Preparing to purchase a home can be a period of nerve-wracking anxiety for any homebuyer. As a first time homebuyer you have a course in front of you that is sure to include uncertainty, excitement, confusion and frustration – at times all in the same day, maybe even in the same hour.
By arming yourself with preparation and knowledge you’ll have a much better chance of having a positive home buying experience by ultimately reaching your goal of fulfilling the American dream of owning your own home.
Follow these seven steps and you’ll be well on your way to owning your own home.
Know your credit
The first and perhaps the most important step of preparing to buy your first home is to know and understand your credit. Reach out to the three big credit bureaus (TransUnion, Experian, Equifax) for a free copy of your credit report, which you’re entitled to, for free, once a year.
First, familiarize yourself with your credit history and make certain that everything is reported thoroughly and accurately. This should be an ongoing responsibility that you start well before you even think you’re ready to buy a home. By starting early, you’ll be able to take the time to make any corrections and continue to improve your credit score.
Learn how the Credit Bureaus grade you and learn to make wise decisions to constantly improve your credit score and you’ll find the hard work pays off with better mortgages and interest rates which can save you hundreds of dollars a month on your mortgage, once you finally get one.
Teamwork
Buying a home requires a team of dedicated professionals. Perhaps the two most important are the real estate agent you’ll choose and the lender.
Choosing the right professionals is critical. Certainly an inexperienced first time homebuyer should not have an inexperienced agent helping them through the process. Look for an individual that is imbedded in the local community where you want to live. He should have professional designations that indicate a pursuit for higher professional standards. Your agent should be respected within the local real estate community as most transactions require the cooperation of at least two agents.
Friends and relatives do not make the best agent. Sure there is a loyalty factor that needs to be considered as commissions are in the thousands of dollars. Some of the worst transactions I have ever witnessed have had emotional attachments of an agent that was too close to the transaction. It’s personal enough for the buyer and seller; your professionals should not be emotionally attached as well. Remember, all real estate is local, and you’re agent should be too for so many reasons.
There are a number of good ways to find a good lender. Your bank or credit union probably offer a home purchase loan. There are lots of discount guys that advertise on the radio and TV and then there are those who come recommended by your agent.
A successful real estate transaction requires a lot of behind-the-scenes communication and coordination between the agent and loan officer so it may be best to consider your agent’s advice and check out one of their lenders of choice. The lender will value the relationship with the agent and go above and beyond to make certain the agent is happy with their performance so they continue to receive referrals. When you find a lender on your own, you are a one shot commission and may not receive the same level of service.
Preapproval
The actual process of buying your first home does not start with searching for your dream home, unless you have the cash to buy outright. Experience tells us though that most first time homebuyers will require a home loan to complete the transaction.
It’s important to be preapproved by a lender before you start house hunting. The worst thing any homebuyer can do is look at the perfect home that they believe they can afford only to find out that the bank won’t loan them that much, for one reason or another.
Most home sellers in today’s market won’t even consider your offer without having already been approved for a loan. No one wants to take their home off the market only to find out two weeks later that you can’t qualify for the mortgage.
The difference between a prequalification and a preapproval is huge. A lazy lender will often issue a prequalification letter or a “prequel” after only checking a buyer’s credit score. A preapproval is the process of the lender gathering all necessary documentation and verifying all aspects of the credit application, to include employment, income documentation and even taxes before issuing a preapproval letter will allow the homebuyer and agent to focus on homes they know they can afford.
Budget
When you find the right home, it’s like love. You’ll know it and your agent will too as they’ll detect that twinkle in your eye whenever the home is mentioned. Just like falling in love, common sense is left at the curb. It’s important to know that the home you buy will fit your budget.
Just because you’re approved for one amount does not mean you have to spend every dime you’re approved for. Perhaps, with your credit score, income, down payment and debt to income ratio has you qualified for one amount that stretches your budget. Find a payment that makes you comfortable and stick with it.
Remember, the cost of paying for your new home is not just the principal and interest mortgage payment there will be property taxes and insurance and maybe even Private Mortgage Insurance.
Your lease
Are you currently leasing a house or apartment? Know when your lease expires and what the penalties are if you break the lease. Buying a home is stressful enough and not having to worry about your current living arrangement is priceless.
Have the conversation with your landlord that you are in the process of shopping for and wanting to buy your own home. Perhaps, your landlord may be willing to sell you the home you are currently renting.
Ask your landlord if you can go to a month-to-month rental for up to six months, in case you might need it. You may be able to get a series of two-month extensions, as needed. Just understand there is a price for this and don’t balk when your landlord wants to charge you an extra 10 percent in rent.
Down payment assistance
Many perceive these programs to only be available to low income buyers, but many are available for the mid-level income buyers as well through local and state housing authorities.
Some programs offer no-interest loans or grants, with a few conditions attached. When researching the various programs, be sure to ask for a list of lenders who will participate in the programs, as not all lenders will.
Inspect everything
When you make the commitment to buy a home there is typically an inspection contingency that allows you to inspect every aspect of the home.
You’ll want to know that the roof is good, the plumbing and electric systems are all to code and functioning properly. Check the foundation for cracks and leaks. Mold is a big issue today, look for any signs of water damage where mold may be growing behind the walls. Appliances and fixtures all need to be in working order. So many variables with any home, it’s important that you take the time and invest in good inspectors who will give you an unbiased opinion of the condition of the home you now have in escrow, because of all of your hard work in getting here.
Don’t forget the final walk-through. Although due-diligence inspections leave room for negotiations, once you are ready to close escrow, the deed-is-done and the price is the price. What you want to make certain of is that the home is in essentially the same condition as when you first saw it and that everything it there, in place where it should be. Are the fixtures and appliances the same ones you saw? Has there been any recent damage – maybe a hole in the wall caused by the movers? These are issues that need to be addressed before the close of escrow, otherwise you’ll probably find yourself with little option but to live with it and chalk it up to experience.
Take the time to plan your purchase and you should be very happy with the outcome. Rush any of the steps and you’re certain to have regrets.
Call us today at (951) 296-8887, and get educated!
For questions regarding available inventory and/or other real estate matters please contact, Mike@GoTakeAction.com. Mike Mason, Broker/Owner of MASON Real Estate Cal. BRE: 01483044, Temecula Valley resident for 30+ years, Board of Director (since 2011) Southwest Riverside County Association of Realtors® (SRCAR).
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