Ultimate Home Buying Guide

    The Ultimate Buying Guide

    Buying a house is complicated. It’s the biggest financial purchase most of us will ever make. It’s also an emotional investment. Most people spend years in the same home, and many of our most important memories take place there.

    Whether you’re a first-time homebuyer or an experienced homeowner, we have a few home-buying tips to help you out. Take a look at this home-buying guide to help you understand the process of purchasing a house.

    Step 1: Determine Whether You’re Ready to Buy

    Your home is one of the biggest purchases you’ll ever make. So it’s no surprise that one of the first questions you’ll need to answer is whether you can afford to buy a home.

    Ask yourself these four questions before buying:

    • What is your credit rating?

    With few exceptions, most people need a loan to buy a home, and your credit rating is a major factor when you apply for that loan. Your credit rating can affect the interest rate you receive and the types of lenders that are willing to work with you. The higher your credit rating, the more likely you are to receive favorable terms for your loan.

    Start the loan process early when you’re looking to purchase a home. That way, you can correct any errors there may be. If your credit rating is low, you might consider paying off other debt or look for other ways to improve your credit score.

    • What is the maximum amount you’re willing to spend on a house?

    Salary Rule with Home Buying

    A good rule of thumb for determining the maximum price you’ll pay for a house is to multiply your salary by two or three. If you’re risk averse or have lots of other debt, you may want to use the lower number.

    Remember to factor in closing costs, taxes and insurance when figuring out your budget. Add 10 percent to the sales price of a house to get a better sense of the real cost.

    • How much of a down payment can you make?

    You’ll also need to determine how much you can afford as a down payment on a house. You may have heard the rule of thumb that you should put at least 20 percent of the value of your home as a down payment. That’s because 20 percent is the magic number for avoiding paying private mortgage insurance (PMI).

    As a general rule, paying more as a down payment is better than paying less. Larger down payments reduce your overall mortgage and monthly payments. Because your mortgage is smaller, you’ll also pay less in interest over the course of the loan.

    That said, you can get a government-backed FHA loan with just 3.5% down, a VA loan with no-money down and a USDA loan that lends you more than 100% of the cost of the home. Most 1st-Time-Homebuyers usually buy using an FHA loan.

    • What is your maximum monthly payment?

    You’ll also need to figure out what the maximum monthly payment you can afford will be.

    Pre Approval Letter Not a Guarantee

    Many lenders use a back ratio to determine how much they’re willing to lend you. To figure out your own ratio, take your total monthly income and multiply it by 38 percent. Most lenders consider that the total amount you should spend on housing and other debt.

    Now add up the minimum monthly payments on your credit cards, and subtract this from the number you just got. The number you have now is the monthly mortgage payment that most lenders will be comfortable with.

    Remember that lenders include the mortgage itself, taxes and insurance fees when they consider your monthly payment. Be sure to include these costs in your own calculations.

    Step 2: Choosing a Home

    You may already have a good sense of what you’re looking for in a home. If not, this is the time to figure it out.

    Determining your preferred location is one of the most important steps. If you’re already settled in a community and would like to stay in the area, this can be an easy choice. If you’re considering a long-distance move, you may have many more decisions.

    Here’s what to look for when you’re considering locations:

    • Whether you’d like to live in a small town or a big city
    • Driving distance and public transportation options
    • Quality of the local school districts
    • Affordability of homes in an area
    • Local crime rates
    • Whether a home in an area is likely to hold its value over time
    • Employment opportunities
    • How close you’ll be to family and friends
    • Local culture
    • Healthcare facilities

     

    Buying a Home in York, PA

    If you’re in Pennsylvania, you may be considering buying a home in York. We’re the seat of York County, and there is easy access to many nearby cities.

    York is a culturally-rich city. Our four historic districts and well-preserved historic buildings make us an architectural museum. Our sports teams and several top-rated elementary schools appeal to many potential residents. Popular neighborhoods include the Avenues, Old Towne East and the East Side.

    The average home cost

    Because of its lower cost of living, many people work in nearby cities and live in York. In 2015, the average home cost was $145,000. Like most of the U.S., home prices have fluctuated over the past ten years. With a growing economy, positive job growth and home prices that have increased by 3.6 percent over the past year, homes in York are a good investment.

    You can view homes for sale in York and nearby cities on our website.

    Types of Homes

    There are several different types of homes that you may consider. The most common types of homes are single-family homes and condominiums.

    Single-family homes are detached homes with private land around the entire house. Many buyers like the privacy of a single-family home. With a single-family home, you can add on or remodel the home as desired. You’re also less likely to have homeowner association fees.

    Another option is to consider a condo or townhouse. Many people are drawn to condos because of their low-maintenance appeal. Your homeowner association fees cover maintenance and gardening. Condos are also usually more affordable than single-family homes.

    Special Considerations: Buying an Old Home

    If you’re considering moving to a historic city like York, you’ve probably considered buying an older home.

    Older homes often have a lower asking price. However, you may find yourself doing more maintenance. If you’re considering buying an older home, assess your maintenance skills — and interest.

    Thoroughly inspect the major systems in an older house. Electrical, heating and plumbing systems may be a patchwork of the original components and newer upgrades. A good inspection can help you determine what types of maintenance might be needed.

    Special Considerations: Buying a Foreclosure or Fixer-Upper

    Many buyers are interested in purchasing foreclosures or fixer-uppers because they usually have a lower sales price. If you’re considering buying a foreclosure, there are a few steps you can take to make the buying process earlier.

