and score. Your credit score quantifies your “creditworthiness”, which essentially means how trustworthy you are deemed to be at repaying loans and credit. It is thus important that you check your credit score in ample time before you need to purchase the property, so you have time to improve it before you need to apply for a mortgage. The most common way of building your credit score is by applying for a credit card and regularly paying it off on time. Because it takes substantial time to build or improve your credit score, it is advised that prospective home buyers check their credit around 12 months before they intend to buy a property.
Set a Budget
One of the most common mistakes first-time homebuyers make is purchasing a more expensive home than they can afford. This is typically because they do not factor in the additional costs associated with homeownership, before pulling the trigger on purchasing a property. Just a few of the most common additional fees include property tax, home insurance premiums, repair costs, and neighborhood association fees.
It’s thus important to set a budget that accounts for all of your expenses, prior to determining what sort of property you can afford. This should not only include your mortgage and other housing costs, but also other typical monthly expenses such as operational costs for your car and utility bills. In real estate, it is generally agreed that your expenses should not exceed 43% of your income.
Investigate Your Mortgage Options
Lenders today offer a huge variety of different types of mortgage plan. It is therefore also a good idea to research the different types of plans available to you, to find one most suited to your needs and preferences.
Each plan has different strengths and weaknesses, so think about what you want before inquiring about quotations. Lenders typically offer mortgages with down payments as low as 5% of the total value of the property. However, these mortgages thus generally have higher monthly payments. Prospective buyers can often choose between variable- and fixed-rate mortgages. As the titles would suggest, fixed-rate mortgages have payments that stay the same for as long as you own the property, whereas variable-rate loans can change depending on the market valuation of the property.
Check and Double-Check the Property
Naturally, it is also crucial that you ensure you thoroughly inspect any potential property before you start the buying process in earnest. While the formal inspection carried out by a third party will check important things like the boiler, the plumbing, and the wiring, you should also check things like the quality of the property’s construction and whether it is fit for its intended purpose. It’s also worth noting any repairs that are needed, so you don’t get an unpleasant shock when you finally move in. Ideally, you should check the property out in person, but if this for some reason is not possible, many real estate companies now offer virtual real estate tours.
Get a Pre-Approval / Pre-Qualification Letter
One of the most important steps of the home buying process is receiving pre-approval from a mortgage lender. A pre-approval letter confirms that you should be approved for a mortgage, providing that there are no changes to your financial circumstances. This can be beneficial for your peace of mind, but the real advantage of a pre-approval letter is when you are competing with other buyers for a property. Sellers generally want to sell to buyers that are sufficiently qualified, to minimize the chance of any sale falling through. Therefore, a pre-approval letter will help you stand out in this respect and show that you are a serious buyer.
Research the Neighborhood of the Property
A great property in itself is one thing, but you should also factor in the surrounding neighborhood before making a purchase. This is of course important if you intend to live in the property since the location must be feasible for your work situation and have amenities that suit your needs. For instance, if you have a young family, you may want to research surrounding schools and crime levels prior to choosing the neighborhood to live in.
However, even if you are only purchasing a property for commercial purposes, it is important that you consider location. This is because the desirability of a neighborhood plays a large part in what will happen to the valuation of the property. Location is thus significant in determining how profitable a real estate investment is likely to be.
Get a Valuation and an Appraisal
Aside from checking the property thoroughly yourself, it is also vital that you organize a formal inspection of any property, prior to agreeing to buy it. As alluded to earlier, a housing inspector will check all of the underlying features of a property to ensure that it is safe for habitation. These include components such as the house’s plumbing, ventilation, and overall structure. Ensuring that your property has passed an inspection will not only protect you from having to pay for any unexpected repairs with these issues, but will also confirm that there are no serious hazards with the property, such as a risk of electric shock from poor wiring.