Ready to Buy a Home? Here Are 5 Steps to Get Started

You’re ready to begin the process of buying a home – congrats! This is a big decision that you’ve probably thought a lot about, so now it’s time to get serious and take the next step toward homeownership. There are a number of factors involved in the process, and being thorough with each step will contribute to a successful home buying experience.

1. Determine why you want to buy

A key question to ask yourself at the start is ‘why do I want to buy a home?’ This may be a loaded question, but your answer can go along way toward helping you find the perfect home. For example, maybe you’re tired of paying rent each month, knowing you aren’t gaining equity. Perhaps you’re getting married and buying a home is the natural next step – or maybe you and your spouse have a little one on the way and want to bring him or her to your own home. Each of these reasons may impact the type of home you ultimately end up purchasing – and how much you’re willing to spend.

Knowing the driving force behind your decision to buy a home is a great place to begin, and other factors can be determined from that point.

2. GETTING YOUR FINANCES IN ORDER

You may feel like you’re ready to buy a home, but are you financially fit? Whipping your finances into shape is key before you jump in headfirst into the home buying process.

• Credit Score – This number is a critical part of the lending process. The higher your score, the more likely it is you’ll get approved for a mortgage and the lower your interest rate will be. If you know your credit isn’t stellar, determine what’s dragging it down – whether it’s your credit usage ratio, delinquent debts, lack of credit history – or possibly even mistakes on your credit report that need to be corrected.

• Bank Account – Showing that you can manage your day-to-day finances and save money is also important when it comes to applying for a mortgage. In most cases, you’ll need to make a down payment of at least 3.5% of the purchase price for an FHA loan all the way up to 20% for a conventional loan. If you haven’t been saving, start doing so right away to build up your home buying fund.

3. Work with a lender for pre-qualification

No, you’re not misreading this – finding a mortgage lender and understanding the maximum amount you can borrow should be done before you start shopping around for homes. Traditionally, many homebuyers have started the process by working with a real estate agent to see what’s on the market. Nowadays, getting that pre-qualification from a lender first is advantageous, so you’ll be ready to put in an offer as soon as you find your dream home. Even better, a conditional approval from a lender who offers upfront underwriting is the most prepared you can be before house hunting.

4. Make a budget

So you were pre-qualified for $400,000 – but are you prepared to drop $80,000 on a down payment (assuming you put down 20%) and to make mortgage payments of $1,800+ per month? If your answer is a resounding ‘no,’ then it’s time to determine what a realistic budget looks like for your financial situation. It’s easy to get caught up in the numbers – specifically the amount you were pre-qualified for – but don’t do yourself a disservice by purchasing a home that will eat up your savings account and monthly budget. Before you start looking at homes, decide how much you’re comfortable spending and only look at houses that fit the criteria. This way, you won’t be tempted to stretch your budget for a home that’s out of your comfort zone.

5. Find a good agent

You may have been stalking Zillow for months by this point, but the real fun doesn’t begin until you’ve found a real estate agent to work with. It’s easier than ever now to research and find a knowledgeable professional who can help you find your perfect home. Here are a few things to consider when searching for an agent:

• Read reviews written by clients of the agent(s) you’re interested in. The more genuine the feedback, the better the odds he or she is a personable agent.

• Check out their current listings and real estate transactions they’ve recently closed. This can give you an idea of their experience and their workload (i.e., how quickly they’ll respond to your questions throughout the process).

• Review their qualifications. You should be able to find their license information as well as any negative feedback fairly easily via your state’s regulatory board.

• Don’t discount awards. You may see “REALTOR® of the Year” and not think much of it – but that says a lot about the agent. Awards that are decided by peers are a big endorsement for the winning agent, and can paint a picture of his or her overall success.

• Find an agent ‘in the know.’A good agent is one who is plugged into the local community. He or she knows the area and can be a resource for you, especially if you’re new in town.

Once you’ve narrowed your search, a good final step in the vetting process is to meet the agent in person to get a feel for his or her personality and see if it’s a good mutual fit.

It may seem like a lot of preparation, but it’s so important to work with an agent who truly has your best interests, needs, and wants in mind when it comes to such a big investment.

Once you’ve crossed these items off your list, you can feel confident that you’re ready to begin the search for your new home.