Buying a new home is one of the best yet most stressful things in life. All of that excitement can easily be masked by the worries of whether or not you’re doing what you’re supposed to — especially if it’s your first time buying a house.
Where do I even begin? Is there something I don’t know about? Did I do everything I was supposed to? Is something really expensive about to happen?
These are all questions you might ask yourself at some point in the process, and for good reason. Luckily, you can learn from those who’ve gone through the home-buying process before you — and making it the enjoyable experience it ought to be.
Here's what you need to know about buying a new home and how to get a loan.
Get a loan
Unless you have enough cash to buy a house in full, most people use home loans (mortgages) to finance the purchase of a new home. Check out multiple banks to see what they offer, ask plenty of questions, and find out how large of a loan you can get. Then, contact a bank loan agent to get pre-approved.
We’re lucky enough to live in the digital age, so you can hop online and get a free quote in a matter of minutes. As you’re comparing, look for loans with low interest rates to help save the most money over the length of your loan. As far as the length of your mortgage goes, the most common mortgages are 15 and 30 years. Payments will be higher with a 15-year mortgage, but you’ll save in the end by paying less in interest.
Mortgage rates for a 30-year fixed-rate mortgage start at 5.614% as of May 2022. If you opt for a 15-year fixed-rate mortgage, rates start at 4.734%.
Set your budget
Based on the loan pre-approval and your personal finances, determine your budget or price range you are able to afford. Many agree that your mortgage payment should be no more than 28% of your monthly income, so keep that in mind when determining your budget.
Mortgage calculators are available online to help determine what your monthly payments would be. Find one that includes other mortgage-related costs, such as private mortgage insurance (PMI) and taxes, so you’ll have a more accurate idea of what your monthly payments would be.
Determine your down payment
Many of the best mortgage lenders require some sort of a down payment when buying a house. Hopefully, you’ve been saving money for your house already and you have a rough idea of your down payment ability.
Your actual down payment could be anywhere between 5% to 20% of the mortgage amount, but in some instances, you might not need a down payment at all. That said, if you have a conventional loan and put down less than 20%, you’ll often be required to get private mortgage insurance and that can add a lot to your monthly payment.
After your down payment, the remaining 80-95% of the price will be covered by the installment loan that you'll have to pay monthly. So, the more you put down, the less your monthly payments will be. You’ll also pay less in interest the more you put down, since you’re borrowing less.
Pick a location
Location, location, location. This rule of real estate is as true today as it was 40 years ago. The most important thing about the location is that you and your family are happy there. Is the neighborhood safe? What nightlife, outdoor activities, restaurants, stores, supermarkets, and offices are nearby? Is the location prone to any natural disasters?
Another important thing is finding a home in an area that is steady or increasing in value. The last thing you want to be is stuck in a home you can't sell, if and when you’re ready to move. Use free online tools like Zillow, Trulia, and Niche to easily see the historical and current prices of homes in any area, search for city crime rates, school rankings, public transportation options, proximity to stores, etc.
Determine the general style of home you want
While cost is a major factor, there are many styles of homes out there for most budgets. Do you envision an older, single-family Colonial? A duplex where you can rent half to help cover your rent? A townhouse condo?
It’s a good idea to narrow down what you’re looking for, as too many choices can be overwhelming and make the process of choosing your new home more difficult than it needs to be. Once you’ve settled on the style of home you want, you can start getting into more of the details of the house.
Decide which house features are important to you
Now we can get into the details of your dream home. What will make you excited to return home every day? Are there little features that are deal-breakers or must-haves?
Start by asking yourself some of these questions:
- Architecture: Do you want a house with history? Or a modern home?
- Lighting: Do you need a lot of natural light?
- Views: When you look out your kitchen window, what do you want to see? Your backyard? A creek? Mountains?
- Yard space: What kind of lot do you want? Do you want to have to maintain lots of property?
What size do you want vs. what do you need
Create both a "wants" list and a "needs" list. Think about this carefully and assess the needs of you and your family. While your wants may be important for your happiness, your “needs” list is what might make your final decision.
Do you want a 4,000-square foot home or is 2,500 square feet more than enough? How many bedrooms and bathrooms do you need? Do you need an office to work from home? Would you like a garage? If so, for how many cars? How many bathrooms will keep your family from arguing every morning?
Sometimes having less space is better than having more. Consider how much cleaning and maintenance you’ll have to do. In addition, the utility expenses on a bigger house will also be bigger in size. How much house can you afford? As you’re searching for your house, consider everything you want and everything you need, and make the best decision based on your financial situation.
Investigate the school district
Do you have kids or do you plan on having kids? If so, the quality of schools in your area will likely be a factor. Most children attend public schools, so how good is the public school system in the area you’re looking? If public schools aren’t great, are there options for private schools? Private schools can be expensive, but don’t forget it’s an option.
As mentioned earlier, you can find school rankings on sites like Zillow and Niche. You can also check out GreatSchools to compare K-12 school ratings nationwide. As you’re searching, view ratings and reviews from other parents, as well as test scores. Choose the right school for your family's needs.
Don’t forget the commute
Do you want visitors to have to trek through a forest, then paddle across a lake to your home on an old, rickety, wooden boat? Probably not. You probably also don’t want to get to and from work that way, either.
So, how accessible are the homes you’re looking at? Are there quality airports nearby? Any major highways to hop on or just winding back roads? There are no wrong answers. Just know what you’re looking for.
Find a real estate agent
Lastly, and most importantly, find a competent real estate agent. It’s important you trust this person and feel comfortable working with them. Otherwise, your home-buying experience might not be very enjoyable. Consider reaching out to friends and family to see if anyone has a personal connection to a real estate agent.
Whoever it is, your real estate agent will take a small fee. But if you find a good one, they will do the hard work for you, help answer your home-buying questions, and truly earn the fee you’re paying them. Tell your prospective agent what you expect of them and provide your "needs” and “wants” list. Most real estate agents would be happy to give you a free, no-obligation consultation.
The bottom line on buying a new home
For something that should be one of the most exciting moments of your life, it’s easy to get wrapped up in the complexities of buying a new home. Fortunately, there’s a ton of information to help guide you along in the process. Do your research, have your questions answered, and make sure to enjoy the home-buying experience!