The prospect of buying your first home can be incredibly exciting, but it also comes with a whole lot of questions — and an equal amount of paperwork. If you’ve never worked with a real estate agent or a bank’s loan officer before, the whole idea of buying a house can seem shrouded in mystery. Where do you even start? And what questions do you ask when you aren’t even sure what you should be asking about?
Take a deep breath: Once you have a better sense of the process of buying a home, it gets easier. First thing’s first, though, are you sure you’re ready for home ownership?
Five Signs That You’re Ready for Home Ownership
Before you start heading to open houses and dreaming of your perfect floor plan, it’s a good idea to take an honest inventory of your life. Buying a house is a big deal, and it’s not for everyone. You might be ready to take the plunge if:
- You have a steady job with good income. Reliable income is crucial when you apply for a home loan, and you’ll need to have your finances in order to get approved. Taking care of a house is also typically more expensive than renting, as you’ll be responsible for all the maintenance and repairs. You’ll need to be able to set aside additional funds to cover these expenses as well.
- You have established a budget and understand what you can afford. Homeownership comes with many additional expenses including mortgage payments, property taxes, utility bills and more. If you’re looking to buy a condo or a home with a community association, you’ll also need to consider are annual homeowners association (HOA) fees. Creating a monthly budget that considers all these factors will help you understand what you can afford beyond the purchase price of the home.
- You have realistic expectations. There’s no such thing as a perfect house in a perfect neighborhood at the perfect price, so you’ll need to be realistic about your expectations and what your budget will allow as you’ll likely need to compromise. While some might have always dreamed of having a pool in the backyard, others might hope to find a waterfront home. If you can’t be flexible on your requirements and these are non-negotiables, then you might be better off renting until you have enough money saved for your must-haves.
- You like where you live and are unlikely to be transferred. If your employer reserves the right to shuttle you off to another area of the country for work, buying a house may not be the right move for you. In most cases, you’ll need to live in it for at least five years to make it a worthwhile investment. If you think you’d like to move around the country every few years to try new things, it’s best to rent.
- You have cash for a down payment. The larger your down payment is, the more likely you are to be approved for a mortgage — and to get a good rate on that loan. Get educated about your credit score and what it means. If yours is low, make changes in your habits to bring it up for six to 12 months before you revisit the idea of home ownership. If you don’t have an available nest egg, start saving up before you look for a house to buy. A 20 percent down payment is a good goal, though you may be able to secure an FHA loan with less.
First Steps for Homebuyers
If you’re ready to buy a house, there are several steps to take to get started before you ever pick up a phone to call a realtor. Here’s what to do at the outset of your home buying journey.
Get to Know Your Neighborhoods
Before you think about shopping around for a house, spend time researching different neighborhoods. Find out about the schools and local amenities, but also take the time to visit in person and walk around. This will help you narrow your selection to choose a home in a place you know you love. Consider carefully the limits to your potential commute as well: Research shows that long commutes significant decrease happiness, so a smaller house in a neighborhood near the office can make good sense. Test any commute during rush hour before buying, and don’t be afraid to go with your gut feeling if an area rubs you the wrong way — or the right way!
Understand Your Housing Choices
Most people think of a detached, single-family home when they dream of buying a house, but that’s not the only option. You may also consider buying a duplex and renting out one half, or buying a portion of a home that’s been broken into condominiums and is covered by a HOA. It’s also possible to buy a loft, apartment or other condominium that’s part of a high-rise or other community living arrangement — such a purchase can be a great deal financially and offer perks like included maintenance, landscaping and resort-style amenities. If this appeals to you, be sure to research the exact details of any HOA before buying, as each one has its own unique rules and regulations you will be required to follow.
Get Pre–Approved for a Mortgage
Sit down with a home loan specialist and complete all the paperwork for pre-approval. This is more time consuming that you may realize, because you have to gather a lot of elusive paperwork: pay stubs, old tax returns, statements from all your bank accounts and investments, etc. Going through the process before you are actively searching for a home will let you know exactly how much you can afford and will help narrow your search — it won’t do any good to get your heart broken by a house you just can’t afford! You’ll also be in a stronger position to make an offer when the buyer knows your financing is in order.
Find a Real Estate Agent You Click With
An expert realtor will be able to answer all of your questions and find out about houses going to market much faster than you ever could on your own, so it’s a crucial relationship to cultivate. Not all real estate agents have the same areas of expertise, though. Ask around to find one who specializes in the neighborhood and type of property you’re interested in — and do an interview first. If you don’t like their style, find someone else: It’s important to have someone who understands your goals, dreams and tastes. Be sure that you sign a contract for a buyer‘s agent so that your agent is working on your behalf and doesn’t have a conflict of interest with trying to sell you anything.
Once you’ve followed these tips, you’re finally ready for the fun part — touring all those homes! Feel free to take your time with these steps. There’s no rush to get into the market, because there will always be more homes for sale. Once you understand the process and are certain that you’re ready, it won’t be long before you’re living happily ever after in your dream home.