Thanks for voting!Are you ready to say “goodbye” to renting - and begin building equity? If you are and it’s your first home purchase, here are some pointers to keep in mind before you start searching for your (first) home:
First things first - Pay down as much of your other debt as possible before saving for a down payment. While we always are in favor of saving, this is one time where paying down debt could be smarter. The interest rates on credit cards and loans are typically higher than those on savings accounts, so you’d be playing a losing game if you try to save first. Correct any wrong items on your credit history, too. The best rates on mortgages are offered to people with good credit.
Figure out how much you can afford - This is a combination of how much of a down payment you can manage, plus how much you can borrow. Together, your mortgage payment, taxes and homeowner’s insurance shouldn’t be more than 29% of your gross income, as suggested by the U.S. Department of Housing and Urban Development. There are lots of calculators online to help you do your numbers. And don’t forget the closing costs—they can run 3% to 5% of the purchase price. Starting with a healthy down payment is a key to protecting yourself against any downturns in the economy and/or housing market. A down payment of 25% or more puts you on the right road to owning your home sooner.
Seek approval - With a mortgage pre-approval from a lender in hand, you’ll know exactly how much you can spend. What’s more, agents take you more seriously when you first meet if you’ve been pre-approved. But be careful, sometimes you will be pre-approved for an amount that is higher than you can really handle. So don’t just take the number you’re bank gives you, take your monthly budget into account to decide how much you can really afford vs. how much you’re pre-approved for.
Go direct or get personal - The more people who are involved in getting your mortgage, the more commission and fees you can expect to pay. Go directly to the lender and save yourself some serious money. If you choose to use a broker, don’t hesitate to ask friends, family or coworkers for recommendations and interview those that you are considering. And to learn which agents really know your target area, drive around and check yard signs.
Go back for seconds, thirds and fourths - Don’t be afraid to ask your agent to show you your top choices more than once. You’ll probably see them with different eyes and notice things you overlooked the first time. In most locations today, you can do multiple viewings without running too much risk of another buyer scooping up the home you’re considering.
Negotiate with the Seller - It’s a buyer’s market right now. Work with the realtor to purchase the house at a reduced price. However, you don’t want to bid unrealistically low where you completely upset the seller, and you lose credibility as a buyer. Instead, try for a fair deal that gives both you and the seller a decent price and you will increase the chance of your offer getting accepted, and you getting the home you want. Be prepared to put a small down payment on the house when you are ready to make an offer. If accepted, this will be credited to you when you close on your mortgage.
Lastly, make sure you get a home inspection done and be sure to consider in your offer calculations the cost of any repairs that are urgent or shouldn’t be postponed.
Best of luck!
Tags: Homeownership, Mortgage, Own, Rent
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I really like your post. Does it copyright protected?
Kelly, the blog entries at We, the Savers are indeed copyrighted. But you’re welcome to use the post (print it, re-post it, etc.) so long as you say it’s from ING DIRECT and keep the content as is.
This is a very good post outlining the basics of what to do to become a home owner. If only everyone had played by these rules over the last several years. One thing I think should be addressed is savings. If you have all your debt paid off and then you buy a home you still have debt, and usually a lot of it. If unexepcted things come your way like job loss, major illness, etc. you need to have money to cover your mortgage payments and other bills. 6-9 months of full income replacement in savings is recomended, especially in this economy.
Before we bought our first home (Sept. 07) we made sure that the mortgage was not so high that my hubby could not afford it on his own. Two reasons: we may have kids someday and just to keep the bills lower so we would not be house poor. As it turns out I was laid off in Nov. 08 so I am very glad that we bought the home that we did. Of course I would like to be in a nicer hood but this is a starter home and is not permanent.
When looking at houses, always go back on your own, without the Real Estate Rep and check out the potential new neighbors and how they are living.
A couple of visits at different times of the day and also on the Weekend can reveal the true nature of the hood. A beautiful house is no fun at all if the neighbors are crummy or inconsiderate. It pays to do your homework.
Squido