If you’d like to buy a house, you may think your first step should be driving by homes you’re interested in or visiting an open house. But the home buying process should start before you ever look at a single home.
That way, you’ll be in the best possible financial position to get a mortgage loan and will have a better idea of what home features are most important to you.
Take the following five steps before you start looking for a new home:
Your credit score and history help determine how easily you can get a mortgage and what rate you’ll pay. The difference between mediocre and excellent credit can make you pay or save thousands of extra dollars in interest over the life of your mortgage, according to consumer adviser Clark Howard.
He suggests checking your credit score and history on myFICO.com, AnnualCreditReport.com or CreditKarma.com. Look for any errors on your report and take steps to correct them. If your credit is less than ideal, make sure to pay every bill on time each month, reduce your credit card balances and ideally pay them off in full each month.
Save for a down payment.
The most desirable down payment is 20 percent of your home loan, but this isn’t required in all cases. However, if you can come up with this amount, you’ll probably qualify for a lower interest rate. In addition, you’ll need to borrow less money, so this will further lower your monthly payment.
Particularly if you’re a first-time home buyer, saving for a down payment can be challenging since you don’t have equity in another home. These tips can help make it easier for you to save.
Get pre-approved for a mortgage loan.
Investopedia says that consulting with a mortgage lender and getting pre-approved for a loan is an important early step in the house hunting process. Your lender will check your credit and discuss loan options with you. You’ll find out how much money you can borrow, but you should also be aware that going for the biggest loan you can qualify for may not be the best choice for you. You may find your budget stretched too thin and may resent it if you have to give up weekly date nights or yearly vacations.
Armed with a pre-approval letter, you’ll be able to know which homes you can afford, avoiding the frustration of falling in love with a home only to find out it’s out of your price range. This letter can also strengthen your bargaining position with home sellers since it proves that you’re a serious buyer who can obtain financing.
Make a ‘must’ vs. ‘lust’ list.
You’ll have to make a distinction between “must” and “lust” before you start house hunting, Houselogic.com advises. In other words, you should make a list of what you’d like to have in your new home and what’s non-negotiable. Make a list of wants and ask your partner to do the same. Put them in order of importance and look for anything that overlaps on both of your lists. By making a list before you start to house hunt, you’ll save your time as well as your agent’s. since he or she should only show you homes that fit your “must-have” list and also contain some of your “would be nice to have” items.
Take a closer look at your lists and consider what can be easily changed and what can’t. For example, square footage is hard to change, and so are the number of bedrooms. These items should have a higher priority than, for example, the color of the walls, since this can be changed more easily.
Choose the right real estate agent.
A real estate agent can help you find a home more quickly, since he or she should have knowledge of the home buying process as well as homes in your area and can help show you homes that meet your criteria. You should also be comfortable with your agent, so you can feel free to express any concerns or suggestions you may have and ask questions.