Spring and summer tend to be the busiest time of the year for Real Estate. More people are listing homes or looking to buy during the months when a move can be done before schools start in the fall. And with more limited inventory and greater competition, being a well qualified and prepared buyer can really help you rise above the rest of the crowd. Not to mention that we Realtors love an informed, prepared buyer - your knowledge and preparation helps us to better work for you to make sure your transaction goes smoothly and you have more negotiating power, save valuable time, and get the best deal you can!
With that goal in mind, we thought it would be a good time of year to lay out a general checklist of things to be prepared for when buying a home - particularly if you’re a first time buyer. Since we’ll try to make this a fairly comprehensive list, we’ll break it up into separate parts. Today we’ll start with some of the first things you should do before you buy on the financial side, and you can find the continuation of the list in our next post.
Remember - if this seems like a lot, that’s what we’re here for! Your Realtor can guide you through each step of the process to simplify things or answer any questions you have. We also know that every buyer is different, and we can help you with your specific needs. It’s our job to help you be ready, from when you first begin considering a move, to when it’s time to sign on the dotted line, or pick up those new keys!
The Money Side - Getting Your Financial House in Order
Determine your budget and how much you can afford
You’re probably aware that there are plenty of handy online calculators to help you figure out monthly mortgage payments, and come up with an affordability number based on your income and savings. Typically mortgage lenders don’t want you to have more debt than 43% of your income (including the mortgage and any other debt like student loans, car loans or revolving debt).
But this is just a guideline. One of the biggest mistakes buyers can make is overspending! Use the online calculators as a starting point, but also consider how much house you WANT to afford. Do you want to be able to make those payments with ease and plenty of room in your budget, or is it worth it you to be a little “house poor” to have that perfect home?
Be sure to keep in mind that when it comes to affordability, there are many costs beyond just your estimated mortgage payments. If you are making a downpayment of less than 20%, you may end up paying PMI (private mortgage insurance) that will also add to that monthly payment. And you need to factor in closing costs, property taxes, homeowner’s insurance, and possibly HOA fees. As Realtors we can tell you about how the additional costs vary from one neighborhood to the next and what you can expect.
Manage your credit score
It’s easy to get a free copy of your credit report online now, so make sure there aren’t any errors on yours early on when you’re thinking about buying. Doing this early ensures you don’t have a last minute surprise when you’re ready to make an offer and you need that loan. If there’s anything that needs fixing, get to work on it right away, so you’re ready when you find the right property.
Make sure you’re paying down revolving debt as much as you can, and remember NOT to open a new line of credit, incur new debts, or purchase any big ticket items right before you apply for a loan, or during escrow. These things can really hurt your credit and cost you big on your loan, or even prevent your purchase closing.
Plan out your down payment strategy
If you can save enough for 20% down, great - your loan will cost less and you’ll get a better rate. But ask us about some of the many programs that can help if you can’t save that much. FHA offers loans with only 3.5% down (but with mortgage insurance that adds to your monthly payments). Plan out a savings strategy, and be aware that when lenders check into your assets they like to see that you’ve had relatively stable funds in your account for 2 to 3 months before your loan application.
Budget for additional up front homebuying expenses
Consider costs like home inspection, title search, property survey, homeowners insurance, hiring a moving company, repairs and upgrades not settled as part of the sale, or even new furniture and decor you plan to buy. Ask us about our experience with these costs for an idea of average prices, or if you need to get connected to professional services!
Plan for home maintenance
It’s never too early to plan ahead. Now that you’ve figured out all the budgeting for your purchase and move, it’s a good idea to begin to budget for future maintenance. Maybe you already know you plan to hire a regular landscaper or pool service, and there are inevitably unexpected repairs needed. If you begin by setting aside a little each month for home maintenance, you’ll be ready for that first plumber’s bill, or when it comes time to repaint that deck.
Look for more of our checklist to come!
Well that gives a quick overview of most of the financial planning and budgeting side of a home purchase. We’ll get into more of the actual house hunting, buying process, and loans next post. Did we forget something? Questions about your specific situation? Ask us about it! Contact us with questions or comments on any of this, or when you’re ready to begin your next move!