8 Things to Do Before Buying a Home
Buying a home can be daunting for both first-timers and those who have gone through the process before, often leaving homebuyers asking themselves where to begin. If you’re wondering where to start, there are a few things you’ll want to have in order before you start searching.
Check in on your personal finances. Do you have any outstanding payments or credit card debt weighing you down? It’s wise to get your finances in order before you start shopping for a home. You’ll want to be sure you have either 3.5% or 20% of the purchase price in your savings for a down payment and all other closing costs with a little cushion left. Keep in mind that a higher credit score will afford you a lower interest rate, so knowing the status of your credit can be extremely beneficial in setting realistic standards.
Go through the pre-approval process. Before you can start really house hunting, you’ll want to talk with a mortgage lender about your financing options. They’ll dive into your debt-to-income ratio and assets, using this information to determine if you’re a good candidate for a loan. They can also check your credit score for you, which will be factored into your financial profile. Once the appropriate paperwork is completed, lenders can use it to decide whether they will loan you money, how much money they can loan you and what the interest rate would be.
Decide on your budget and priorities. Once you have a better idea of how much you can afford for a mortgage, you’ll be able to set your budget. It’s not as simple as deciding on the price of the home—it’s necessary to take other expenses into account as well. You’ll need money for closing costs, HOA fees, property taxes, and emergency maintenance costs in addition to any money you may need for updating the home. Setting a realistic budget that you are completely comfortable with is key in determining how much you can afford to spend on a home.
Save for a down payment. Ideally you would have already been saving for a down payment, but having a set budget and pre-approval letter will make your target savings amount less abstract. To avoid private mortgage insurance (PMI) on your loan, you’ll need to put down at least 20 percent of the purchase price. While some lenders offer mortgages without PMI with lower down payments, you’ll likely have a higher interest rate in the end. If you’re a first-time buyer, there’s a good chance you’ll be able to get an FHA loan which requires only 3.5% down.
Shop around for a mortgage. Working with an experienced lender is a must, especially as a first time homebuyer. Look for someone who can walk you through the process and all of your options—And don’t be afraid to shop around for a mortgage. With a preapproval letter you’re in a great spot to talk to multiple lenders and find the best interest rate for you.
Hire an agent. Working with a seasoned real estate pro is essential. The right agent will stand by your side and help you negotiate, make informed decisions and provide you with resources for things such as inspections and appraisals. Most agents have extensive knowledge of their areas and can tell you if your budget is realistic for where you’re hoping to buy. If homebuying plans change or an obstacle is encountered, they’ll be able to help you navigate it in the easiest way possible.
View homes that meet your needs. Once you’ve decided on a budget, what you need in a home and the area you’d like to live in, an agent will be able to set you up with a profile in the local Multiple Listing Service (MLS) so you can browse listings that fit your criteria. Once you’ve decided on a few specific homes you’re interested in seeing, they’ll coordinate showings and take you to see them. Jot down a few notes on your phone for each property—It will help you remember what you liked and disliked about each listing when you’re comparing later on.
Make an offer. If you’ve found your dream home, it’s time to make an offer with the help of your agent. An offer usually includes the offer price, preapproval letter, proof of funds and terms or contingencies. When the seller receives the offer, they have the option to accept or counter. If the offer is accepted, you’ll be asked to sign a purchase agreement including the price agreed upon and the date of closing. You’ll pay an earnest money deposit—Typically around 1-2%—To show how serious you are about purchasing the home.
After you’ve successfully made an offer and signed a purchase agreement, you’ll have a set amount of time to get the home inspected, negotiate repairs should the listing need any, talk with your lender about completing the underwriting process and do a final walk-through before closing. With the help of an agent along the way, you’ll ensure every deadline is met and step is taken in the transaction.