Let’s say one morning you wake up and realize that one of your goals this year is to make the shift from renter to homeowner. This is going to be an exciting and emotional financial adventure that you should begin preparing for now.
Think about your dream home and your dream neighborhood, but realize that you may need to comb through these dreams to find a home and a community that you can easily afford. Assure you are ready to buy a home where you will live for three to five years or longer; it can take this long to build equity in a home and recoup your investment costs.
Here are ten tips to get you started in the process of buying a home:
1. Check your credit score – Your mortgage qualification is based on an array of factors, including your income and assets, your debt-to-income ratio, your pattern of savings and your job stability. Although the most important element in today’s tightened credit world is your credit score. There isn’t a specific minimum credit score for a mortgage loan, but it’s important to maximize your score before starting the home-buying process in order to qualify and secure the best mortgage rate.
2. Set your budget – Each potential homeowner should create a simple budget for themselves with income and spending to determine how much they are willing to spend on housing payments. A lender will tell you how much you can borrow, but financial experts recommend that homeowners spend a maximum of 30% of their gross monthly income on principle, taxes, homeowners insurance, and interest.
3. Stop spending and start saving – Now that you have an idea of the cost of your mortgage payment, start saving the difference between that payment and your current rent each month. This will allow you to get comfortable with a higher housing payment in addition to building you savings.
4. Meet with a lender –Before you look at homes you should get pre-qualified for a mortgage loan so you can avoid falling in love with a home you can’t afford. Be sure to inquire about your variety of loan options and get an idea of how much cash you will need for a down payment and closing costs.
5. Find a reputable realtor – All buyers should have a realtor to represent their interests during negotiations and to help buyers identify the value in different homes and neighborhoods. Your realtor should be knowledgeable, experiences, and familiar with where you want to live. Trusting your realtor is extremely crucial to buying your first home.
6. Narrow your priorities – Make a decision whether it is more important for you to live in a specific type of home or neighborhood. If you can’t find or afford everything you want in your first home, you may need to make some adjustments.
7. Choose a neighborhood – During a housing downturn some neighborhoods hold onto their value more than others. Work with your realtor to find a neighborhood that suites your needs – somewhere you will feel safe and that home values are stable or rising but more importantly somewhere you will be happy.
8. Make a reasonable offer – Don’t make a low-ball offer if you love a house and don’t want to lose it. Some sellers are willing to negotiate and others are not. To make sure you are dealt with honestly, your trustworthy realtor can walk you through the process.
9. Have a home inspection – NEVER buy a home without having it inspected. You can learn a lot about home maintenance and what to expect in terms of repairing or replacing systems and appliances as an owner, and more importantly looking for serious flaws in the home.
10. Finalize – After the contract has been signed, make sure to stay in constant touch with your lender and your realtor to be sure your financing is taken care of as well as all insurance needs. Good realtors will have a checklist to ensure everything is proficient in time for settlement.