Buying or selling a home can be an intimidating prospect. There’s so much you need to know and do that it can be paralyzing. The purpose of this post is to make things a little bit easier for you. We’ll try to touch on all the essentials you need to know for buying or selling a home. So whether you’re ready to buy or sell, we hope this guide will be helpful.
Buying a Home
Owning your own home has been part of the American Dream longer for almost as long as there has been an America. But buying a home can be an extremely daunting idea — especially if you’d never done it before. Let’s take a quick look at some of the basics you’ll need to know in order to buy anything from a small starter home to your dream home.
Paying for Your Home
Before you buy a house, you will need to make sure that you can afford it. The first thing you’ll need to know is your monthly gross income — that is, how much you make before taxes and other deductions. Those who work in salaried positions already know this. If you are not in a salaried position, there is a simple equation you can use.
[Hourly Pay] x [Average Hours Per Week] x 52 / 12 = [Your Gross Monthly Income]
Let’s look at an example. Joe makes $20/hr and works 40 hours per week. Using our formula for this example looks like this:
$20 x 40 x 52 / 12 = $3,466.66
Knowing this information is important because your gross monthly income is a primary factor used by many lending agencies. That’s because the lending agency wants to be confident that you will repay any mortgage loan that is offered to you. Each lender has their own formula for determining how much they are willing to lend to you.
Generally speaking, you can expect to have a mortgage payment that is about 25-28% of your gross monthly income. Your mortgage payment will typically cover principal, interest, taxes, and insurance. Let’s look at our example again. If Joe has a mortgage payment that equals 27% of his gross monthly income, he can expect to pay $936 per month. But only a portion of each payment will go toward the main body (or principal) of the loan.
How much money you borrow will depend on a number of factors, including those listed below.
- How much you can afford to put down as a down payment.
- How large the house you want is.
- The location of the house.
- What condition you’re willing to settle for.
Buying a Home With a Low Credit Score
Your credit score is a huge factor in your ability to borrow money toward buying a house. In most cases, the better your credit score is, the more likely a lender is to lend you money at a reasonable interest rate. Many lenders don’t like to lend money to people with low credit scores because they see it as a bad investment. People with low credit scores are typically less likely to repay a loan, so the lender doesn’t want to take that chance.
You may be wondering, “What is a low credit score?” A low credit score is usually anything under 620. But even a score at or a little above 620 can mean that your loan terms are limiting and include a higher interest rate.
While it is more difficult, it can be possible to purchase a home with a low credit score. For example, you can apply for an FHA loan that is insured by the Federal Housing Administration and backed by the Federal Government.
Before You Buy a House
Once you’ve been approved for a loan it’s time to start looking for the perfect house. This is a big decision, so you probably won’t want to buy the first home you look at — unless it’s amazing, of course. As you look for a home, you’ll want to keep a few questions in mind.
- What condition is the house in? Fixer-uppers can be far less expensive if you’re willing to put in the time and effort to improve the home.
- What is the neighborhood like? You will want to look for an area that fits your lifestyle and is within a reasonable distance of your work and other frequently visited locations.
- What is the asking price of the home? Asking prices are often negotiable, but they give you a good idea of how much you’ll need to buy this home.
Understanding Closing Costs
Closing costs should always be in the back of your mind when buying a house. Otherwise, you’ll be in for a nasty financial surprise. Closing costs will need to be paid at the time of purchase or rolled into your loan. The amount that will have to be paid at closing is determined by the tax laws in the area the house is located and how much your loan is for. You can generally expect closing costs to be about 2-5% of the home price. Closing costs cover lender fees, property title fees, and escrow or prepaid fees.
Selling a Home
There are many reasons to sell a home, but there are always a few things you’ll need to consider before doing so. Let’s take a look at three of the most important.
Calculating Square Footage
When selling a home, you will need to know the full square footage and the square footage of any given floor. Calculating the square footage of a room is easy: simply multiply the length of the room by its width. So, for example, a room that is 12 ft by 10 ft is 120 sq ft.
To find the square footage of the entire house, simply add up the square footage of each and every room in the house. This is time-consuming but necessary. If you’re unsure if something constitutes a room, the answer is probably yes. Areas other than standard rooms you will need to measure include:
- Miscellaneous areas.
Be accurate, but not obsessive, in your measurements. Most homes are advertised by listing an even square footage, so just try to be as accurate as possible.
Adding Value to a Home Before Selling
Sometimes it makes sense to add value to your home before selling it. If the home is functional and soundly built, you don’t usually need to worry about making aesthetic improvements. Most home buyers will be redecorating anyway, so worry about real improvements. Some things you may want to consider include:
- Upgrading insulation
- Improving structural integrity
- Repairing any damages that you find during an inspection
On the other hand, if your home is soundly built but a little bit older, there are some essentially aesthetic improvements that can help people see greater value in your home. These include:
- Updating bathroom fixtures like the toilet, mirror, or closet space
- Updating and modernizing the kitchen appliances
- Installing a pool, sauna, or hot tub
Documents Needed for Selling a House
If you think you’re ready to sell your house, use this list to make sure you have all of the documents you need. Being organized will make the process much smoother.
- House title
- Tax records
- Appraisal records
- Original sales contract
- Homeowner’s insurance records
- Mortgage or financing documents
- Professional inspection reports that have been made on the house
- Documents proving ownership of the house — may include certificates of zoning compliance or building regulation compliance, property surveys, or certificates of occupancy
- Documentation for any maintenance, renovations, repairs, or improvements that have been made
- Documents related to any real estate agents you have worked with
Hopefully, this brief guide has been useful in helping you understand buying or selling a home. If you think you’re ready to buy or sell, you may want to contact a trusted real estate agency near you so that they can help you get started on the process.