Buying a home can be a bit daunting, even if homebuyers have been through the process before. Tons of money, mountains of paperwork—where to begin? Fortunately, a few simple financial and logistical steps can help make the process smoother. Here are some straightforward actions that will help prospective buyers get ready to start searching for the perfect home.
A financial health check-up
Before making any major decisions, prospective purchasers should make sure they’re in a financial place to take on the expense of a new home. First, homebuyers should check their credit scores. Banks use these scores to determine whether homebuyers will make their mortgage payments reliably, and the best mortgage rates are only available to buyers with excellent credit. Second, homebuyers should figure out the size of the down payment they’ll need. If they’re not quite there yet, this step might involve saving for a little while longer or reconsidering the size or location of the home they’d like to purchase.
Third, and most importantly, homebuyers should figure out how much of their budget they can afford to put toward their mortgage payment, which usually involves adding up monthly income, subtracting expenses, leaving some room for extra savings, and seeing how much is left over for housing. At this point, many buyers choose to speak to a professional, such as a financial advisor, to help them determine how to meet their financial planning goals and get their budget into homebuying shape.
Setting realistic expectations
Home purchasers usually have an idea of the kind of place they’d like to live in, perhaps dreaming of a condo in the heart of a bustling city, for example, or the perfect ranch home on a few acres of land. However, buyers should make sure the neighborhood, amenities, and size of their desired home fall within the limits of their budget. It’s helpful to make a list of needs and wants—like hardwood floors or enough bedrooms for all the kids—and rank them in order of importance. Some homebuyers might end up having to knock a few off the bottom of the list if these items don’t line up with their budget.
This step is especially crucial for homebuyers purchasing a home with another person. Getting on the same page about must-haves and dealbreakers prior to shopping for homes can prevent a lot of frustration. If one co-buyer wants to live in the suburbs and the other longs for a cozy mountain cabin, it’s helpful to know this before starting the homebuying process.
The next step in preparing to buy a home is to get pre-approved for a mortgage. A pre-approval letter is required to make an offer on a home, so it should be every homebuyer’s first stop after figuring out their budget and needs. During the pre-approval process, banks check a prospective homebuyer’s credit score, income, and assets to determine whether they can afford their mortgage payments and have enough cash in reserve for emergencies. To prevent delays, homebuyers should have their pay stubs, tax returns, and bank statements ready before applying for a mortgage pre-approval.
Buyers who aren’t able to get pre-approved for their desired mortgage amount still have options. Many homebuyers decide to compromise and look at less expensive options, perhaps finding that they can still live comfortably in a less expensive neighborhood or a smaller home. Others take steps to improve their credit scores, like making consistent on-time credit card payments and paying off debt. Still others decide to save aggressively to accumulate a larger down payment.
Starting to shop
Both first-time homebuyers and current homeowners looking for an upgrade can benefit from taking these steps before starting the homebuying process. With the right preparation, a reasonable set of expectations, and professional financial advice if necessary, homebuying doesn’t have to involve anxiety or frustration.
Name: Don Klein
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Job Title: Assistant Director – Field & National Grassroots Public Relations