One Step at a Time
Purchasing a home is exciting, but there are a lot of people and moving parts involved in the transaction. Mortgage applications, real estate agents, movers, and more—it’s a lot to handle all at once. You can reduce the stress of the process by getting prepared well ahead. Do your research, figure out your budget, find a lender, and get a real estate professional on your side, and before you know it, you’ll be jangling the keys to your new home sweet home.
Check Your Credit
The first thing a mortgage lender will do is check your credit, so before that process begins, you need to review your reports and make sure they’re accurate. Obtain a credit report from all three bureaus (Equifax, Experian, and TransUnion) at least 12 months prior to applying for a mortgage. This will give you time to make any necessary adjustments and improve your score, if needed.
Put Together Your Budget
Before you start shopping for a house, you need to know what you can afford. You can start by calculating your DTI (debt-to-income ratio), which is one of many metrics that lenders use to evaluate borrowers. But for yourself, be sure to do your homework on the local taxes, utility costs, and other expenditures you can expect to pay as a homeowner. Factor those monthly costs into your personal budget, because those expenses can vary greatly depending on where you buy.
Getting preapproved for a loan can make the shopping and purchase process go more smoothly. When you’re preapproved, you know exactly what is within your means and can narrow down neighborhoods accordingly. As well, having a preapproval letter lets sellers know you are serious and puts you a step ahead of other buyers, which could make a difference when markets are hot.
Get to Know the Neighborhoods
Take the time to do thorough research on prospective neighborhoods. Visit at varying times of day and on different days of the week. Talk to neighbors, if you’re able, to get a sense of the community. If you have a family, look around to see if there are kids out and about. Doing this research will help you rule out neighborhoods that are too busy, too quiet, or just not right for your family. Then you’ll be ready to jump as soon as something new comes onto the market in your ideal community.
Research the Comps
When you have a good idea of what you’re looking for in a house, watch the papers and haunt real estate sites to get a handle on what houses with those features are selling for in the neighborhoods you’re targeting. Are they selling close to the asking price, or are they selling higher or lower? Knowing the sales price of homes comparable to what you’re looking for can help you when you are ready to make an offer on one yourself.
Save a Down Payment
Conventional wisdom says you should bring 10 to 20 percent to the table as a down payment on a house. The more money you have to put down, the more favorable your loan terms will be—so start saving. But also know that many first-time home buyers manage to put down less. You can put down as little as 3 percent in some cases, but you will have to pay PMI (private mortgage insurance), which will be an additional monthly cost. Mortgage insurance is essentially a premium that you pay to protect the lender should you default on the loan.
Get a Real Estate Agent
Buying a home can be a complicated and intimidating process. You shouldn’t rely on the seller’s agent to look out for your interests. Find an experienced professional who knows what you’re looking for in a house and understands the local market. Ask family and friends for recommendations, and interview several agents before settling on one. A good real estate really earns that commission and is definitely worth having on your team.
You never know how much stuff you’ve accumulated until you start to pack it into boxes. Make things easier on yourself by starting to purge now. Identify what you don’t want to bring with you, and sell what you can. Give away the rest to friends, family, and charities. In the end, moving only what you truly need and want will save you time and money.
Research Moving Options
Figure out how you want to move: Will you do it yourself, lean on the kindness of friends, or hire a moving company? There will be costs associated with each of those options, so add that into your budget, and plan accordingly. If you’re hiring movers, be sure to choose one that is licensed and insured, and don’t forget to check references and online reviews. Start collecting boxes, organize what you can, and accept that packing up will probably take longer than you anticipated.
Start an Emergency Fund
Most home buyers focus on saving for the down payment, but there are many other costs associated with purchasing a home, including closing costs, title insurance, attorneys’ fees, and more. But there are also likely to be surprises, such as an unplanned propane delivery, a broken water heater, or a dead tree that needs removal. It’s a good idea to start an emergency fund to cushion the blow of any costs that come your way the first year you’re in your new home.
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