5 Steps to take when deciding if you are ready to buy a house!
So you think you want to buy a house??
Owning a home provides an opportunity for countless benefits – especially ones that are long term. For example it provides you a way to build equity, long term savings, tax benefits, and freedom of choice that you don’t have when renting.
But to purchase a home requires a series of steps before you can actually buy it, and there are a number of things that you can do now before you purchase a home, that will make the process signitifcantly easier for you!
Step 1: FINANCES
If you are thinking about buying a home in the next couples of years or so, finances are key. Many people may spend a couple years saving in order to have a good size downpayment ready for when they do go to purchase their home – which is great and beneficial! But, even if you don’t have a huge down payment ready, there are loan options available for you that require smaller down payment amounts – however, save up as much as you can to help keep your options open.
A down payment is not the only factor you should be thinking about when getting yourself prepared for buying a house. You also need to consider your credit score. Your credit score will impact the interest rate and loan terms that you are able to obtain when you go to finance your house purchase. You want to try to get your credit to the best score possible to help save you money in the long term. So, to help your credit score to stay healthy and in a good spot, make sure to pay bills on time, stay on the lower side of your credit utilization, ask for higher credit limits, ensure there are no reporting errors on your credit, and check to see what your score is currently so you know how hard you need to work in order to increase it.
Additionally, your debt to income (DTI) ratio needs to be manageable – this ratio will also be looked at when getting financing for your loan. The DTI is a ratio that looks at how much debt you have in comparison to monthly income, and is calculated by dividing your total monthly debts by your pretaxed income (note: debts exclude things like food, insurance, gas, etc.). You want the lowest DTI that you can achieve. If your current DTI is above 50%, you may want to wait to buy a house, as most lenders want the maximum DTI to be 43%, but ideally mortgage lenders want your DTI around 36%. In the years leading up to buying a house, try to pay off as much debt as possible (i.e. credit card debt, car loans, student loans, etc.) to reduce your DTI ratio.
Step 2: GET PRE-APPROVED
Once you feel like you are in a good spot financially, go get pre-approved with a mortgage lender! If you need help finding one, I have a list of lenders that my clients have had good experiences with, so contact me if you need some help!
During the preapproval process, the lender will review important financial documents like income statements (i.e. W2s, rental income, tax returns, 1099s), assets, debts, financial history, debt to income ratio. After this review they will provide you with a pre-approval letter that outlines how much you can afford. This letter is important, you’ll send it to your Realtor, and they will include it to any offer that is submitted. Most Realtors will request you have a pre-approval letter before they even show you houses – that’s because sellers do not want looky-loos in their houses who aren’t even qualified yet to purchase, and Realtors don’t want you to fall in love with a house and then not qualify to be able to purchase it – it’s best to know what you qualify for before you go and look at houses! We save a lot of heartbreak and wasted time by getting pre-approved first. Getting pre-approved helps set guidelines for knowing what you can afford.
Step 3: FIND A GREAT REALTOR
Hello! You found one right here! Haha.
Jokes aside, you want a Realtor who knows how to really understand what a new buyer is looking for in a home, and one who is understanding of your budget, desired neighborhood, future/current household size, future goals, etc.
Your Realtor plays a key role in understanding the market, knowing how to negotiate in regards to the offers you submit and the additional benefits like closing costs, home warranties, etc. that you may also be able to receive. Your Realtor will be your best friend when looking for a house, so make sure they are a good fit for you and that you feel comfortable with them. Your Realtor needs to understand all of the contracts and paperwork involved, so that you don’t end up losing money, or your dream home over a small paperwork issue!
Another added benefit of having a Realtor is that they have a whole network of other professionals and services that they have experience with and can recommend to you (for example, insurance, warranties, yard maintenance, local businesses, and the list goes on and on!).
Something that a lot of people don’t realize is that using a Realtor as a buyer costs the buyer NOTHING! The fee is covered from the seller’s proceeds of selling the house. So it’s a win-win for the buyer to use a Realtor – IT IS FREE, and you get so much value and protection from having a Realtor on your side when purchasing a home.
Step 4: KNOW WHAT YOU WANT (or at least have an idea of your needs/wants)!
Make a list of the basic things that you need to have in your house, for example, do you need a minimum of 3 bedrooms, and 2 bathrooms? Is a garage a must-have? Do you want to be a certain distance away from your job or your child’s school? Are you okay with homeowner associations?
Having a basic list of your needs and wants in regards to location, size, amenities, school district, etc. will be extremely helpful for both you and your Reatlor when looking for the best home for you.
It’s best if you think about and decide what you want BEFORE you start looking at houses – now, I don’t expect you to know exactly want you want, because things change over time, especially after looking at a few houses, but it’s good to have a narrowed down idea of what you like so that you don’t waste copious amounts of time looking at homes you would never want to live in. The best part is that with technology and the various websites, and the help of your Realtor and MLS, you can browse homes and look at photos, online tours, and descriptions before you ever step foot in the house!
Step 5: LOOK AT HOUSES!
Now that your finances are set, you’ve been pre-approved, have a trusted Realtor, and know what you need in a house, you are now ready to look at houses. You and your Realtor will talk about the various properties on the market that fit what you are looking for, and you will pick the ones you want to see in person, then your Realtor will schedule the showings and accompany you on them!
When you are looking at houses, your Realtor should help point out any visible problems with the house, any problems noted in the MLS, the additional benefits that come with the house/neighborhood, and the key points about the home. It’s a good idea to check out ceilings for evidence of prior leaks, make note of anything that doesn’t seem to be working correctly, take note of the roof appearance, and take note of the noise and ambiance of the neighborhood. Ask yourself if you can imagine living there – and if that answer is yes, talk to your Realtor about putting in an offer so that you can make it happen!
For some homebuyers, they only need to look at a couple houses before finding their perfect home, and for others it takes looking at quite a few – whatever it takes is just fine!
So, when you are thinking to yourself that you are ready to buy a home, keep in mind these points above and give me a call, or shoot me a text – whatever is easiest for you. I can help you find exactly what you are looking for and I can help make the process an enjoyable and smooth process for you and your family.