House buying is a long process that seems to be vague, confusing and unpredictable in the beginning. The truth is that every home buyer goes through similar stages on his way from the raw idea “I should buy a house” to the actual house he purchases. The length in time can vary, but the stages are pretty much the same for everybody. I decided to sit down and outline those stages, so that you’d know what to expect and to see your progress as you move from one stage to another.

Stage one: sniffing around

At this stage people start paying attention to the situation in the real estate market - is it slowing down or racing up, what is going on with the interest rates, are they going up or down. After getting the big picture, people start shopping around for a loan, going to the banks and getting information about the different types of loans, interest rates and repayments. Finding yourself a mortgage broker is a good idea at this stage - read here how he can help you out. It all comes down to finding out what is your borrowing capacity - or in plain English how much money you can borrow from the bank.

Stage two: what’s your budget?

Using the information about your borrowing capacity and your monthly repayments, you can decide about the upper limit of your budget. Confused?

Example:

Let’s say the maximum amount the bank is willing to let you borrow is 500,000$ and the interest rate is 8%. Take the longest period possible (30 years), your monthly repayments will be about 3660$. If you can pay that much a month, then 500,000$ will be your upper budget limit. If not - you lower the amount of loan until you get monthly repayments that you can afford.

Stage three: where do you want to live?

This is a tricky one - you have to choose the area you’d like to live in - in the boundaries of your budget. So basically you’d make a list of all the suburbs with their median prices and cross out those where median price is above your budget. Some reports list the lowest property price too, not just the median price - that will help you not to cross out suburbs that might be affordable, in spite of median price being beyond your budget. Confusing?

Example: Let’s take 3 suburbs

Suburb A: Lowest price 300K, Median 350K
Suburb B: Lowest price 350K, Median 410K
Suburb C: Lowest price 400K, Median 450K

If your budget is 400K, looking only at median prices you would dismiss suburbs B and C because they are beyond 400K. But Suburb B has the lowest price of 350 - which means there are houses you could find below 400, so it can stay on your list of “candidate” suburbs.

Stay tuned for “How to buy a house - part two”. You might want to subscribe to my feed (click on the link below) to make sure you don’t miss it.

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