Buying a home is an exciting prospect with lessons to uncover along the way. Before kicking off your homebuying journey, it’s a good idea to educate and strategize in advance. Knowing what might come up along the way and whether the current market will work in your favor will prepare you for the exciting journey ahead.
Things to consider before buying
Knowing the current market
Understanding whether it’s a buyer or seller’s market is helpful knowledge to have while house hunting. A buyer’s market is when there are more houses for sale than there are buyers. A seller’s market is when there are more buyers than there are houses for sale.
In a buyer’s market, sellers are competing against one another. In a seller’s market, there is more competition amongst the buyers, meaning the seller will likely have an upper hand in negotiations. In a buyer’s market, you may have a chance at negotiating a better deal with the seller.
The time of year
Consider the season you are buying in. Warm summer months usually have more homes for sale but typically have more people looking to buy. Just like the weather, the market tends to cool down during the winter. This means there are less houses but also less buyers, so more room for bargaining from a buyer perspective. Overall, it's important to consider your advantages and disadvantages in the market you plan to buy or sell.
Interest rates and other current economic factors will influence your homebuying journey as well. If economic inflation is high, then interest rates will usually go up. If inflation is low, then interest rates will likely go down. This may affect whether you want to buy a house at all or what type of loan you're looking to get.
With high interest rates you may want an adjustable-rate mortgage (ARM), with lower interest rates you may want a fixed-rate mortgage. An ARM is a loan that carries a fixed interest rate for a specific amount of time, then fluctuates as the market does. A fixed-rate mortgage is a mortgage that carries the same interest rate through the life oof the loan.
Expect to take an honest look at your finances
Figure out how much you can afford. Some suggest buying a place below budget, so you have cushion money for other homeowner expenses that come up along the way. If you buy below budget, you can also afford a bigger down payment which may help you avoid higher interest rates.
Finding a lender
Find a lender that works best for you. You may do this on your own, or you may be interested in hiring a mortgage broker to assist you. A mortgage broker acts as the middleman between you and a lender. Their job is to find you a loan and interest rate that works best for you. Mortgage brokers assist with the application process. Once they help you find a lender, they collect the necessary documents and submit them for approval. Keep in mind that not all lenders work with mortgage brokers.
Most sellers prefer a prequalified or preapproved buyer, so you'll be one step ahead of the game. Getting prequalified helps avoid any hiccups along the way that put you in danger of losing the deal.
Dealing with the back and forth
Expect a decent amount of back and forth between you, the buyer, and the seller. That's often the name of the game during the homebuying journey.
Before submitting your final offer, take a second look at your budget. Make sure you’ve considered closing costs, any impending home repairs and other financial responsibilities that may arise during closing.
Once you feel confident, you will make a good-faith deposit. This deposit will put the house in escrow, meaning it will be taken off the market. This is when the lender-required appraisal takes place. This is also a great time to have the home inspected. If all goes well and neither you nor the seller backs out for any extenuating circumstances, you can close and have the title officially transferred to you. Closing can happen very fast or it can take a bit of time depending on who you’re dealing with.
Did I make the right decision?
If you’re diligent about your research and finances and didn’t rush into things, that probably means you’ve made the right decision for you. There aren’t many universal wrongs or rights in the homebuying journey and there’s a lot that may be out of your control. You may need to shop around for mortgages for longer than you thought, the seller may counter your original offer or the home inspection may even come up with things you didn’t expect. It’s important to remain savvy during the homebuying journey and remember to keep your best interest in mind.