Whether you are a first-time homebuyer or an experienced one, buying a new home can be a stressful process. To make the process easier, following is a checklist with six ways that you can prepare in advance. Before starting to pack, here’s what you need to do.
- Prepare a budget. A clear picture of your family’s finances is essential before thinking about talking with a real estate representative or applying for a mortgage. Block some time in your calendar to list your monthly fixed expenses, such as car payments, the amount of your current rent or mortgage, utilities, school tuition, and loan payments. Also add categories for other expenses 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, make a list so you know exactly how much you owe. Now it’s time to calculate your debt ratio. There are many online calculators that can help you. You will need to know two ratios. The first ratio you will need to know is your housing debt expenses. This is your Principal + Interest+ Taxes + Heat as a percentage of your gross monthly income. It should be 39% or less. The second ratio you will need to know is your Total Debt Service Ratio. This is your Principal + Interest + Taxes + Heat + Debt Obligations. Divide it by your Gross Monthly Income. It must not exceed 44%.
- Get pre-approved for a mortgage. The first and second items outlined above are crucial for loan pre-approval. You will need this before you start looking for a home — it is an important safeguard for your time, energy and emotions as it saves you from falling in love with a home that you may not be able to afford or is outside the limits of your mortgage approval. It is important to understand the mortgage pre-approval process. Being pre-qualified for a mortgage includes sharing the details of your financial situation with your lender, including your debt, income and assets. The lender then evaluates your information and gives how much you can spend on a home. Pre-qualification can be done over the phone or on the Internet, usually at no cost. Pre-approved, on the other hand, means that a lender evaluates your debt ratios, your credit report, and your 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 of your needs and wants. Before working with a real estate representative, get a pen and piece of paper, draw a line down the middle into two-columns and make a list of your needs versus your wants. It is important to know the difference! For example, depending on the size of your family, you may need three bedrooms. On the other hand, a pool would be nice but it is a want not a need. Taking the time to make this list allows you to clearly communicate with your real estate representative the deal-breakers in your purchasing process. If more than one person is involved in the final decision, it’s a good idea for both parties to create a list separately and compare them. If one party wants a short commute and the other has visions of a country estate, you could have a problem. This process can also help you fill the gaps the other missed. It’s better to attempt to get on the same page and find resolutions you both can live with before the house hunt begins.
- Find a Realtor. Once your homework is complete, it’s time to start looking for your new home. Find a Realtor who will represent you by putting your interests first. The best way to find a good real estate representative is to ask friends and family for referrals and recommendations. If you are new to the area and don’t know anyone, it’s a good idea to interview several representatives to find the right fit for you. Yes, chemistry is important but it’s crucial that your look for someone who knows the area well, understands your price range, and is committed to meeting your needs.
- Ask your Realtor the right questions. When talking to prospective real estate representatives ask probing questions and expect frank, straightforward answers. Always remember that you are in charge–it’s your money and life. You get to decide! Here are a few questions to point you in the right direction:
- How long have you been in real estate?
- Do you represent both buyers and sellers?
- How many buyers are you currently working with? How many sellers?
- How many homes did you sell last year?
- How familiar are you with the neighborhoods we are considering?
Buying a home is one of the most important decisions you will ever make, both financially and emotionally. If you do your homework and prepare for the process, it can also be a fun and rewarding experience. Happy house hunting!
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