If you’ve got your sights set on buying a home, here’s what you need to do first before you even start thinking about looking at the MLS.
1. Prepare for the Journey
As with many of life’s big events, home-buying requires some thoughtful preparation. Unless you have money to burn, you’ll want to take the right steps to ensure you’re not throwing your money away on a property that’s not suitable for you.
This is definitely not a time to act on impulse, so the first step is to prepare yourself for a thrilling yet possibly bumpy ride. Know that there will be hurdles to jump over, but with proper preparation and some sound advice, you’ll clear them easily. Most importantly, don’t give up.
If this sounds a little overwhelming to you, you’re not alone. Most people find the whole process intimidating—especially first-time home buyers and those who have been out of the market for some time.
But that’s nothing a little self-education won’t fix. So gird yourself and prepare for the journey with the mindset that yes, you can do this, and, yes, you will find the perfect home. It just takes a little preparation.
2. Get Pre-Approved
Now for the fun stuff. It’s always a good idea to know how much you can afford. Any reasonably intelligent adult will know how much they can afford, but that’s almost irrelevant at this stage in the game. What really matters is what the lenders think you can afford.
Here are some rough guidelines used by lenders:
- No more than 30% of your gross monthly income should go toward your mortgage payment.
- If you have other debt already, then no more than 40% of your gross monthly income should go toward paying that debt + your mortgage.
The best way to know for sure what you can borrow is to simply go ahead and start the mortgage application process. This is called “getting pre-approved.” It will save you from barking up the wrong tree and dreaming about homes you might not be able to afford once the lender has its say.
There are basically three routes to choose from for getting pre-approved:
- Apply through a bank.
- Apply through a credit union.
- Apply through a mortgage broker, which is usually an online clearinghouse that works with multiple banks to find you the best deal.
The tangible result of the pre-approval process is a written document outlining how much credit the lender is willing to extend to you. This determines how much house you can afford, so it comes in handy once you start looking and making bids. In fact, it becomes essential.
Your pre-approval letter should include the following information:
- How much you’re approved for
- How long the pre-approval is good for
- What the bank rate is (interest rate)
- The terms of the loan: fixed-rate vs. adjustable rate
- How long the loan lasts (15 years, 30 years, etc.)
3. Set Your Budget
Now that you know how much the banks will lend you, it’s time to set your budget. Keep in mind that nobody’s forcing you to borrow the full amount for which you’ve been approved. You can look for less expensive houses but not more expensive houses.
Don’t forget about your closing costs when you set your budget. You’ll have some up-front fees to pay before you get your hands on the keys to your new home, so plan for those. They include:
- property taxes
- land transfer tax
- inspection fees
- fire and liability insurance
- legal fees
- moving fees
That’s not necessarily a complete list, but it gives you a general idea.
4. Decide What Type of Dwelling You Want
If you’re downsizing, this is an especially important step. It’s hard for any home buyer to imagine living anywhere other than where they presently live, but if you’ve been in your home for a decade or more, it’s even more difficult. Here are some points to consider:
A. Home Features
One very important consideration is what you’re looking for inside the home. Start forming a list of questions to ask yourself. Here are a few to get you started:
- Do you need four bedrooms, or can you get by with two or three?
- What about stairs? Do you want everything on one level or do you look forward to having multiple stories?
- Do you want a big yard to take care of?
Many homebuyers forget to look beyond the four walls of the properties they’re considering. That’s a mistake, because your neighborhood is a key determining factor in the quality of life you’ll experience once you move in.
Drive around prospective communities and look at how well the homes are maintained. Find out what the demographics are (realtors have this info). Look for perks like mature trees and parks, too.
What facilities are nearby? How important is it to you to be near a good hospital? Schools? Downtown? Grocery stores? Which public services are offered? Fire, ambulance, garbage, mail, and snow removal are all good to consider.
Finally, get data on property tax rates, which can be obtained from your realtor.
5. Schedule a Meeting
At this point, you’ve done a lot of homework. You’re now ready to sit down with a professional and hash out your plans for the big search. I always tell the folks I’m helping to bring a list of “must-haves” as well as a list of “would like to have.” That way I can narrow the search and save them time.
Once we start looking, it’s good to have a notepad and camera with you. If you don’t have a camera, I will bring one for you. At the end of the day, homes tend to blend together in everyone’s mind, and before you know it, you love a house that is actually a composite of several houses!
That’s why it’s important to take pictures and notes so when we discuss the properties we’ve viewed together, we’ll both know which one we’re discussing, and we’ll all be on the same page. This also helps me to prepare for the next group of showings as I can see what your likes and dislikes are.
There’s no reason to go through this alone. The process of buying a home gets a whole lot easier when you have a licensed realtor on the job. I’m a licensed realtor with extensive experience negotiating significant contracts. My job is to ensure your interests are taken care of with the minimum amount of stress for you. Are you ready to start searching for your dream home? I’m ready when you are; just give me a call, and we can get started.