When you finally get the offer to own your own home after renting for so long, a feeling of pride and excitement comes over you. At last, something you’ve earned, and something you can own for the rest of your life.
But before you sign that contract, make sure you know the facts about transitioning from renting to owning, and what you need to do. Transitioning from Renting a Property to Owning One: Here's What You Need to Do!
Transitioning from Renting a Property to Owning One: Here's What You Need to Do
Before the Deal is Made
Since the year 2020, about 56% percent of new mortgages were from millennial-age first-time homeowners. Yes, for many families, the only way they can afford to buy a home is by getting a mortgage. But there are some prerequisites:
Save for a Bigger Down Payment
Although many lenders will go below 20%, it’s best to save as much money as possible to avoid heavy interest and high monthly payments. You also have to factor in closing costs, moving costs, utility deposits, property taxes, and insurance.
Build Your Credit for a Better Deal
When it comes to credit score, late 500s to 600s is workable. The better your credit, the less the lender’s risk. Be sure to check your credit at reputable agencies AnnualCreditReport.com or MyFICO.com.
Maintain a Steady Income
Showing financial stability requires a steady income as well as a satisfactory debt-to-income ratio every month. It’s also wise to put money into savings every month for repairs and maintenance.
Decide Where You Want to Live
Just because you have an option to live where you’ve been renting doesn’t mean that’s the best option financially. You may qualify for a better home in a better neighborhood, or at least one closer to where you work, or to your extended family.
When you invest in a new house, you’re planning your life for the next 5-10 years! Consider the locale too, as the ideal real estate market changes significantly according to city and state.
Start Looking at Different Mortgage Providers
If you’re serious about making an offer in a competitive market, getting preapproved is an important step. The lender will have you fill out a detailed application, with a credit check, so that they can verify all financial information and assess risk.
Upon your pre approval, you receive an offer for a contract. This process may take 2-3 weeks. Some mortgage services like SoFi Home Loans can provide a list of available home loans for first-time buyers.
There will be much more paperwork involved in owning a home than you ever had to sign for a rental agreement! That’s why you have the option to hire a real estate agent who can guide you through the process.
Real estate agents offer an advantage in negotiation, market knowledge, and in having special connections. But if you have a good relationship with the homeowner then you may choose to skip the middleman and negotiate directly.
You’re not even required to get a home inspection, at least legally speaking. But it’s not necessarily a good idea, because getting the house inspected gives you pertinent information about the property, its foundation, structure, HVAC, plumbing, and electrical systems – all of which might directly affect maintenance and repair costs later on.
A lender will usually require at least a home appraisal to protect them against loss in a default, unless the contract is specifically a no-appraisal mortgage.
If you feel the need, you can hire a lawyer to review the final offer of the house before finalizing the offer and the loan. Be aware that some states may require a lawyer be present when closing, to protect the lender.
Learn the Home Buying Schedule
Most new mortgages take 30-50 days to close, depending on issues related to inspection, appraisal, or the property title.
Once it goes through, you pay mortgage payments in “arrears”, meaning you don’t pay a month in advance like with rent, but you pay last month’s principal, interest, taxes, and insurance. Your first mortgage payment is also delayed until a full month after the last day of the month of closing.
Finally, if you are moving out of your apartment or previous home, remember to give a 30-day notice after you officially close.
Dreams Take Time
Remember, owning your first house is a dream come true and dreams take time. But once you do finally close, you will feel a strong sense of pride, freedom, and accomplishment.
Owning your first home is one step closer to building wealth and changing your life for the better. If you need help putting that first deal through, there are many resources at your disposal. Read our article on Buying Your First Home for more tips on protecting your investment.