It's never too early to start planning when you want to buy a home. These seven steps will put you on track.
1. Decide on your price range
Calculate how much you can afford. For example, if you can afford a maximum monthly payment of $1,000, you will be looking at a total loan amount of about $167,000 (assuming a 30-year fixed rate at 6 percent). And, remember, owners have different monthly bills than renters. Along with the mortgage payment, you'll have to pay homeowner's insurance, utilities and property tax. If you are realistic about your limits, you can focus on the right price range.
2. Look at your current budget
Have a look at your income and both long- and short-term expenses. Include any expected changes. Will that new job mean a rise in pay? Are you planning an expensive wedding or making a big purchase, such as a car? A careful plan will show where you have flexibility in your cash flow.
3. Open a savings account
Keep a separate home-savings account and don't dip into it. This is the time to cut back on your expenses as much as you can in order to save for the down payment. So, curtail dining out and delay the purchase of new furniture. Save tax refunds, cash gifts or bonus checks. Give yourself a financial goal and a fixed time to reach it, say six months or a year, and then assess your situation.
4. Check out down-payment assistance
Although it's nice to have a 20 percent down payment, it's not necessary. Many lenders offer low down-payment products. Start investigating.
5. Get pre-approved for a mortgage
If you know how much you can borrow, you won't have to make an offer conditional on financing -- and your offer will be more appealing to sellers. A lender will base the pre-approved figure on your income, credit and debts.
6. Don't forget the extras
Aside from the down payment and the first mortgage payment, there are fees that may surprise a new homeowner. Closing costs can range anywhere from 2 to 6 percent of your mortgage amount. Plus, a home inspection may cost several hundred dollars. You may also have to hire a moving van or even stay in a hotel for a few days. Plan to save enough money to cover all of these expenses.
7. Your REALTOR® can help
Look for a REALTOR® with whom you are comfortable. After all, you will be spending quite a bit of time together. A REALTOR® will discuss the available homes in the neighborhood you are interested in and provide information on recent selling prices of comparable homes.
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