Ready to stop paying rent and make a down payment on your first home? Before you start the search, take these nine steps to ensure you’re ready when you find that perfect place to live.
Calculate how much you can afford. Sometimes, there’s a huge difference between how much money you can borrow for a new home and how much you can actually afford to pay. Lenders consider how much you earn, your debt, and your monthly expenses, but they can’t take into account that you’ll need a new car in the next year or you plan to start a family soon. Be honest with yourself about what you can afford long term on a monthly basis and discuss your options with a lender before you start looking.
Add in monthly expenses. The cost of owning a home doesn’t end with the mortgage payment. You’ll need to take in account any homeowners association fees (if you plan to live in a community with an HOA), homeowners insurance, utilities, and transportation costs to and from your new home. It may require you to make a few phone calls for estimates and to decide upfront what square footage you need, but your efforts will reduce the sticker shock of homeownership later.
Set aside money for monthly repairs. If you rent, you call the landlord whenever there is a major repair, but when you own, you’re responsible for getting repairs taken care of. Don’t get caught unprepared. Budget for those times when the air-conditioner goes out or a water pipe bursts. A general rule of thumb is to save 1 percent of the home’s value every year (or set aside three months of mortgage payments) as an emergency repair fund.
Get pre-approved. “Pre-qualified” is not the same as “pre-approved.” Even though you’ve been pre-qualified for a loan, it doesn’t mean you’ll actually be able to get a loan for that amount because your financial information is rarely verified during pre-qualification. If you’ve been pre-approved for a loan, your financial information has been checked, so you have a better idea of the loan amount you will actually get.
Save for a down payment. You can’t borrow your down payment, which means you’ll have to save the necessary amount. Knowing how much you plan to spend on a home will help you determine just how much you need. Note: If any portion of your down payment is a gift, you and the gifting party both will be required to assert in writing that the money is not a loan.
Check your credit report. Your credit score plays a major role in your ability to obtain financing. Don’t wait until your lender pulls your credit report to find out what’s on it. Pull it yourself as soon as you start thinking about buying a house (you can get a free report here) and review it for any errors. It’s much easier to correct it now and work to improve your score than it is to get a big surprise after you’ve found the perfect home.
Abstain from credit. Once you know your credit score, protect and improve it. In the months leading up to your house hunt, don’t apply for any credit cards or finance anything, including a car. You don’t even want anyone to pull your credit report during this time because it looks like you are either trying to borrow or might run up new debts as soon as you close your home.
Know where you want to buy. This is important on several levels. First, it narrows your search down. Second, if you already know where you want to live, you’ll be ready to move when you find a good house in the area—you won’t drag your feet wondering whether maybe you should check out homes in the neighboring school district. Finally, you’ll be in a better position to determine those additional costs, like HOA dues or homeowners insurance.
Find a real estate agent. Don’t go it alone. Generally, the agents’ fees in a real estate transaction are paid by the seller, so as the buyer, why wouldn’t you work with an agent? Just be sure your agent is experienced and knows the area where you want to live.
Ready to search for your first home, whether in your life or in Arizona? Give me a call today or fill out the form below to contact a member of The Matheson Team. We don’t just work in North Scottsdale, we also live here and are your local experts in residential real estate.
