Serious about buying a home? It's important first to know your finances, get a solid grasp on the kind of loans available, and acquaint yourself with some homebuying strategies.
Here are five essential steps to getting a sure-footed start on shopping for your first home.
1. Know what you can afford.
Don't waste your time looking at houses that are out of your financial reach. Find a real estate broker to help you determine how much of a loan you qualify for, and be sure to factor in the cost of property taxes, maintenance, utilities, insurance and possible homeowner-association dues. Then experiment: If you're renting an apartment, set aside money that equals the difference between the rent and the projected cost of homeownership. Do this for a few months to grow accustomed to making the payments and see how much it can come to in the long run. A loan calculator will help you figure how a home loan will impact your finances.
2. Estimate how long you'll live there.
The longer you live in your first home, the better the savings, because you'll be spreading out the upfront costs of buying a house, such as a real estate agent's fee, closing costs, inspection fees and loan fees. Those can add up to 10 percent of the sale price, or approximately 18 months of rent.
3. Get pre-approved for a loan.
Getting advance approval for a home loan should make buying a first home faster and easier, and is especially useful should yours be among multiple offers on a home. Your mortgage lender or broker should be able to give you a precise estimate of how much money you'll need in closing costs and how much of your savings to set aside for a down payment, which affects your monthly mortgage bill. Putting down at least 20 percent will eliminate the need for mortgage insurance, although your lender or broker may be able to find loans at good rates that don't require 20 percent down. That's where it really pays to shop around for the best loan rate and terms when you're trying to buy a home.
4. Understand the market.
Once you've ironed out your finances, the hunt begins. Research neighborhoods that interest you and find out the median price of homes there. You can research homes on websites such as AOL Real Estate, Zillow, Realtor.com, Trulia.com or others you trust. Finding homes in the same neighborhood that are similar to the kind you want will give you an idea of how fair the price is when you are ready to buy.
5. Set your priorities.
Buying a house often requires some sacrifice, since it's quite rare that you find everything you want at just the right price. So set your priorities by asking yourself important questions such as: How much room do I need? Does my first home have to be a single-family house or will a condo work? Is the home near transportation, good schools, parks, shopping and my other essentials? Does the home have the amenities I want, such as a fireplace, dining room, backyard, pool or deck?
Buying a house, whether it's your first home or one of several, can be among the most stressful and expensive transactions to undertake. But doing your homework and starting with the above steps should make it a lot easier.
Other essential guides for first-time buyers:
Home Affordability: How Much House (or Apartment) Can I Handle?
Homebuying: 5 Key Steps to Your First Real Estate Purchase