Whether you are a first time home buyer or an experienced homeowner, buying a new home is always stressful. Here’s a handy checklist of six things you can do up front to make the process a lot easier. Before you start packing, here’s what you need to do.
- Prepare a budget. You need a clear picture of your family’s finances before you even think about calling an or applying for a mortgage. List all your monthly fixed expenses, such as car payments, current rent or mortgage, utilities, school tuition, and loan payments. Add categories for other expenses such as food and entertainment. This will give you an idea of what mortgage payment you might be comfortable with (which is sometimes lower than you may qualify for – making it even more important to know this prior to seeking pre-approval).
- List your debts. If you have existing credit card debts, student loans or other debts that require regular monthly payments, get them down in black and white, so you know exactly how much you owe. Figure out your debt ratio. There are plenty of online calculators that will do this for you. You need to know two ratios. Your housing debt expenses (including taxes and insurance) as a percentage of your gross monthly income should be 25-28%. Your installment debt ratio (credit cards and other consumer debt) should be around 10-15%. Your total debt to income ratio should not be more than 40%.
- Get pre-approved. #1 and 2 above are important because you want to get pre-approved for a loan before you start shopping. This is an important safeguard, to keep you from falling in love with something you can’t afford or can’t get a mortgage for. Be sure you understand the mortgage pre-approval. Getting pre-qualified means that you give a lender your overall financial picture, including your debt, income and assets. The lender evaluates this information and gives you a ballpark figure of the mortgage amount for which you could qualify (remember – this does NOT mean this is the mortgage amount you should necessarily seek). Pre-qualification can be done over the phone or on the Internet, usually at no cost. Pre-approved, on the other hand, means that a lender evaluates your debt ratios, your credit report, and your overall ability to repay a loan and says, “Yes, I would loan this buyer X number of dollars to buy a home.”
- Make a list. Before you begin working with an agent, you need to make a two-column list of needs vs. wants. Be sure you know the difference! You need three bedrooms. You want a swimming pool. You need to be very upfront with your agent about exactly what constitutes a deal-breaker in your purchasing process. If more than one person is involved in making the final decision, be sure that you are more or less in agreement about needs and wants. If one spouse wants a short commute and the other has visions of a country estate, you could have a problem. Resolve these issues ahead of time.
- Find Your Real Estate Agent. Once you’ve done your homework, it’s time to start looking. You want to find an agent who represents you and puts your interests first. The best way to find an agent is to ask friends and family for recommendations. However, if you are new to the area and don’t know anyone, you may need to visit several firms and interview several agents. Chemistry is important! You need to look for someone who is committed to meeting your needs and who knows the area and price range you’re looking in.
- Ask for a walk-through of the buying process. Not only should this be very informative in helping you know which portions of the process you need to understand better, it’s also a great way for you to learn what your potential agent brings to the table from a knowledge standpoint. Don’t hesitate to ask that your potential agent take you to see a few homes the first day you meet, prior to signing an agency agreement, so you can make sure you will work well together and have the right chemistry for a successful buying experience.
Buying a home could well be the single most important decision you will ever make, both financially and emotionally. However, if you do your homework and prepare thoughtfully for the process, it can also be a fun and rewarding experience. Happy hunting!
