So you want to buy a home...that's exciting news! Especially at this time, with so much inventory, record low interest rates and many homes priced below a traditional market values. But before you run out with checkbook in hand, spending hours (and gas) driving around to visit open houses, take these steps first:
1. Know what you can spend for a down payment.
Yes, banks require some sort of down payment to buy a house. That can be money you have saved, or a gift from a relative, or a combonation of both. You will need at least 3.5% of the purchase price of the home as a down payment (for example, a $200,000 home requires at least $7000 cash down. There are other upfront expenses too--closing costs, which can vary (usually $3000-$5000). More cash for a down payment is better, as that can reduce your interest rate.
2. Check your credit score.
Talk with a reputable mortgage lender (this should be a free consultation). S/he will ask you questions about your debts, income, savings, etc and determine your credit score. A higher credit score can earn you a lower interest rate. This credit check will also reveal any 'dings' on your credit record--false information, late payments, etc--that you should know about and then plan to correct.
3. Don't plan on spending as much on a house as you are pre-approved to buy.
When talking with a lender, s/he can tell you, based on your income and debts, how much house you can buy. For example, in the bank's eyes, you may qualify for a $300,000 home. Yet when you look at the monthly payment of the home including taxes and insurance, and deduct that figure from your monthly take home pay--you may feel you are spending too much income towards that monthly payment. (Remember, there are utility payments, entertainment expenses, car payments, house furnishings, vacation funds--all competing for your income) Just because the bank says you can afford a $300,000 house doesn't mean you should buy a $300,000 house! A good lender (or real estate agent) can match various house prices and approximate payments you feel comfortable with.
4. Talk to an agent who can represent you in the transaction, not the seller.
When you drive around and ask to see a home by calling an agent that's listed on the sign in the yard, that agent is representing the seller. As a buyer, you want someone to represent your interests. Before you seriously look at any homes, talk to a few buyers' agents. Get recommendations from friends, blogs, social media, Yelp. Take the time to meet with a few agents over coffee, check out their experience, their areas of expertise, ask questions about the home buying process. Do you feel comfortable with the agent? Buying a home can be a very emotional process--be sure you feel at ease with your agent and trust them to work for you. A good agent will be very patient and take the time to talk everything through with you in an initial interview.
5. Set a target date for your purchase.
Once you go through these initial steps, set a target date for your purchase. Perhaps tie it into the end of a rental agreement, or a season - before the winter weather rolls in. This date can be adjusted, but by stating a timeline, you can plan the months before the actual purchase much easier. Typically, allow at least 90 days to search for your new home and complete the transaction.
The busy spring buying season is already here...our office has been quite busy with sales! If this is the year you want to take the plunge into home buying--many factors are on your side: low interest rates, lower home prices, lots of inventory. I hope this blog helped you as you plan the next steps towards home ownership!
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