Buying a house is an exciting experience, but it can also be overwhelming for a first-time home buyer. Some people immediately visit a real estate agent, only to find that they’ve skipped a number of vital steps in the home buying process. Others simply don’t know where to start. To help you get on the right path, here’s a list of the five most vital steps to take before buying a house:
1. Determine your Budget
If you’ve already started looking at house listings, you may have fallen in love with houses that you can’t afford. If you know what parameters to set when looking at listings, it’ll help you get a feeling of what kind of houses are actually in your price range.
First, you need to look over your finances for the last several months. If you are already renting a house or apartment, you’ve got a good starting point for determining how much you can afford to pay each month for your mortgage. To see if you can afford higher payments on the house, compare how much is in your bank account at the beginning of each month for the last year. Has there been a significant increase each month? How much do you want to keep adding to your savings each month in the future? This will help you determine your budget.
Don’t forget that the mortgage is not the only factor to consider when determining your monthly payments. Most cities require you to pay yearly property taxes, which you can spread out into monthly payments. Cities will generally have their property taxes listed somewhere on their official website.
You also need to consider your down payment and closing costs. For starters, it’s a good idea to estimate about 5% of the total cost as a down payment. Then, of course, there is interest and closing costs.
Feeling overwhelmed already? This handy mortgage calculation tool can help you organize all of these considerations into a proper estimate of what your monthly payments will be. Don’t forget to subtract your down payment from the home loan amount and to add property taxes to the monthly payment amount.
2. Check your Credit Score
Next comes the part that most people dread – looking at your credit score. There are a lot of tools out there nowadays that are completely free and won’t hurt your credit, but be incredibly careful with these as they can easily be scams, hurt your credit score (despite their claims), or be downright wrong. The best way to check your credit score is to use a highly reputable credit monitoring service or to get your free annual credit report.
The lowest score that will allow first time home buyers to get an FHA home loan is 500, but that requires a 10% down payment. A 580 or above will get you either an FHA or a Conventional home loan with only a 3.5% minimum down payment.
If your credit score is too low, you may want to put getting a house off for another year. Using a mortgage preparation service is the best way to get your score to a good level.
3. Visit a Home Lender
Now it’s time to get preapproved for a home loan. You need to bring all your information with you when you visit the lender – your W2s for last year, bank statements for the last month, pay stubs for the last month, and the name and addresses of your employers for the last two years. A lot of lenders will now let you do this process online or over the phone. After a couple of days, they’ll be able to tell you what interest rates are available to you (FHA vs Conventional vs VA if applicable). They’ll also be able to help you calculate closing costs, down payments, monthly payments, etc.
4. Find a Real Estate Agent
Finally, it’s time to visit the real estate agent. They’ll help you start figuring out what kind of houses you like and where you want to live. Remember that the closing process generally takes 30-45 days, so don’t put off getting a real estate agent for too long.
You can shop for houses without an agent, but it’s not recommended. They’re experts in the field and will help you avoid any scams or houses that are not fit to live in. They will also help you with the closing process.
5. Determine your Wants and Needs
The last step to take before putting an offer on a house is to look around at different houses. Look online and take a few tours before you’re actually ready to buy so that you can decide what you absolutely must have and what you would like to have in a house. That will keep you from losing precious time that you need to actually choose a house to buy.
If you’re thinking of buying a house soon, it’s time to start getting your credit in order. Build My Scores has credit monitoring and repair services that are specifically designed around helping you get a home. Contact them today for more information.