Regardless if you're planning to buy a house as an investment property or as a primary residence there are important steps that every must complete.
Save for Down Payment
Before you are ready to buy home the first step is to make sure that you are appropriately saving for the down payment. Depending on how you are purchasing the home, the down payment can range from 3% to 20% of the home’s purchase price.
One should create a clear savings goal for a potential property and here are some things to consider:
1) How much are you trying to spend on a home in total?
2) Are you trying to avoid private mortgage insurance? If you don’t provide a down payment over 20% of the home’s purchase price then you will have an additional monthly expense until you build up 20% equity in the property.
3) Where are you planning to store your money as you are saving for the house? Tax Brokerage? High-yield saving account?
These are all important questions that can help either speed up or slow down the home buying process if they are not addressed appropriately.
Clean Up Your Credit
The next important step is to clean up your credit. Credit can always be a tricky subject, but it doesn't have to be very difficult. Generally speaking, having no credit is better than having poor credit. Depending on which boat to fit in, you will have to do different things to either obtain credit or fix your credit.
If you don't have any credit, you can easily build credit by getting a low limit secure credit card and start to use it regularly for smaller purchases. The important thing here is that you pay the credit card off in full at the end of each month.
If you have bad credit, it may be worth checking your credit report to see if any of the negative marks can be removed. Another thing you might can do is talk with a credit specialist or your bank to see what they can offer you if your credit is very poor. The best advice if you have poor credit is to change your behavior, start paying down old debt being more consistent and paying down debt in the future.
Do Your Market Research
Another important element of buying a property, especially as an investor, is finding a market/area where properties are in high demand and would give you the best chance at appreciation. If you are looking for a primary residence, appreciation may not matter to you but you will still need to consider the many personal or professional reasons for buying a house in a specific location.
Typically, high demand areas are area located near good schools thus drawing many families to that area. As a result, areas with properties near good schools will appreciate more in value than other homes.
Completing the market research can be difficult and time consuming for a lot of people, so if you're not skilled in this area, you might need to use a real estate agent to help you along this process.
Find a Great Real Estate Agent
Finding a great real estate agent is the most important step in purchasing the house as a primary residence or investor however it can be a very challenging process. It is difficult because finding a real estate agent that cares about your interest and understands that there is a mutual benefit in you buying a house you really want and them being able to sell a property to you.
Some of the best methods to identify a good real estate agent are:
1) Get referrals from individuals in market that has just bought a house with a particular real estate agent
2) Complete a short interview with at least five different real estate agents in the market.
3) Check experience level on listings sites to see how many properties they have sold.
Account for Other Costs (Closing Costs & Others)
A lot of first-time homebuyers and even real estate investors don't anticipate other cost associated with buying a home outside the down payment. However, there are many other costs that exist within the closing cost of a property.
Closing costs include the cost of a home appraisal, a home inspection, loan application, potential attorney fees, a portion of the yearly property taxes and homeowner’s insurance. Earlier we mentioned private mortgage insurance maybe an additional monthly expense if you don't have 20% of the property's purchase for the down payment.