There has rarely been a better time to purchase a home. Interest rates are low, and many experts expect them to stay that way for some time. That means low mortgage rates, low house payments, and more money in your pocket. If you are planning to join the ranks of homeowners this year, these steps will get you off to the right start.
1. Assess your finances
The first step is to make sure your are financially ready to own a home. That means looking at your job security, the amount of money you make and how much you spend on a monthly basis.
It also means assessing your current debt load, including credit cards, car loans and student loans. Lenders will look at how much you owe when reviewing your mortgage application, and a high level of debt could also make it more difficult to meet your mortgage obligations.
2. Check your credit report
Banks have tightened their lending standards, and that makes a good credit rating more important than ever before. You do not want any surprises when you apply for a loan, so pulling a copy of your credit report is a must. Your credit does not have to be perfect to qualify for a mortgage, but your file should be clear of bankruptcies, charge-offs and other major problems.
3. Research interest rates
Now is the time to research mortgage interest rates and the rate you might qualify for. If your credit score is in the highest tier, you should qualify for the lowest possible rate. If your credit is less than perfect, the interest rate you pay may be higher than what you see quoted. Either way, it is important to do your homework and know the going rate for mortgages in your area.
4. Get out your calculator
A mortgage calculator is a must when buying a home. Before you can shop for a home, you need to know how much you can afford, and that is where a good mortgage calculator comes into play.
Simply plug in the price of the home, your expected down payment and the anticipated interest rate. You will instantly see your monthly payment, and you can play with the numbers until you have a payment you can afford.
5. Determine your down payment
Determining the amount of your down payment is an essential step when buying a home. The more you can afford to put down, the lower your monthly payment will be, but coming up with such a large sum of cash can be difficult.
If you can afford a 20% down payment, you can forgo costly private mortgage insurance (PMI), so strive to put down as much as you can. Assess your finances carefully and look for money you can use as a down payment. If you have extra cash in a low-yielding savings account, it may be more use to you as a down payment on a home.
6. Choose your term
If you can afford the payments, a shorter mortgage term makes a lot of sense. The interest rates on 15-year mortgages can be substantially lower than those on 30-year loans, and that can save you money in two ways.
Since you will paying off the mortgage in 15 years, you will pay far less in interest. The lower interest rate also means less money out of your pocket. You can use your favorite mortgage calculator to check the difference in monthly payment based on your interest rate assumptions.
7. Get pre-approved
Getting pre-approved for a mortgage is not essential, but it can make the home buying process much easier. Shopping with a pre-approval letter in your pocket gives extra weight to any offer you put in and lets sellers know you are serious. You can start by visiting your bank and asking about the pre-approval process, but it is a good idea to shop around to several different lenders.
8. Find a good real estate agent
Once you are ready to buy a home, you will want a qualified professional in your corner. A good real estate agent can help you find suitable homes in your price range and help you through the sometimes baffling offer process. Look for a real estate agent with plenty of experience in your area, and make sure he or she understands your needs.
9. Research the neighborhood
The real estate agent you hire should have a good handle on local neighborhoods, but it is important to do your own homework. You will be living there for a long time, so you want to make sure the schools are great, the crime rate is low and the neighbors are friendly. There are plenty of resources available online, so there is no excuse for not checking out the neighborhood before you buy.
10. Make an offer
After you have shopped around and found the home of your dreams, it is time to put in an offer and wait for a response. Your real estate agent should be able to help you with this process – from coming up with a reasonable number to communicating with the seller.
When the seller accepts your offer, the real fun can begin. Now you can start packing up your belongings, hiring a moving company or wrangling up some friends and planning the move. After you have moved into your own place, you will wonder why you paid rent for so long.