While you might feel prepared for this giant step, just remember – there’s a lot of planning and prep work that goes into this purchase, even before you start to look at homes. Use this checklist to figure out if there are any things you may have missed.
Crunch your numbers
Are you ready financially? A perfect place to start is at Realtor.com’s Home Affordability Calculator, where you can punch in your income, desired location and other factors to see if your expectations work with reality.
Know your credit score
Your mortgage’s interest rate and the size of your monthly payments will be directly related to your credit or FICO score, essentially a summary of how reliably you’ve been paying off your debts. If you’ve had too many problems or late payments leading up to the purchase of a home, your score could be lower and you could might get a higher mortgage rate. Many major lenders require a score of at least 620 for a mortgage, but if you find out your below that or want to boost your score, now is the time to get started, because it could take months to take effect.
Amass a down payment
Most mortgage lenders require a cash down payment of 5% to 20% of the price of the home. If you don’t have money lying around, it’s time to start a saving goal for the next few months. You can start by putting off any big-ticket items, fancy vacations or other extravagances. You can also explore other ways to come up with a down payment – like borrowing from your IRA or even getting a gift from your parents.
Get educated
The most important aspect of buying a home is understanding how it all works. Consider taking advantage of local home-buying seminars, often offered by banks or nonprofits. Such resources will explain aspects of a home loan, like the criteria lenders use to evaluate a borrower, the documentation buyers will need to provide and what each portion of a mortgage payment goes toward.
Interview at least three real estate agents
Just about everyone knows a real agent which explains why 52% of home buyers find their agent through a friend. But don’t just settle for the first agent to cross your path – remember, a house is a huge purchase! A real estate agent can also help in the education department. An agent will often have relationships with lenders that buyers can work with to determine a budget and down payment percentage and get pre-approved for a mortgage.
Go mortgage shopping
In the same way you wouldn’t buy the first home you walked into, you shouldn’t commit to the very first mortgage you meet either. Mortgages are not one size fits all. Buyers should find a lender they trust and to discuss their financial situation. A lender will need help buyers to better understand what financing options are available.
Ballpark your closing costs
Buyers sometime forget that there is more to pay for other than a down payment and monthly mortgage payments. Another sizeable chunk are closing costs, and there no small chunk of change, ranging from 3% to 6% of the purchase price thanks to taxes, transfer fees and other expenses. So, make sure to budget for this expense too, just so you aren’t blindsided come closing time.
Ponder the future
Home buyers sometime think of the purchase “inside the vacuum.” Make sure you have a will in place. Buyers should also consider a term life policy that runs at least 20 years and would pay off the home if something tragic happened – $20 a month buys a $500,000 policy. Before buying a home, you should have an emergency fund established with enough money to cover three to six months of living in case you’re faced with an unexpected financial hardship. Considering your retirement savings is also important; you should continue making contributions towards your future.
