Evan’s Note: With my home search heating up I figured this post by Katie was very timely.
With the cost of homes and interest rates both at an all-time low, many people are tempted to become first-time homeowners. Before you even start looking for your first home, you must first have a clear picture of your financial situation and consider the financial aspects of the house hunting process.
Before the House Hunt
Get a copy of your credit report. Read it carefully and fix any errors. Pay off minor debts and pay down any credit cards that carry more than 30% of their limits.
Improve your credit report during the home buying process by making sure that you pay all of your bills on time. Look for secured loans to consolidate all of your credit card bills into one monthly payment,
Establish your budget early by determining how much you can afford to pay towards your monthly mortgage payments. Lenders could do this for you, but they often offer mortgages that are just too big for borrowers to handle. Since you don’t want to spend yourself into a “house poor” situation, set your own budget before talking to any lenders.
Save up for a down payment. Once you get a purchase price in mind, you’ll need to save about 20% of the home’s total cost.
Get pre-approved for a mortgage. This will help you narrow down your house hunting efforts to homes you can actually afford. It also shows a seller that you can actually buy the house, which increases the chances of your purchase offer being accepted.
During the House Hunt
Identify your favorite areas and neighborhoods. Make a list of your definite likes and dislikes to help narrow down your search. Then find a real estate agent that you are comfortable working with and start looking for your first home. Make sure that you only view homes that fall within your pre-approved mortgage amount.
After the House Hunt
Evaluate the asking price by having your agent compare the asking price of the home with comparable homes in the area. Many sellers ask for too high of a price based on what they need to pay off their current mortgage.
Negotiate the purchase price. Keep in mind that you definitely don’t want to pay more than the house is worth in today’s real estate market or you’ll end up in a negative equity situation from the get go.
Put in a purchase agreement contingent on a successful home inspection. Include the price offer on the home and what fees you want the seller to pay.
Get a home inspection. The inspector will provide you with a list of problems and explain the severity of each problem. Since everything the inspector comes up with is a negotiable item, you can ask the seller to fix it or to take the cost off of the asking price so you can fix it yourself.
Have your lender finalize your home loan approval and close on your new home. You will sign papers to transfer the ownership of the house. And, of course, you will have to write checks to the seller and to your lender for any closing costs or fees you are required to pay.
Buying your first home can be an exciting but daunting task. For the best results, make sure your financial house is in order before you even start looking for your new home. Check your credit report and pay off small debts and look for secured loans to consolidate larger ones. Set your budget early and keep your budget in mind when house hunting.