Many of us have always dreamed of the day we’d sign on our first home. Perhaps you’ve made checklists of the characteristics you would want this home to have: location, size, colors, design, window types. This is a good start, but there are other important steps you need to take before you buy your dream home.
We have gathered some tips to help guide you through the process.
As always, reach out to us; we are here to help you through this exciting journey!
Before you begin to look for your dream home
Research & reflect
Do your due diligence on the logistics of the process and ask for assistance along the way. Do some “self-research” and reflect on your wants and needs so that you are prepared to make the bigger, important decisions that arise throughout this process.
□ Understand the cost of owning a home: It is very easy to underestimate the costs of running a home. Remember, it is more than just the mortgage, interest, and tax payment. There will be routine bills for electricity, fuel, cable, and snow removal. If you are considering a renovation, get estimates from multiple contractors. Some will say double the estimate to fully understand what the renovation may cost should unexpected circumstances arise.
□ Gather the necessary paperwork: There are many documents that you will need at varying times throughout the process (W-2; recent tax returns; bank statements; among others). By compiling this early, you will have a better understanding of what you can afford and you will be able to make more informed decisions along the way.
□ Check your credit score and correct errors: Review your credit report, look for errors and have them corrected to make sure you get the interest rate you deserve. You may request a free credit report each year from each of the three main credit bureaus—Equifax; Experian; and TransUnion. If you find an error, have it corrected as soon as possible. This will be extremely important when you apply for loan from a mortgage lender.
□ Research mortgage options before beginning your home search: To determine the mortgage amount that is right for you, use a mortgage affordability calculator. (There is a great one called “Mortgage calculator” on Nerdwallet.com!) The calculator will help you determine your upper and lower bounds for a mortgage that is comfortable and appropriate for your means.
□ Consider getting pre-qualified or pre-approved: Talk to a mortgage professional about getting pre-qualified or even pre-approved for a home loan before you start to seriously shop for a home. If you have a pre-qualification or pre-approval in hand, you will be able to show sellers that you are serious about making an offer and that you have a mortgage “in play” to back it up. You can learn more about the process here.
□ Get multiple rate quotes when shopping for a mortgage: Obtaining a mortgage is like purchasing many other big-ticket items. It pays to get multiple quotes and compare offers. Mortgage interest rates vary from lender to lender, and so do fees such as closing costs and discount points. As you begin to narrow your house choices, apply with multiple mortgage lenders, and you will see that different lenders provide different packages. Look for one that is flexible for your needs and provides the best rates.
□ Understand discount points and whether you should pay them: Mortgage discount points are fees you pay upfront to reduce your mortgage interest rate. Interest rate savings can add up to a lot of money over the life of a mortgage, and discount points are one way to gain those rate savings if you’re in the right position to purchase them.
□ Refrain from opening new lines of credit before or during your home search: The lender’s mortgage decision is based on your credit score and your debt-to-income ratio, which is the percentage of your income that goes toward monthly debt payments. Applying for credit can reduce your credit score a few points. Getting a new loan will increase your debt-to-income ratio. Neither of those is good from the mortgage lender’s perspective. So, maybe now isn’t the time to buy that new car or that great ottoman for your new home until after your mortgage is in hand.
□ Look for first-time homebuyer programs: Ask a mortgage lender about your first-time buyer options and look for programs in your state. There are plenty of low-down-payment loan programs out there, including state programs that offer down payment assistance and competitive mortgage rates for first-time homebuyers.
The search for the perfect home
□ Find a Real Estate agent that feels like a good fit: A great real estate agent will keep your best interest in mind and will be mindful to consider both your finances and home preferences. Research and meet with different realtors before settling on one. This person will be invaluable to you as they can offer advice on mortgage options, home value, and making sure that you get your “dream home” that fits your needs and is appropriate to your budget.
□ Find the perfect home: This is the fun part! There is much to consider when choosing a home: size, style, type of home, yard space, and proximity to schools and family. Another important consideration is whether you want a move-in-ready home or feel ambitious enough to take on a fixer-upper. If the latter, again consider your financial situation to see if renovations are realistic for you.
□ Buying your first home: There is nothing more exhilarating than finding your dream home. Work with your real estate agent to put in the best and most realistic offer. When approved, take the necessary steps to secure your loan (as mentioned above) and prepare all the required paperwork. Use the checklist to make sure that you are fully prepared to submit.
Becoming a first-time homeowner is an exciting chapter in one’s life. While this list seems extensive, checking all the boxes and making these considerations ahead of time will prepare you for a smooth process. And remember, it will be well worth the work when you spend your first night in your new home.
We are proud to join you on this journey, and we are here to help you at every step of the way!
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