Purchasing a home may be the largest financial step you can ever take. In order to make sure you are getting a good deal and making the right decision, there are several steps you should take to make sure this happens. The following will help you make your real estate transaction go through smoothly.
Financial Matters
Credit Check
One of the first things you should do before you actually begin your
search for a home is to obtain a copy of your credit report. This will
allow you to know what your credit score is and allow you time to
improve your score should it be necessary. You can order your credit
report from several reputable companies, such as Equifax or Experian.
If you find there are errors on your credit report, you will want to
take the necessary steps to remove them in order to improve your
score. Many people order a copy of their credit report annually to
verify there have been no errors during that time period.
Gather Financial Information
When you go to a lending institution, you will find you will need all
of your financial information in order for them to process a loan for
you. Many lenders require your tax returns from the previous two
years, your two most recent pay stubs, your current bank account
information, including account numbers and the balance, and a list of
all retirement accounts, stocks, and other assets you may own. You
will want to make sure you have gathered all of your financial
information and have it organized for the lender. This can only make
the loan process smoother.
Analyze Your Finances
The next step to take is to figure out how much you can afford to spend
on a home. While a lender will give you an amount they calculate as
affordable, only you understand your complete financial status. The
lender may tell you that you can afford a home for $250,000. However,
if you are taking into account that your expenses may change, such as
when you begin a family or change jobs, you may want to consider
spending a much lower amount on a home. When figuring out how much you
can afford to spend, don’t forget to take taxes, utilities, and other
expenses into account.
When calculating how much you can afford, most lenders will agree that
the total of your monthly mortgage expenses (including taxes and
insurance) should not exceed 36 percent of the gross monthly income.
If you go over 36 percent, you may find that your home loan will be
denied. In order to make sure you do not go above, you may need to
readjust the amount you wish to spend on a home.
Your Down Payment
One of the most important things you can do when getting ready to
purchase your home is to make the decision not to spend all of your
savings for the down payment. Unfortunately, this is a mistake many
homeowners make and once the home is purchased, they find they do not
have enough money to fall back on should the need arise. Make sure you
leave at least three or more months of income in your savings for any
emergency.
Many lenders may require you to pay as much as 20 percent down on your
home in order to have your loan approved. If you participate in a
program that allows less than 20 percent, your lender may require you
to purchase Private Mortgage Insurance or PMI. This insurance actually
protects the lender should you find yourself unable to pay your
mortgage.
Finding the Right Lender
In order to find the right lender for you, you will want to shop
around. Interview several different lenders before you commit to
anything. There are lenders that actually push an individual toward
loans that are aimed toward those with lower credit. While this can be
a great thing for those who need this type of loan, if you do not
research what the current interest rates are for the different credit
scores, you may find yourself spending thousands of dollars more in
interest. By asking friends, family members, and co-workers who they
recommend and shopping around, you can interview the different lenders
and find one with a loan program to match your needs.
If you find a lender you may want to work with, to lock yourself into
the interest rate they have quoted you, ask for a Good Faith estimate.
This will lock you in for a designated period of time and if you decide
to go with this lender, you can make sure your interest rate has
already been determined.
Decisions Regarding a Home
Location
Once you’ve found the lender you wish to work with, the next step is
researching the area in which you wish to live. There are several
things to consider, especially if you have a family. Schools will be
of the utmost importance as you’ll want to give your child the best
education you can. You’ll also want to find out the crime rate in the
area, as well as what the local community offers. While some prefer a
very close-knit community, others prefer a larger, more private
community.
What Do You Want or Need in a Home?
Once you’ve decided the area in which you wish to live, your next step
should be to make a list of your needs and wants in a home. The
following is a list of things to consider on what you need and want:
-
How many bedrooms do you need or want?
-
How many bathrooms do you need or want?
-
What type of floor plan do you prefer or need?
-
How many stories do you prefer?
-
How close to the schools do you want to be located?
-
Do you prefer or need a quiet neighborhood?
These are just a few things to consider when purchasing a home. You
may find that you need a three-bedroom home but would prefer a
four-bedroom or if this is a home you are planning to retire to, you
may find yourself looking for a one-story home. When you make your
list, you’ll narrow your search and save a lot of time in searching for
the house you want to purchase.
Choosing An Agent
When you’ve found your lender, decided where you want to live, and what
you want in a home, your next step is to find a real estate agent to
assist you. The real estate agent should be one who you can have a
good rapport with and one you can trust. If you do not already know a
reliable real estate agent, you’ll want to interview several before you
select one to work with. The following are some questions you can ask
in your interview:
-
How long has the real estate agent been licensed?
- Does the real estate agent work full-time or part-time?
-
How does the real estate agent keep in touch and what is their style of work?
- Is the real estate agent familiar with the area in which you wish to buy?
- Is the real estate agent well versed in Internet advertising and marketing as well as traditional sales?
You will also want to discuss Dual Disclosed Agency with the real
estate agent. This is when the agent represents both the buyer and
seller in a transaction. If this occurs, the real estate agent will
not be able to offer you advice-they will simple handle the paperwork
in the sale. If you prefer the agent to only represent you, as the
buyer, you will need to sign a form stating your wishes.
Once you have completed the previous steps, you can begin shopping for your home.
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