Finding the right home to buy can be a challenging prospect, but knowing what to expect can make the process easier. You can buy through agents representing the seller and/or buyer or buy directly from the owner. Once you find the house you want, you must make an offer, check for clear title to the property and arrange for a home inspection. After the closing, you can finally move into your new home.
An old rule of thumb said that you could afford to buy a house that cost between 1½ and 2½ times your annual salary. In reality, there’s a lot more to take into consideration. While a bank may tell you how much of a mortgage for which you qualify, you must decide how much you can afford to spend on a home. In order to know how much you can truly afford, you need to take an honest look at your lifestyle and your standard of living, as well as your income and what you choose to spend it on. After all, you can’t afford a “rule of thumb” home if you are currently spending a majority of your salary on “toys” and “wants.”
In determining what you can afford to spend on a home, you should also take into account other housing-related expenses. The total amount of expenses may depend in part on what type of home you buy and where it’s located.
Consider shopping for your mortgage before you start shopping for your house. Compare the mortgage rates and terms offered by various lenders, and then get preapproved or prequalified with the lender of your choice. That way, you’ll know how much you can spend on a house before you fall in love with one that’s just out of your reach. Remember that mortgage lenders can only tell you how much of a mortgage you qualify for, not how much you can afford.
Before you close on your new home, an attorney or a title specialist should conduct a title examination. The purpose of the title examination is to discover any problems – such as outstanding liens or judgments against the property, unpaid taxes or ownership disputes – that might prevent you from getting clear title to the home. You should also consider purchasing an owner’s title insurance policy.
Since a house is such a major investment, you should learn as much as possible about the condition of a house before you buy it. A professional home inspection will uncover both positive and negative aspects of the home. After conducting the inspection, the inspector will create a report explaining his or her findings. You may move forward knowing the defects or ask the seller to repair them prior to closing. If major flaws are uncovered in the course of the inspection, you may choose not to buy the home. As long as your purchase offer is contingent upon a satisfactory inspection and you act within the time period specified, you should have no trouble walking away from the house and receiving a full refund of your deposit if the inspection uncovers any major problems.
Finally, the house becomes yours after the closing where title is transferred from the previous owner to you. At the closing, you will fill out the required paperwork, which is necessary to make the transfer of ownership official. This can be an arduous process, but once it’s over, you’ll be the proud new owner of a home.
Life is a journey; plan for it.
Neil A. Brown is a CPA and CFP with Burkett Financial Services in West Columbia. Reach him at www.uscneil.com or (803) 200-2272.