The changing of the seasons often leads people to start thinking about a change of scenery, usually in the form of buying a home. They start thinking about warm fireplaces, cozy couches and fantastic views from their kitchen and living room windows.
Before you really dive into the process of buying a home, there are a few things to do.
Here are eight crucial steps to do before buying a home.
Go Over Your Numbers
It’s one thing to be emotionally ready for buying a home. It’s another thing to be financially ready. If you’re financially ready, then you should have some money put away for a down payment as well as proof that you have the ability to pay the mortgage.
Of course, not every neighborhood is the same. Even if you have enough to buy a house, you may not have enough to buy the one you really want. Think about your wants, needs and hopes and decide if you have enough money to get what you really want instead of something you don’t need.
Plan for a Down Payment
As soon as you decide to start looking for a home, you should kick your savings into overdrive. Most down payments range between 5 and 20 percent of the total cost of the house. The more you pay, the less you have to pay back in interest. Higher down payments look good to sellers as it means you’re likely to get a loan.
It may take you a bit to save up for the downpayment you want, but if you avoid big vacations or purchases for a year or so, then you might be in the perfect spot to buy a home.
Check Your Credit Score
Your credit score tells lenders how reliable you are at paying your bills. If you’re consistently on time and you often pay off your credit card balances in full, then you shouldn’t have a problem.
Poor credit scores signal to lenders that you may not be reliable in paying back your mortgage. That doesn’t mean that they won’t lend to you, but they may give you higher interest rates, and there may be steeper fees for missing a payment date.
Research, Research, Research
You too need to know the market you’re trying to get into. Before looking at listings, you need to understand how to read a listing and the neighborhood you want to buy into.
Looking at comps, or comparable sales, is a good first step. Comps no more than three months old can tell you a lot about how the market is faring in that particular neighborhood. When you look at listings and compare them with comps, you’ll be able to tell if the seller know the worth of his or her house or not.
Investigate Mortgage Options
There are many different types of mortgages out there. Veterans, for example, can get special loans through the U.S. Department of Veterans Affairs. Do your homework and look up the types of loans you may be qualified for.
Think About Closing Costs
Again look to your comps. Closing costs can take a huge chunk out of your budget, sometimes as much as 6 percent. Keep this in mind when planning on buying a home.
Plan for the Future
We tend to think in the present and immediate future, but what if something happens in 10 years that forces you to become unemployed? What if you can’t pay your mortgage anymore?
Buying a home also means you must plan for the future. Some buyers like to take out a term life insurance policy that stretches 20 years. If something happens, your policy could pay off the home quickly.
Keep a savings account of at least six months worth of living expenses. Should the worst happen suddenly, you’ll have six months worth of mortgage payments and bills to live off while you look for work.
When buying a home, slow and steady wins the race. Don’t rush to the finish line. Take the time to save your money and find a house the suits you.