What does it take to buy a house?

Buying a house is one of the big milestones in one’s life. I remember my first property, I was completely clueless about the process, and made a few mistakes along the way. On my second close, I almost ended up homeless for a few days because I underestimated how long the closing would take! And right now, I am in the process of building my own house on a plot I bought cash in Colorado, and while I thought this would be the smoothest project ever, there were still a few surprises I didn’t see coming.

So what does it take to buy a house? For starters, patience. We have all heard horror stories about people who were too quick to buy, and ended up losing money on their home for a reason or another.

So take it easy, especially if it is your first buy. Start by defining how much house you can afford. The debt to mortgage ratio most lenders will agree to is around 50%. That means half of your disposable income, after any other loans or debt repayments, can be allocated to mortgage payments.

But a mortgage payment is not just the figure you see on mortgage calculators when you input the purchase price of your future house. You have to include property taxes, insurance, and PMI if you have less than 20% down payment.

And let’s have a look at how much that payment can vary in your calculator depending on the interest rate you can get. A little 0.5% difference in interest rate can add up to thousands of dollars over the life of the loan.

So if you have a low credit score, you may want to wait a few months and rebuild your credit before applying for a mortgage.

How much the bank says you can afford may also be different from how much you can comfortably afford. Every household is different. Maybe you are helping out a family member every month, maybe your new house will be further away from your job and you will need to spend an extra $200 in gas.

Be sure your mortgage is affordable. Better compromise on a smaller surface than have your house repossessed because you are behind on payments.

Will you still be able to pay your mortgage if your spouse loses their job? If interest rates go up to 8%? If you suddenly need an extra $500 a month to send your kid to college or support an aging parent?

Once you have defined how much house you can comfortably afford, and you and your lender are on the same page regarding that figure, it is time to go house shopping.

While this is an exciting part of the process, there are a lot of factors to take into consideration. What are you looking for? How far from work? How important is the quality of the school district to you? Could you easily recoup your costs if your family had to move 2,000 miles away? If not, could you easily rent and cover the mortgage? How much is needed for renovations and repairs? Will you hire someone or do it yourself? How much is the HOA and any other fees?

Working with a great agent can make a world of a difference. Try to ask around for recommendations or look up reviews online. Buyer do not pay for agents so take advantage of it.

They should be able to point out anything you might have missed during the house hunting process.

Again, and because this is a money blog, it is important to define ahead what your needs and budget are, in order to stay within these parameters.

Yes, a guest bedroom would be awesome. Can you afford the extra $30,000 just so family can come spend three days a year?

Remember that time you overspent on eBay because you got carried away by the auction system? It would have much more serious consequences if you were bidding on a house that is too expensive.

Now that you have found the hidden gem, it is time to go back to your lender to secure financing. You should have a pre-approval already, so unless there is something you failed to report, it should go smoothly. Meanwhile, you will do the inspection and make sure everything is as disclosed. Do not hesitate to walk away if you are not satisfied, or ask the seller for a discount.

Spending a few hundreds on a great professional can save you thousands if you ended up missing something. It is money well spent.

Allow about six weeks to complete the closing process. Make sure you can stay in your previous house until then, as moving with friends and family in the interim can add stress to an already eventful situation.

Buying a house is exciting and one of these once or twice in a lifetime projects, so make sure you surround yourself with the right people and everything should be alright!