Don't Start House Shopping Until You Do These Things
You feel like you’re ready to buy your first home --maybe you’ve even got your down payment saved and sitting in the bank --and now you’re itching to see the inside of that gorgeous house that went up for sale just two miles from your office and start house shopping.
Buying a home is an exciting process, but not one you want to rush! It will pay off in the long run if you slow down a bit and do some prep work before you start shopping. You don’t need the heartache of falling in love with a house that isn’t right for you or is out of your reach due to timing or finances.
Do these 6 things before you start hitting open houses. It’s the grown-up equivalent of eating your veggies before your dessert.
1. Check your credit
Order a copy of your credit report and review it carefully. Address any inaccuracies by filing a dispute with the credit bureau who reported it. If your credit looks less than stellar, take some steps to address it before heading in to talk to a mortgage lender.
2. Figure out how much you should spend
Note that we said “should spend” not “can spend.” A lender who’s interested in getting a big commission may try to talk you into borrowing as much as you possibly can. It’s your job to figure out a home price in line with your income and financial goals. Experts advise keeping your housing costs to 30% of your income (some are okay with up to 40%). Remember, you’re not just looking at the monthly mortgage payment, you need to factor in the other costs of homeownership
such as property taxes and insurance. It’s good to run a few scenarios through your current budget to make sure you’ll have all expenses comfortably covered and still be able to build your savings.
3. Run a rent vs. buy calculator
Once you know how much you can afford, it’s time to test that figure against your current housing situation. The New York Times has a fantastic rent vs. buy calculator that lets you enter in a number of factors for your situation and tells you if you’re better off buying or renting.
4. Make a wish list
Now that you’ve affirmed your decision to buy is a good one, it's time to make a wish list for your new home. Get all your criteria down on paper: number of bedrooms, number of bathrooms, garage, yard size, etc. Then start ranking things in order of importance, drawing a clear line between your must-haves and your nice-to-haves.
5. Get preapproved
Now it’s time to shop for a mortgage lender who can give you the best rate and get preapproved. Remember to stick to your guns on how much you want to spend --your mortgage broker won’t be there a year from now if you have trouble making payments.
6. Make your initial list of homes to consider
It’s finally time to start making a list of homes to see! Consider how the location will impact your work commute; buying a house too far away from your job can increase your monthly expenses dramatically. If you have kids, you’ll of course need to consider their schooling needs. And perhaps most importantly, you’ll want to start by looking at homes at the bottom of your price range. The idea is to find a great fit without having to go straight to the top of your budget.
Get started on ticking off this prep list today by signing up for our credit monitoring services.