Whether you are an A Case of Cold Feet: How to Handle the First Time Homebuyer or an experienced homeowner, buying a new home is always stressful. Here’s a handy checklist of six things you can do upfront to make the process easier. Before you start packing, here’s what you need to do.
Prepare a budget. It would help if you had a clear picture of your family’s finances before you even think about calling a Realtor 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 costs such as food and entertainment.
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 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 – Don’t Overlook The Importance. Getting pre-qualified means giving 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 you could qualify for. Pre-qualification can be done over the phone or on the Internet, usually at no cost. On the other hand, pre-approved means that a lender evaluates your debt ratios, credit report, and 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 a Realtor, 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. It would help if you were very upfront with your Realtor about 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 agree more or less 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 a Realtor. Once you’ve done your homework, it’s time to start looking. You want to find a Realtor who represents you and puts your interests first. The best way to find a Realtor 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 Realtors. Chemistry is important. It would help if you are looking for someone committed to meeting your needs and who knows the area and price range you’re looking in.
Ask the right questions. When talking to prospective Realtors, don’t be afraid to ask probing questions. And expect to get frank, straightforward answers. Here are a few to get you started:
Buying a home could be the most critical decision you will ever make, 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!