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Buying your first home is a major decision, and one which might seem intimidating at first. However, there are some simple steps to follow to make the process smooth:
1. Fix your credit score. First, get up-to-date credit reports. Make sure they have no errors and, if so, get them fixed. Improving your score can take at least six months. If you have a high credit card balance, start paying it off right away. If you have anything in collections, target that first. You should not have a credit card balance of over 35% of your credit limit. Avoid credit repair companies, as they often do more harm than good.
2. Find out what you can afford. This is the point at which you should start looking for a loan officer. Your bank or mortgage company will be able to pre-approve you for a loan. This means that you have talked to them and they have established how much money they are likely to be willing to lend you. Generally, though, you should budget for payments of no more than 28 percent of your gross monthly income, as most banks will not go above that. The right loan officer will tell you exactly what your maximum loan amount is to ensure you can pay it back. They will also tell you how much you will need to save for the down payment. Always contact more than one mortgage company and do your research. Be honest about what you can afford.
3. Start saving for the down payment. The easiest way is to find the difference between your current housing costs and the mortgage payment, and bank that every month. That way you will be used to budgeting with your new mortgage. Make sure you have enough in the savings account to cover moving costs and then some extra for any urgent repairs.
4. Decide what kind of house you want and need. Make a list of what matters to you and prioritize. Think about how large a house (and yard) you want, about architectural styles you like. Do you want a detached house or would you be happy with a townhouse? Is buying into a community with a HOA attractive or something which makes you want to run screaming? Are you thinking about children and, if so, what about school districts? What's your maximum commute distance from work?
5. Find a good realtor. Going through the house buying process without a realtor is hard enough for people who have done it before. First time buyers need a realtor. They will have the expertise to help you know where you can house shop for your budget and needs. When you talk to the realtor, bring the list you made in step four so they can steer you in the right direction.
6. When you think you have found the right house, get a home inspection. Do not rely on an inspection paid for by the seller. Make a list of what kind of repairs you're willing to do and what are deal killers. Also check around the neighborhood. Talk to the neighbors about the neighborhood and its problems. It's also a good idea to check the history of utility bills paid so you know that part of the budget. Visit the neighborhood on Saturday night and in rush hour, not just at nice, quiet times. If there is a community association, get a copy of the rules and make sure you are okay with them. Be aware of what you are willing to compromise on.
7. Be patient. Closing on your new home can take a while, and it can seem even longer when you are just dying to move in. While the house is in escrow, make sure you understand the loan you will be signing and talk to your loan officer about the details your closing.
8. Make sure you change your address everywhere. Trying to track down mail sent to your old place six months before you moved because you forgot to change your shipping address can be a pain. When setting up utilities and cable, transfer the account if possible, as this can help you avoid installation costs.
Buying a new home is a challenging, but fun experience. Make sure to get help from the right realtor and loan officer and know what you want before you start shopping.