Before you consider buying, decide if owning a home is right for you.
Being a homeowner requires sufficient funds and time when you are the person responsible for all repairs and upkeep.
Sit down and compare the perks of owning vs. renting before you start to shop. For example, if you have a job that may require you to move in the semi-near future, it may be best to rent; However, owning your home allows you freedom to customize your property to your needs and tastes as well as build equity in your investment. Renting is a relationship; buying is a marriage.
How much “home” can you afford?
Prior to meeting with a mortgage lender or realtor, make a budget including payments that aren’t made every month.
While analyzing possible house payments, it’s wise to be conservative with your estimates as your financial situation could change in the future. As a rule of thumb, total housing costs should not exceed 33% of your household’s total monthly income before taxes. If your proposed housing budget is above 33%, think of ways to spend less, save more for a down payment, or consider lowering your home buying price range.
TIP: Be realistic! If the mortgage payment for your dream home doesn’t fit COMFORTABLY into your budget, it may not be the property for you.
Be prepared for upfront costs.
While looking at your financial picture, think of ways to boost your savings account. Maybe you can eat out less or cancel a streaming service? Get creative!
Out of pocket costs typically include earnest money, a down payment, home inspection costs (if you opt for an inspection), closing costs, post-purchase reserves, and money for the extras. When budgeting for this, round up. You may have money left over after the transaction, but is that ever a bad thing?
Give your credit a makeover.
Buying a house is a big deal, and so are the terms of your mortgage. Check your credit report for errors that need to be disputed with the credit bureaus as well as collections and other unfavorable accounts. These should be paid in full at least a month before applying for funding. By cleaning up your credit report, you could save yourself thousands of dollars on interest over the life of your mortgage!
What are the lenders looking for? Lenders typically like to see a credit score above 620, good payment history, stable employment, a comfortable debt-to-income ratio (preferably under 40% including your new housing payment), and sufficient assets or savings.
TIP: Consolidating your debt can help you save on interest and/or lower your monthly payments!
Get your documents in order and apply for preapproval.
Before visiting your financial institution, gather your pay stubs for the last 30 days, two most recent years of W-2’s, and two months of statements from all of your financial accounts and assets. If you are self-employed, be prepared to bring your full tax returns for the past two years.
Don’t worry, preapprovals are worth the prep work! A preapproval is a firm commitment from your financial institution stating for 60-90 days, you have been approved receive funding for a specified amount depending on the property. Being preapproved lets you know your price range and may give you an upper hand during negotiations with the seller.
Find your perfect realtor.
Look for recommendations, check qualifications, and interview prospective realtors that specialize in your type of home or desired neighborhoods. Above all, expect honesty and trust your instinct. If it seems like a realtor is pressuring you, withholding information, or uninterested in your wishes, it may be best to find a new agent.
Patience is a virtue.
It may take a while to find your dream home in the right price range. If you are currently a home owner, it may also take some time to sell depending on the market and condition of your house. While you are getting ready to put up that for sale sign, you can prepare yourself and your property by consolidating your “stuff” and improving your home’s curb appeal.
Offering and negotiating with sellers is an art.
Discuss what you’re planning to offer with your realtor and write the offer together. This allows you to have another industry perspective when proposing contingencies, concessions, inclusions, etc. When writing your offer, don’t expect anything will be included. If you want that washer and dryer set, it needs to be in writing.
During the negotiation tango, expect some compromise and be willing to meet the seller half-way. If the seller isn’t willing to lower the price, you may be able to save money through negotiating inclusions, concessions, and contingencies.
TIP: If you don’t ask for something, odds are you won’t get it!
Protect your investment with an inspection.
The inspector you choose will walk through the house and give a general assessment on the “health” of your future home. If your schedule allows, accompany the inspector throughout the house to learn about the property’s strengths and opportunities. Though the lenders usually do not require them, you can use the information found to negotiate new contingencies for your offer.
Keep your wits about you throughout the closing process.
It’s easy to get complacent or filled with emotions after your offer has been accepted, but you still have work to do! Even though you don’t technically own the property yet, have homeowner’s insurance lined up two weeks prior to closing. Be extra critical during your final walk-through… if something doesn’t feel right, say so!
The day of the closing, get a certified check for all closing costs and carefully review all documents prior to signing. This is your time to ask questions if there is something in the paperwork that is hard to understand. Once you get your copies, keep them in a safe place that is accessible if needed.
TIP: A safe deposit box is a great investment for storing your important documents! Contact your financial institution for more information.