10 Things That Should Be on Your To-Do List as a First-Time Homebuyer
If you are considering making the switch from renting to owning your own home, there are several things that you can do to make the process as smooth as possible.
1. Research the selling prices of homes in your market
You can search the MLS (also known as the multiple listing service) online for homes in the area you are interested in to get a general idea of what homes are selling for.
2. Estimate your monthly housing costs
Many homebuyers make the mistake of forgetting to include taxes and home insurance in their monthly costs, but these should always be included in your budget because they will significantly increase your monthly costs.
3. Estimate your closing costs
These are other fees in addition to the price of the home that oftentimes get overlooked or forgotten by homebuyers. Closing costs can include some origination fees charged by the lender, taxes, any prepaid homeowners insurance, HOA fees, title and settlement fees, and more. Knowing what to expect ahead of time can prevent you from showing up to the closing unprepared or without the budget for these fees.
4. Evaluate if purchasing a home is something you can afford right now
It is recommended that homebuyers spend 28% or less of their income on housing expenses. More than this is very risky, so if you have reviewed your finances and found that your housing expenses would increase beyond 28% of your income with a home purchase, you might want to wait.
5. Hire a real estate agent
If you can afford adding a monthly mortgage payment (and all the other expenses that come with homeownership) into your budget, hiring a real estate agent is one of the best decisions you can make during the home buying process because they can simplify the process and provide you with valuable resources.
6. Don’t forget the big picture
The home purchase itself is not the only expense involved in becoming a homeowner. There can be unexpected repairs needed for appliances or systems, and this time there isn’t a landlord who can absorb those expenses for you.
7. Review your credit history
A credit history with a pattern of late payments can present a challenge when applying for a mortgage. This makes it very important to review your credit history before you begin the process of buying a home so that you can correct any errors and make a substantial amount of timely payments. If you find mistakes on your credit report you can always contact the credit bureaus to get them examined and corrected.
8. Prepare the documents you will need
Bank statements, pay stubs, tax returns, credit line statements and more are commonly requested by lenders during the mortgage application process to make sure that you are a good candidate for a loan. It helps to have these prepared and organized ahead of time, so that you don’t unintentionally make the process longer than it needs to be.
9. Get pre-approved
If you want to be a step ahead in a competitive real estate market, a mortgage pre-approval is a must. Not only will a pre-approval narrow down your home search to what you can afford, pre-approvals are often required by sellers if you are making an offer on their home because it provides some credibility.
10. You can try government loans too
If you can’t get a loan from the bank, you should investigate FHA loans. These are provided by the Federal Housing Administration’s loan program, and these require lower down payments of only 3.5%.