1: Do the work
Very few people will ever make a purchase bigger than a house. In fact, most people will only buy a home a few times in their life. That makes it critical to get the right home, at the right price, and with the right financing.
2: Start saving
For most people, buying a home means getting a mortgage. Before you even consider doing that, you’ll want to take some basic steps to clean up your finances. If you have unpaid bills, taxes, or any other debts, then work toward paying them off. If you have car loans, credit card debt, or any other debt that you can pay down, then do so ASAP.
4: Know your credit score
Before you can fix your credit, you need to know what your score is. Credit scores range from 300 to 850, and higher numbers signal better creditworthiness. There are three major credit bureaus — Equifax, Experian, and TransUnion — and each one will have a slightly different score for you
5: Know your budget
In a rough sense most lenders want your mortgage payment (including any escrows for tax or insurance) to be no more than 35-40% (depending on current market valuations) of your monthly take home pay. That means that you can set the upper end of your budget using that number.
In reality, though, many people aren’t comfortable spending that much, especially if a down payment wipes up much of their savings. Whatever your number, knowing what it is makes it much easier to figure out what houses are worth looking at. Always start your home search with a meeting with a mortgage broker/lender. You will know exactly what you can afford, and what you feel comfortable with as your monthly payments.
6: Know the market
Even before you pick a real estate agent, you can do some basic research using sites like www.PatrickJohnsonRealEstate.com, which can give you insight into exactly what you can afford and where. That doesn’t mean your agent won’t find you a hidden gem, but if your budget is $200,000, and downtown two-bedrooms start at $400,000, it’s best to know that up front.
7: Get a pre-approval
Getting a mortgage pre-approval doesn’t mean a whole lot. Basically, the lender runs your credit and asks some basic questions to see whether you will likely qualify for a mortgage of a given size. It’s not a true test of whether you’ll be approved.
That said, sellers prefer buyers who are pre-approved for a mortgage. An offer that comes with a pre-approval has a better chance of being accepted. That makes it worth getting — and it does not obligate you to use that particular lender
8: Think about ReSale
One of the additional things to consider about your home purchase is it’s resale value. Most people will buy a few homes over thier lifetimes, mostly as thier needs change. You may only need one bedroom in your first home, but 2-3 bedrooms are easier to sell when the time comes. If you can afford the extra rooms now, remember you will have an easier time when it comes to selling (and will usually make more profit to help with your next home purchase!).
9: Check the schools
Even if you don’t have kids, schools can be an important factor when it comes to buying a house. A lousy school district can impact resale value. Of course, that can also be a positive if you don’t have kids, plan to stay for a long time, and aren’t worried about resale.
If you do plan to use the schools, look into things like how busing works and whether your child can walk to school. It’s also useful to know the private, charter, and alternative school options even if it’s only on a just-in-case basis.
10: Understand closing costs
Closing costs vary by market, transaction, and type of loan. They can add thousands to the amount of money you need to close your loan. You can also ask me for a list of common terms associated with the costs of buying your home.
Your lender should give you an estimate of your closing costs well before the closing date. The number is a moving target due to changing escrows, partial payments, and other factors that change based on the exact day you closed. Still, the final number should not surprise you, and it should be factored into your budget early on
While there are several other factors that go into buying a home, this short list will get you started in determining which home, at what price, will make the most sense for you. I would also be happy to send my “Guide to Buying a Home” PDF to anyone interested in learning more about the process.
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