    First, find a real estate agent who specializes in foreclosures and bank-owned properties. Buying a foreclosure can be more complicated than a standard home. At Century 21Ò, we have extensive experience guiding buyers through the process of purchasing a foreclosed home.

    Second, get an inspection done. Foreclosures and short sales often need repairs. You may not convince an owner to agree to repairs before purchase, either. An inspector can help you determine what repairs, if any, need to be made.

    Step 3: Learn About Financing

    Most homebuyers use a mortgage to finance the purchase of their new home. There are a few common types of mortgages available:

    • 30-year fixed mortgage. This is the most common type of mortgage. The interest and payments remain the same each month. At the end of 30 years, you’ve paid back the entire loan. This is considered one of the safest mortgages available, and it’s a good choice if you want to know how much you’ll be paying each month.
    • 15-year fixed mortgage. Like other fixed-rate mortgages, the interest rate is set at the beginning of the 15-year loan, and it stays the same for the entire period. You’ll have higher payments because of the shorter timeframe, but you’ll also build equity more quickly and pay less in interest. These can be riskier than 30-year loans, however, because of the higher monthly payments. Make sure you can make the higher payments if your situation changes before taking out a 15-year mortgage.
    • Adjustable rate mortgages. Adjustable rate mortgages (ARMs) can be either 15 or 30 years in length. The interest rate adjusts periodically over the life of the loan. Many adjustable rate mortgages have lower introductory interest rates than fixed loans, which makes them a good choice if you’re planning to sell your house in a short time frame.

    If you think that interest rates will drop over time, an adjustable rate mortgage can also be a good choice. However, ARMs are riskier than fixed-rate loans because the interest rate can jump up if the market takes off.

    Step 4: Choose a Lender

    Many people choose lenders and loan types at the same time. There are several different types of mortgage lenders, and they may offer you dramatically different types of loans.

    Mortgage lenders can be either banks or portfolio lenders. Mortgage banks include many large banks like Bank of America and Wells Fargo. These banks usually sell loans to a third party, like an investor. By contrast, portfolio lenders include some small banks, credit unions and savings-and-loan companies. These businesses hold your mortgage for the life of the loan.

    One of the biggest differences is that a portfolio lender may be able to offer you more flexible terms than a large bank. That’s because they don’t need to answer to external investors. So if you’re looking for a unique type of loan or have an usual credit situation, you may want to consider portfolio lenders.

    Should You Use a Mortgage Broker? 

    Mortgage brokers act as intermediaries between buyers and lenders. They work with multiple banks to find the best interest rates and loan terms for you. However, they don’t actually make loans.

    Many brokers can negotiate discounted rates with large lenders. Because of these discounted rates and the number of lenders they work with, working with a mortgage broker is a popular option. If you do work with a broker, remember that you’ll probably pay a fee or sales commission to the broker. Take this into account when comparing loans.

    Step 5: Getting Pre-Approved for a Mortgage

    Once you’re ready to begin house hunting, you may want to get pre-approved for a mortgage. Pre-approval is a written commitment that you’ll qualify for a loan based on your income and credit rating.

    Pre-Approvals are not always guaranteed

    You should know, however, that pre-approval letters aren’t always a guarantee a lender will offer you a loan. Pre-approval is often based on what you’ve said, rather than on bank statements. Lenders can withdraw offers if they find you’ve misrepresented your finances.

    Pre-approval letters also have a time limit. Most pre-approval letters are valid for 60 to 90 days. After that, the bank will need to issue you a new one. The best time to get pre-approved is just before you’re ready to go house hunting.

    Step 6: Making an Offer

    Once you’ve found a home you like and a potential lender, you’re ready to make an offer. Your real estate agent will guide you through the process of making an offer and negotiating with the seller.

    Your offer letter usually includes:

    • A purchase price
    • Contingencies
    • Date the offer expires
    • A closing date

    Sellers can accept or reject your offer. They can also give you a counteroffer, which has different terms than your original. The seller might ask for a higher price, a shorter (or longer) closing date or different contingencies. You can accept or reject their counteroffer.

    Throughout the purchase process, you’ll see many references to contingencies, or clauses. Contingencies allow you to back out of the contract if something goes wrong during the escrow process. These can protect you if an inspection reveals major problems with the house or if your funding falls through.

    Step 7: Closing

    Once your offer has been accepted, you’ll move into escrow, or closing. Escrow is a neutral account that protects both you and the seller until the home sale is completed. Expenses from the sale are paid from this account. Your escrow account also holds important paperwork and files, such as the new deed to the property.

    During the closing process, you’ll have the chance to have your new home inspected and make sure there are no major problems. You’ll also need to secure a mortgage. As part of the loan process, many banks require a separate inspection and appraisal.

    You may also need to get homeowner’s insurance before escrow closes. Having homeowner’s insurance is a key condition of many loans.

    There may be other requirements you need to meet as part of the escrow process. These depend on your purchase offer, and each requirement must be completed before the property’s title transfer occurs.

    Escrow can last from just a few weeks to more than two months. During this time, you’ll need to stay organized and keep on top of important deadlines. The more responsive you are, the quicker the closing process is.

    Once escrow is complete, you’ll be able to move into your new home. The escrow company will file records that state you are the new homeowner, and your real estate agent will give you the keys to your new home.

    If you’re ready to begin the home-buying process, contact one of our local agents at CENTURY 21 Core Partners today. You can also visit our website to search for homes for sale in York and southeastern Pennsylvania.

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