Strengthen your credit. Understanding your credit and improving it if possible is one of the most important steps when starting your house hunt. The higher your FICO score is, the better your rates will be. Be sure to do your homework and don’t skip this step. It can save you thousands down the line. You can get a free copy of your credit report here. If possible resolve any credit disputes and pay off your cards prior to the search for a piece of the real estate pie.
Determine your budget. Make sure you research your finances and come up with realistic numbers.
- You will be expected to put down 10-20% of the appraised value of a home.
- Use lender ratios to determine if you qualify for a loan. A common set of ratios are the “28% and 36% ratio
- 28% of your gross income before taxes must cover housing expenses (mortgage payments including principal and interest, as well as insurance and real estate taxes.)
- The amount you pay a month on outstanding debts (housing expense + misc other debt) can’t exceed 36% of your gross income.
- Calculate your expected housing expenses. Annual real estate taxes, insurance costs, and then add that to the average price you are looking to spend for a home. Don’t forget closing costs. Once you find your expected housing expense put them into a mortgage calculator. You can use this figure to see if you are above 28% or below the 36%. This will help you find out if you will qualify for a mortgage before you meet with a broker.
Get pre-approved. Get pre-approved to get the amount you can spend on real estate. Remember the pre-qualified and pre-approved are two different things. Within a 2 week period (within 2 weeks and it won’t hurt your credit report) apply with many different lenders. It is important to do this before you meet with a real estate agent. If you don’t have a realistic number on what you can spend you will waste time look at properties out of your range, or properties that don’t cut the mustard. It isn’t fun to fall in love with a house that is out of your budget.
- If you qualify, check out first-time buyers’ programs,
- If you can’t afford a 10%-20% down payment on your home, but have good credit and steady income, a mortgage broker may assist you with a combination or FHA mortgage.
Go house shopping. This is the fun part. Look at as many homes as you can. It will give you a good idea of what’s available. Here is a good site with some good tips. How to Find Your Ideal House.
- Sign up for an MLS so you can search for house you like online.
- Find a good real estate agent. Don’t be afraid to ask questions, as well as ask for explanations. A good agent should teach you along the way, as well as save you some money!
- Define the area you’d like to live in.
- Visit a few open houses.
- If you are unsure about the price, have the home appraised by a local appraiser. Remember the old saying “location location location.” It really does account for a lot. Convenience, schools, neighborhood, resale value. In my opinion location should be one of your priorities. A good realtor will educate you about home prices and comparable. and if you sign a buyer agency agreement they will represent you. This can save you thousands during negotiations.
Make an offer.
- Work with your realtor on making an educated offer. They most likely have more experience when it comes to real estate negotiation, and you should utilize it. The offer will include earnest money, which is basically a deposit that shows you are committed to buying the house.
- Once you come to an agreement you are under contract. Depending on the terms of the contract you may have a due diligence period, which is a time period for you to conduct inspections, and check out your prospective property. While in due diligence if you find something you don’t like you can still walk away from the deal
Contract contingencies. If possible have a through home inspection preformed. Possible things to watch out for include surveys, inspection, pests, dry rot, radon, hazardous materials, landslides, flood plains, earthquake faults and crime statistics. Remember a stitch in time can save nine. A $200 inspection can save you a $100,000 nightmare down the road. You can also make the contract contingent upon inspections. This means that if there is a problem that pops up the contract can be voidable. You can also negotiate a solution to the problem as well. It is a little extra step, but can save you from a disaster down the road, and will it give you piece of mind.
Close escrow. This involves signing all the required paperwork related to the property and your mortgage. Money can be set aside if there are any problems that are still up in the air.
- It is important to use a real-estate lawyer to oversee the closing. They know how to dot the i’s and cross the t’s. as well as what to look out for. Its worth it in the long run. Some lawyers are better then others as well.