Buying a home is a complicated process that can also be very stressful – especially for the first-time buyer. Good preparation and careful attention to detail will help ensure success and limit unwelcome surprises. Here are five ways to prepare:
- Make the Right Choice – Be certain that you’ve made the right decision and are ready for the many obligations and responsibilities of home ownership. First, you need to be confident that you can you afford a down payment and continued payments over time, including taxes and insurance. Then you need to fully appreciate that buying a home will have an enormous impact on your lifestyle, your professional goals and your family’s future.
Once you have decided to buy because it is the right choice for you and your family, consider where you want to live, the size and type of home you are looking for, and the amount of home you can afford.
- Explore Your Funding Options – You should do this even before you start looking at properties. Shop around among different loan sources – banks, credit unions, mortgage brokers, online lenders – and consider the many different kinds of mortgages. Get prequalified for a loan by having informal discussions with various lenders who will offer an opinion as to whether you are financially equipped to assume a mortgage. Be prepared to lower your expectations if you are told that your economic condition is less robust than you thought. If you have too much debt, then debt consolidation might be a good option to help free up some extra money.
- Find a Realtor – It is important to choose your real estate agent with great care as this person will likely become the single most important member of your home-buying team, outside of yourself. Get references from friends and family. Find someone who thoroughly understands the entire home buying process; knows the property values of the neighborhoods in which you are interested; has expertise in the types of properties you are considering; has a record of success; and has a personality that fills you with confidence.
- Find a Lender – A good lender will know the mortgage business inside and out; will be honest and straightforward; will stick to agreements and deadlines; will work with you to arrange the most appropriate type of mortgage for your situation; and will not pressure you into borrowing more money than you can afford.
Once you have decided upon a lender, get preapproved for your loan. Buyers who are preapproved have a major advantage over those who have not demonstrated their creditworthiness to a lender.
- Learn the Art – Your real estate agent will help educate you about the intricacies of home buying. You need to learn how homes are priced via market analysis; how to negotiate with a motivated seller; how and why to get a home appraised, surveyed and inspected; how to understand the sales contract; etc.
Closing on the home you bought is another complex process. Educate yourself by carefully going over the “Good Faith Estimate” supplied by your lender pending your loan’s final approval. Make sure you have enough resources for the many costs involved in closing – usually 2 to 4 percent of the home’s value. If you feel it is necessary, you can contact a lawyer for legal advice.
Finally, promise yourself that you will keep all records and documents in a very safe place. Down the road, you might need a mortgage loan modification, you might want to borrow against your home’s equity, or you might decide to sell.
Jeffrey Sterner writes about personal finance issues for Debt.org.