Buying a new home requires preparation. Jumping into a home purchase without first understanding the home buying process, your options and how to successfully navigate the market typically results in headaches... and possibly a little heartache, as well.
Over the past year the Charleston, South Carolina housing market has changed tremendously. We've been in a competitive market for some time now in which buyer's demand continues to outpace the number of homes available to purchase. However, while home inventory remains low, we're seeing new homes enter the market daily. As we head into the summer season, which is usually one of the busiest seasons of the year, home inventory is expected to continue to rise. But that doesn't come without its own challenges.
A major challenge we face as new homes arrive on the market is they are under contract in record time, which can make the home buying process a little more time sensitive, more competitive and sometimes a bit more frustrating to the home buyer.
Read on to learn how to be fully prepared before you begin your house hunting adventure.
Understanding Your Financial Health
Knowing the extra cost involved when purchasing your new home is critical. It’s not just getting the actual loan, other expenses to consider would include your closing cost, down payment, appraisal and the home inspection.
Do a Serious Audit
You should be prepared for the purchase of your new home as well as the ongoing expenses involved in owning and maintaining it as well. A close look at your current finances and expenses is a smart move and will help you decide if you're actually prepared for this big financial step.
You shouldn't consider buying a home unless you've saved up enough money for a three to six month emergency fund. Lenders will look at your savings and whether there's enough for the purchase and closing costs in addition to additional funds for any emergencies.
Understanding how much you spend each month and what you're spending it on is crucial. Having this number allows you to know how much of your money you can allocate to a monthly mortgage payment without causing unnecessary financial strain. Keep in mind your spending calculation should account for everything including your utilities, food, car payments, debt, savings and any other items so you're not surprised.
In order to receive any home loan, no matter the type - you'll generally need good credit, a debt-to-income ratio of around 43%, and have a history of paying your bills on time. Your local real estate market can vary but generally housing expenses should fall somewhere in the neighborhood of 30% of your monthly gross income. Take a look at your credit score utilizing a service like CreditKarma.com for a fairly accurate number. If your credit is classified below "Good", you should take steps to review your credit history to correct any errors and begin improving your score by paying down debts and ensuring you're paying bills on time or early.
What You Can Expect From The Home Buying Process
Getting yourself familiar with the intricate details of what’s involved in the home buying and closing process will definitely make your home purchase less stressful, smoother, and an overall enjoyable experience.
Find a Real Estate Agent
As a home buyer, it's better to have an agent (also known as a Buyer's Agent) before you begin your search. You need someone looking out for your best interests during the home buying process, so it may not work in your favor to start by working with the seller's agent alone. Ask friends and family for recommendations of agents they've worked with and do some research online for well-rated, well-reviewed agents as well. Make a list of your top 3-5 and do your research to make sure they know their area well and are experts in the field.
In today's real estate market, pre-approval is a MUST. Homes are going under contract quickly and above asking price. At the very least, you need to have a pre-approval letter in hand to ensure your offer will be a competitive one among other potential buyers. After making sure your finances and credit are in order, pre-approval should be your next step.
There are many financing options available for first-time homebuyers, Native Americans, military, and others so ask your real estate agent for their preferred mortgage broker recommendations so you can make sure to find the best options for your needs. Utilizing HUD, FHA your IRA and other loan programs may be available but some may not be right for you, so don't commit to your current financial institution out of loyalty. Make sure to explore your options. If you'd like to learn more about financing, take a look at our article, "How Much Home Can I Afford?"
Find a Home
Research neighborhoods that interest you and take a drive through them to see if they have the types of homes, amenities and feel you're looking for. Ask friends and family if they know of any homes for sale or anyone thinking of selling and of course, use your agent to help locate homes that tick your boxes and suggest areas and homes you may not have considered.
Make an Offer
Once you've found your dream home, it's time to make an offer. Your real estate agent should guide you through the offer process and advise the best course of action based on comparable homes and current market trends. If your first offer is accepted, great! But, that's sometimes not the case so be prepared for negotiations and lean on your real estate agent to help you make the best decisions. Just remember to have a budget that you don't exceed and be willing to walk away from a situation that could cause financial issues down the road. To learn tips about making competitive offers, read our article, "5 Tips For Buyers To Make A Competitive Offer"
Get a Home Inspection
Once your offer is accepted, you should get a home inspection as soon as possible. This helps to identify any issues with the home that may come up and need to be addressed. Inspections should cover everything from the roof to the foundation and everything in between. Ask your real estate agent for their preferred home inspector and plan to be present during the inspection if possible to ask questions and make sure the job is thorough.
Get an Appraisal
You've been pre-approved for a certain amount and you've had your offer accepted that's still within your budget. However, you still need to have a home appraisal done for the lender to make sure the amount you're borrowing matches the value of the property you want to purchase. The lender choses the appraiser but you still have the right to check into their experience and request a different appraiser if you're not happy with what you discover. Learn more about the difference between a home inspection and an appraisal in our article, "Appraisal vs. a Home Inspection"
Close or Move On
After all the work you and your real estate agent have put into the process of searching for your new home. Now is the time that you'll either close the deal or walk away for good.
A final walk-through is done on closing day to ensure everything outlined in the contract has been completed such as the agreed-upon repairs and removal of specific items. If any issues are found, you can request credit or have the seller pay for the services to resolve the concern.
Once everything with the home is in order, all parties sign papers to officially close on the home. The buyer presents a check to cover the agreed upon closing costs. Once all appropriate documents are signed and funds allocated, ownership will be transferred to you.
Buying a Home Doesn't Have to be Stressful
The process of purchasing a home does have a lot of moving parts, but being prepared and utilizing the expertise and skills of your real estate agent will make the process much easier in the end.
Making the necessary preparations leading up to your home purchase is definitely a critical first step towards one of the biggest investments of your lifetime. As home prices are rising and more buyers are finding themselves competing in bidding wars, it’s more important than ever to make sure your plan includes a buyer’s consultation to make sure you have everything you need to purchase your dream home.
If you'd like to make sure you're on the right track preparing for a home purchase, GET IN TOUCH for a free consultation with Charleston's Best Home Team today.