If one of your goals this year is to make the shift from renter to homeowner, you should begin preparations now for an exciting emotional and financial adventure.
Before you start the home-buying process, make sure you are ready to buy a home where you will live for three to five years or longer, since it can take that long to build equity in a home and recoup your investment costs. Think about your dream home and your dream neighborhood, but recognize that you may need to sift through these dreams to find a community and a home that fit your wants and your budget.
Here are some tips to get you started on the step-by-step process of buying a home:
1. Check your credit score
Lenders base your mortgage qualification on a variety of factors, including your income and assets, your debt-to-income ratio, your pattern of savings and your job stability. But the most important factor in today's tightened credit world is your credit score.
2. Set your housing budget
A lender will tell you how much you can borrow, but each potential homeowner should create a simple budget for themselves with income and spending to determine how much they are willing to spend on housing payments. Financial experts recommend that homeowners spend a maximum of about 30% of their gross monthly income on principal, interest, homeowners insurance and taxes. Don't forget to budget about 1% of the home price for condo or homeowner association fees and maintenance costs.
3. Start saving and stop spending
Once you have an estimate of your mortgage payment, start saving the difference between that payment and your current rent every month. In addition to building your savings, this allows you to get comfortable with a higher housing payment.
4. Meet with a lender
Get pre-qualified for a mortgage loan before you look at homes so you can avoid falling in love with a home you cannot afford. You may be surprised to discover you can afford something pricier than you thought since interest rates are so low. Make sure you ask your lender about your variety of loan options and get an idea of how much cash you will need for a down payment and closing costs.
5. Find a reputable realtor
All buyers should have a realtor to represent their interests during negotiations and to help buyers recognize the value in different homes and neighborhoods. Your realtor should be experienced, knowledgeable and familiar with where you want to live. Trusting your realtor is vitally important to buying your first home - especially someone with experience and knowledge of the local market. Kathi Olmstead's 25 years of Eagle River, Chugiak, Anchorage and JBER experience will help you every step of the way.
6. Narrow your priorities
Decide whether it is more important to you to live in a particular type of home (a single family home with a garage or a condo in a high rise) or in a particular neighborhood. If you cannot find or afford everything you want in your first home, you may need to make some compromises.
7. Choose a neighborhood
Some neighborhoods hold onto their value more than others during a housing downturn. Work with a knowledgeable realtor like Kathi who can help you find a neighborhood that meets your needs - somewhere you will be happy as well as feel safe that home values are stable or rising.
8. Make a reasonable offer
If you love a house and don't want to lose it, don't make a low-ball offer. Some sellers are willing to negotiate and others are not. A trustworthy realtor can walk you through the process to make sure you are dealt with fairly.
9. Have a home inspection
Never buy a home without having it inspected. Not only are you looking for serious flaws in the home, but you can learn more about how your home functions and where key items are such as water shut-off, electrical panels and more.
10. Finalize the details
After the contract has been signed, make sure to stay in constant touch with your realtor and your lender to be sure your financing is taken care of along with all insurance needs. A good realtor will have a checklist to make sure everything is accomplished in time for settlement.
The bottom line
Buying your first home can be an exhilarating experience, provided you do some research, stay within a comfortable budget and work with reputable professionals who will guide you through the process.