Purchasing a home is a fun and exciting time, but any homeowner will tell you it is also an incredibly stressful time as well. From timing the market to knowing what it takes, there are a lot of different aspects you need to keep in mind throughout the process.
Thankfully, we’re here to help. We’re here to provide you with the steps to buying a house in 2021. The more you know, the better equipped you will be to make this significant purchase.
Before you begin your searches, you’ll need to take the time to evaluate your current financial situation. Understanding how your current financial situation will impact your buying options is crucial for the home buying process.
Several complicated aspects make up your financial situation. While it can be tedious to break down each area, it’s necessary to determine how much you can genuinely afford.
First off, you’ll want to get a better idea of what mortgage payment you can afford for your new house. To calculate this figure, you can utilize the 28/36 rule that most lenders follow.
According to the 28/36 rule, the total of your housing costs, which should include your future mortgage payment, should not exceed 28% of your monthly income. In line with this rule, your monthly debt payments should not exceed 36% of your monthly income.
If you are in California and currently make the median monthly income of $6,273, you can multiply this number by 28% to determine what monthly mortgage you can afford. According to the 28/36 rule, you can afford a mortgage that does not exceed $1,756 per month.
Another figure that lenders will look at regarding your current financial situation is your debt-to-income ratio (DTI). Lenders will look at what this figure would be after taking on the mortgage in question.
To calculate your DIT, you’ll need to take a look at all of the debts you pay each month, including things like:
As a rule of thumb, you should keep your DTI under 36%, although you may find some lenders who will approve mortgages to borrowers with a DTI as high as 43%. Remember that this is the exception, not the rule.
Sum up your total monthly debt payments and divide that figure by your median monthly income. For example, if your monthly debts total $2,500 and your median monthly income is $6,273 (from the example above), your DTI will be 39.85%.
The home buying process involves a team and your key player to be your real estate agent. They’ll help make recommendations to services throughout the home buying process to help make your life easier.
Here are a few things to look out for when searching for the right real estate agent:
Now comes the fun part! It’s time to begin house hunting. To help narrow down your options and help get you into the home of your dreams, you should make a list of priorities and have a thorough understanding of the current housing inventory.
Understand that no home that you look at will be exactly what you are looking for. To get as close to that as possible, make a list of your needs versus your wants. When you find the home that checks all the boxes under the needs, you’ll know you’re in a good spot.
You’ll need to take a look at the current housing inventory in your area. If you’re searching for homes in a time of high inventory, you’ll be able to be very picky with your choice. Alternatively, if you’re looking during a time of low stock, you’ll have to move quickly and settle on a bit more.
Once you’ve found a home that checks all of the boxes, it’s time to make an offer. At the same time, it might seem like a simple enough process. Making an offer is yet another complicated step in home buying. After all, the seller may not be willing to accept an offer that is not attractive to them.
To make an offer a seller can’t refuse, you’ll want to move fast and know how to sweeten the deal.
In today’s market, homes are flying off the market nearly as soon as they hit. Knowing the current market trends, you need to know that you can’t wait around when it comes to making an offer.
For example, this year, houses are spending an average of 40 days on the market in California before getting an offer. Taking this information into consideration means that if you find a home that you love and see that it’s been on the market for 40 days, you should move quickly.
While it’s easy to think that a higher price will be the more attractive option for sellers, that’s not always the case. Thankfully, if you’re tight on your budget, there are other ways for you to get creative and sweeten your deal.
Most sellers have a personal attachment to their home, which means the process of selling is a highly emotional one. More than likely, they’d like to know that their home will be taken care of by the subsequent owners.
Consider writing a letter to the sellers to help paint a picture of who you are as a buyer and what you plan to do with the home. These letters help to tug at the heartstrings of sellers and give you a leg up to people who might be interested in a quick flip.
Commonly, contingencies attached to purchase agreements will allow buyers to back out or change an offer if the inspection comes up with significant problems. If you’re feeling confident about the home’s condition, you could always forgo the contingency to help make your offer look more attractive.
After inspection, if repairs need to be made around the home, you can ask for a credit rather than having the seller make the repairs before the final sale. Repair credits are attractive to sellers because it helps speed up the deal.
If you’re tight on cash up front, you might struggle to develop the funds necessary to cover your closing costs. To help save on these costs, you can ask for seller concessions to avoid lowering your offer price. Seller concessions will have the seller pay for closing costs, and the additional expenses are added towards your mortgage.
A home inspection will help with determining the overall condition of the house, including its major systems. A licensed inspector should come out and look at these significant aspects of the home:
Typically, most purchase agreements have contingencies that allow buyers to adjust or even back out of their offer if something significant comes up in the home inspection.
Next, you will need to complete a home appraisal, which will tell you if the home’s value is equal to the agreed-upon offer. For anyone who requires a loan, a home appraisal will be necessary to receive the funding.
The home buying process does not have to be overwhelming. While it can be detailed and time-consuming, it should be a process you enjoy as well. Thankfully, by following these steps to buying a house in 2021, you can be well equipped with the tools needed to be on your way to purchasing the home of your dreams.