There are a lot of things to worry about when you want to buy a new home. The principal concern is usually, of course, money. If you need some advice in this area, check out this guide.
Consider all of your options
When people think about the money they need in order to buy a home, the first idea they have tends to be applying for a loan. While getting a loan isn’t always as easy as it’s made out to be, it can certainly be the easiest option you have. But, of course, not everyone is comfortable getting a loan (or a mortgage – I’ll use the terms interchangeably, here). You shouldn’t consider it to be your only option. That isn’t to say that there is a very wide array of options available to you. Essentially, it boils down to three.
The first is that you can hope a bunch of money falls into your help, either through inheritance and by winning the lottery. (Seriously, though, it may be worth seeing what you stand to gain from your current family inheritance plans.) A second option is getting a loan from a government or work force. For example, it might be possible to borrow money from your retirement fund without early withdrawal penalties. The other option is simply taking your time and being frugal with your current earnings. (This method can be much more effective than people think.)
Get an idea of your current budget
So how much money can you get your hands on without turning to a loan? You should do your best to come up with a clear idea of how much money you can have within, say, six months. This will give you a clear idea of your current financial situation. And this is something you should know in as much detail as possible if you’re looking to buy a new property!
If you want to dig deep into your financial situation, you may want to consider getting a personal finance audit. A good audit lets you weigh up your current funds against your projected expenditure throughout the coming year. All of this will be good for your own reference, of course. But you may also find that this information will be vital when it comes to shopping around for loans. It could also reveal to you that you might not be in as much need of a loan as you thought.
To look for homes first, or to look later?
The temptation to start looking at new homes right away is obviously going to be strong. In fact, you may even have started doing some casual shopping around before you even seriously committed yourself to the idea! It may, at first, seem like it would make a lot of sense. There is the advantage of a casual browse revealing to you the sort of price ranges that are out there for certain property types. Wouldn’t it logically follow that you should try to find a house that you want before getting approved for a mortgage?
It may seem like it. But the smarter option may actually be getting approved for a mortgage before you start looking seriously and making offers. This process is called, simply, preapproval. A preapproved home shopper has several advantages against a home shopper who hasn’t been approved for a mortgage. The biggest advantage is simply that both you and the buyer already know you’re good to make an offer. It’s better for pretty much everyone involved!
Research all of the loan types available to you
You may have been planning on applying for a mortgage. And maybe that seemed simple enough. But what a lot of people don’t know when they go into this process is that there are several types of mortgages. Some people may be aware of this, but might underestimate just how many different types there are. Just a couple of decades ago, you may have been presented with three types of mortgage to choose from. But these days there are… well, I don’t really have the time to count them. But it’s definitely more than ten.
The most basic one is probably the one you’re thinking about: the fixed-rate mortgage. It’s probably the easiest one to understand, too. Basically, you put down the initial payment – your principal – and you pay that back over time at a fixed rate. Your options are broken down into ‘years’ packages. A 10-year fixed-rate mortgage, for example, will see you pay the loan back over the course of ten years across several equal payments. There are plenty of time lengths available to you. Of course, you’ll want to look into all the other loan types as well to make sure you’re looking at your best option!
Get as much information as you can from lenders
Of course, these loans aren’t just offered to you by your bank. There are an incredible amount of lenders out there who are (supposedly) eager to lend you the cash you need. And it’s not just that there are so many lenders, but there are so many types of lenders. There’s your bank, of course, as well as the famous mortgage companies. But there are also thrift institutions and credit unions to consider.
Just as you need to shop around for the best home, you also need to shop around for the best lender. You need to remember that a lender that did wonders for one person may not necessarily work as well with you. This step, admittedly, takes a lot of time and research. Many people will choose to work with an advisor in order to find the best deal of the lot. Companies like SMBIA offer advice and brokerage in this area. You can discover details about SMBIA here.
Keep your savings account looking strong
Throughout this process, and throughout the first year of owning your new property, a lot of costs will creep up. If you’ve got a savings account, I would recommend against depleting it in order to afford everything. All of the necessary costs of this process should ideally be dealt with through your loans. The money in your savings account should help cover the living expenses throughout the first year. This will help prevent you from getting into more debt than you need to.