1. Determine Your Budget
When buying a home, you’ll need to set a realistic budget for yourself. This will determine the price range you’re capable of paying for a home. First, take a look at your current income and debt. How much do you have left over each month after paying all of your other bills? This will give you a good idea of how much mortgage you can afford.
You should also use a web-based mortgage calculator to divide sale prices into monthly mortgage payments. This is a great way to determine your price range, based on your budget and your ability to pay the mortgage each month.
2. Review Your Credit
Credit makes the financial world go around, and this is especially true when buying a home. Your mortgage lender will obtain copies of your credit report and credit score (yes, they are two separate things) to determine how much they’re willing to loan you. So it makes sense to conduct your own credit review, long before you submit your first mortgage application.
Visit AnnualCreditReport.com to request your credit report from all three reporting agencies at once. Check your credit report for errors, and work to get them corrected as soon as possible. The credit reporting agencies (Experian, Equifax and TransUnion) are required to correct any errors on the reports they generate.
You should also get a copy of your credit score from a website like MyFICO.com. Compare your credit score to the national average, which is around 720. Is your score lower or higher than average? If it’s lower, how much lower? If it’s significantly lower than the national average, you should strive to improve it by paying down your debt, paying bills on time, etc.
3. Start Saving Your Cash
Mortgage lenders will usually check to see how much money you have in the bank. They know that you’ll be paying certain fees during the closing process, as well as other unforeseen expenses. The more money you can put away prior to applying for a mortgage, the better off you’ll be in terms of qualification and approval.
4. Learn the Process and Lingo
When buying a home, it helps to have a basic understanding of the process you’ll undergo and the lingo you’ll encounter. Visit a few home-buying websites and read up on the start-to-finish process of buying a home, and peruse a glossary of home buying and mortgage terms. That way, when you run into phrases like ARM, FICO, title insurance, and escrow, you’ll know exactly what is being discussed and how it affects you.
5. Find a Real Estate Agent
For most people, buying a home represents the largest financial transaction of their lives. So it makes sense to have professional help, especially if you’re a first-time home buyer. A competent real estate agent can help you with many aspects of the home-buying process — finding a home, validating the asking price, making an offer, negotiating with sellers, etc. You’ll have a lot on your plate when buying a new home, so it helps to have someone in your corner to help carry the load!
6. Make a “Need vs. Want” List
When you get into the house hunting process, you’ll want to know if each home offers those features that are most important to you. But before you can do this, you have to know what, exactly, those features are. Get out a piece of paper and divide it in half lengthwise. Label one side as “Want” and the other side as “Need.”
Now write down the things you definitely need from a house, as opposed to the things that would be nice to have. Make photocopies of your list, and use it as a checklist when visiting a home for sale. Be sure to write the home’s address at the top so you can refer back to it later.
Home buying is a major financial undertaking. For most people, it’s the largest financial transaction they’ll ever go through. So it only makes sense to prepare for such a major, life-changing experience. With a little homework and preparation, your home buying process will be much smoother, safer and more satisfying in the end.
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