Congratulations! If you are thinking about purchasing your first house or the home of your dreams, you have begun a very exciting journey. Home ownership is a big part of the American Dream, and is one of the biggest financial decisions and investments most people will ever make. But failing to plan for this can leave you in hot water or empty handed. Make sure you are ready to purchase before you begin.
Here are 6 things you need to do before you buy your new house:
- Educate Yourself
It is crucial for first time home buyers to understand the purchase and loan process. Even if you are a seasoned buyer, rules and regulations change, so the process might be different from the last time you purchased a house.
Here are 5 things you should look into:
- Research current mortgage rates and products and find what type of mortgage loan best suits your needs.
- Determine if you want a fixed or adjustable rate mortgage.
- Research the real estate market in your area. If homes are selling quickly, with multiple offers, then it probably means that you will have high competition and you may need to act quickly if you find a house you love. If homes are taking a long time to sell, then sellers will likely be open to lower offers, and willing to work with you and your budget.
- Use a mortgage loan calculator to estimate what your maximum monthly payments will be. This will give you a ballpark idea on how much home you can afford and help narrow down your budget.
- Research to see if the city or county has any homebuyer grants or assistance loans. These programs can be very helpful if you qualify.
Another item to research is your credit report and credit scores. You are entitled to receive a free credit report every year from www.annualcreditreport.com. This report will help avoid a large number of surprises later in the process, as well as give you time to correct any issues or discrepancies you may find. You can also use websites such as www.credit.com to find out what your credit score is, but remember that having your credit pulled too often can also damage your credit score.
Depending on your situation and financing, you typically need to save money for the down payment and closing costs. Down payments are typically 3.5% and 20%, but they can go down to 0% depending on the loan (click here to learn about the required down payments on some of the most common loans). The more money you put down, the smaller the mortgage loan will be; therefore you will borrow less and have a smaller monthly payment. Closing costs can vary greatly depending on the amount you are borrowing, the lender you choose, and even the state you are purchasing in. Talk to a Loan Originator to get an estimate on these costs before you begin shopping for a home.
Also remember to build a savings account. Lenders will want you to have a minimum of two months worth of mortgage payments set aside. This ensures the lender that you are not going to stretch yourself too thin by taking out the loan and that you are ready to make the first few payments as soon as you purchase your house. Another reason to continue to save up past the minimum requirement is to have a cash-cushion. Maintenance and repairs issues can be sporadic and you don’t want to be left without hot water if the water heater decides to go. Set money aside every month and remember to inspect your house to avoid these issues.
- Select a Lender and Get Pre-Approved
Selecting a great mortgage lender and Loan Originator can be the difference between a smooth and quick settlement, and a mortgage nightmare. You want to make sure you do your research and look for unbiased ratings and reviews to see what other people experienced with the company and the representative (click here to read NFM’s reviews). Talk to several lenders to find the one that will provide you with the best service and experience, and one you feel comfortable with since you will spend multiple hours with them face-to-face and on the phone throughout the process.Once you are comfortable with your decision, get pre-approved for a loan. If you are serious about buying, getting pre-approved should take place before you begin looking at houses. Real Estate Agents and even sellers often will only work with pre-approved buyers because it shows them you have secured financing. Getting pre-approved can also help you have a stress free purchase transaction by letting you know how much house you can afford (since mortgage calculators are only estimates).
- Seek Professional Help
Finding a good and experienced Real Estate Agent can be as important as finding the right lender. Real Estate Agents are knowledgeable professionals with up-to-date information on what is happening in the marketplace. They can assist you in your home search, negotiations, property evaluations, and guide you through the entire process. All of their knowledge and experience can be the difference between getting the home of your dreams, and being disappointed. Make sure when you are researching a Real Estate Agent that you check their ratings and reviews, and for the company they work for, prior to making a decision. Talk to several agents to find the one that will take the time to help you find a house and buy the right house for you.
- List Your New Home Needs and Wants
Before you start looking for a house, it is best to figure out your needs and wants in a home. Does the house have the right number of bedrooms and bathrooms? Does the house have enough square feet for your needs and your furniture? Is it located in a good neighborhood, school district, or close to work? Ask yourself what is important in order to prioritize features and help you quickly scratch homes that don’t meet your requirements. Give your list of needs and wants to your Real Estate Agent in order to help you quickly narrow down your options.
- Buy The Home of Your Dreams
Once you find your dream home, make sure you found a home that will make you happy for the next few years. Quick home sales are rare now, and depending on how much you put down (the equity on your home) and how much it will cost you to sell and relocate, short-term home ownership can be expensive.
If you have any questions regarding what to do before buying a house, or are ready to get started, click here to talk to a Licensed Mortgage Loan Originator today.