As purchases go, home buying is one of the most significant you will ever make. It’s also one of the most complicated. With some planning, you can be a savvy and successful buyer.
Here is the 6-step checklist you should be using when buying a home:
1. Know Your Credit Score
Also known as your FICO score. This score matters when it comes to qualifying for a loan. The better your score, the better your financing opportunities. You can check your score for free on Annual Credit Report.com. Before you purchase a home, it’s critical to understand what you can reasonably afford. There are online calculators that can help estimate some numbers for you. It’s particularly important for first-time home buyers to understand the financial side to purchasing a home.
2. You’ll Need a Down Payment
A common problem some home buyers face is having enough for a down payment, particularly if they’re young or first time home buyers. You will need to put down between 5% and 20% for a house.
The online financial calculator, as well as a reputable mortgage broker, will help you calculate how much you will need for a down payment.
3. Meet With a Mortgage Broker
Early on you should meet with a reputable mortgage broker to be pre-approved for a loan based on your FICO score, savings, and income. Other factors come into qualifying for a loan, and a good mortgage broker can explain these to you so you can begin to plan accordingly. Generally, most lenders believe your mortgage payments should not total more than about 1/3 of your gross income.
Some banks think it can be closer to 28% including mortgage, insurance and taxes. Always discuss closing costs both with the mortgage broker and later with your real estate agent. Sometimes they are negotiable, but you won’t know unless you ask!
4. Interview Real Estate Agents
It’s always smart to meet with several real estate experts. Ask friends and colleagues for a recommendation. A good agent will be thorough, ethical, and help you get the best possible purchase price.
Be prepared to have frank conversations with them about your home needs, ideal neighborhoods, schools, and, of course, your price range. It’s important to note that an ethical realtor acts on your behalf, not the seller’s!
5. Do Your Research!
If you haven’t already done so, do your research on neighborhoods and schools, if this is relevant to your family. There is a lot of information you can research online. These three websites are a good place to start: Zillow.com, Trulia.com, and Realtor.com. All provide detailed information.
6. Order a Home Inspection
When you are buying a home, it’s critical to ensure that it is safe, and there are no hidden surprises once you’ve moved in. A thorough inspection by a reputable and skilled inspector is a must, and in some areas of the country, it is required by some lenders. A qualified inspector can conduct a variety of inspections including a pre-purchase home inspection and others tests such as air-quality and redo testing if needed.
You should always ask to do a walk-through with your home inspector to see exactly what he sees and what he is looking for. This will help give you a better overall picture of the home. You should write down questions about the home and ask him during the walk-through, this infographic breaks down the essentials of what you need to know as a homeowner as far as the mechanical systems as well as the different pertinent shut-off valves in your home. An inspector uses a comprehensive checklist and reviews all of a house’s major systems such as electrical and plumbing. Order your inspection as early as possible in the due-diligence period in case an inspection uncovers any issues and you need to renegotiate your initial offer.
These six points underscore the importance of being a well-informed buyer. Just like any contract negotiation, it’s important to understand all of the information before you purchase a home.