Buying a home, just like getting married, is no joke.
It is a long-term commitment, and it takes a lot of time and effort, not to mention the financial obligation, whether you pay the full amount in cash or if you get a mortgage. For people familiar with real estate transactions, hunting for a house and dealing with sellers and brokers might not be challenging. It is, however, a completely different story for first-time homebuyers. Where do you start your search? How do you know if you are looking at the right properties? And more importantly, how do you know if you can afford to buy?
With that in mind, let us look at five key things you should do before you go house hunting!
1. Know your credit score, check your credit reports and dispute any errors. Your financial health plays a huge role in home buying. While you can still get approved even with a credit score at 580 (which, in fact, is too low for someone who wants to buy a house/apartment), the higher your credit score is, the more likely that you will be approved for a mortgage and enjoy a lower interest rate. If you have not been paying attention to personal finance, and are unsure if you had unpaid debt, now is the time to do it – spend a good few hours going over the credit reports and disputing any errors you see and make sure you pay off all credit card bills.
2. Once you take care of your credit history and credit score, you can then move onto shopping for mortgages.
It is very important to get pre-approved for a loan, so you can close the deal in time once you have found your dream house. However, even before starting your home searching process, you should have an idea of what rates you can get and what kinds of offers are out there. Should you take on a 15-year fixed-rate mortgage? Or should you take on a 30-year adjusted-rate mortgage? How much, if you get approved and actually buy a house, would you need to pay back the bank? Most of these questions will be answered when you shop around for mortgages, and you will find house hunting a lot easier when you know how much you can afford!
3. Keep good track of your income, expenses, as well as tax filing documents.
If you are a self-employed homebuyer, you will be required to submit your tax returns for the previous two years, and the mortgage lender will take your average income for that period into account to see if you are qualified for a mortgage. Therefore, it is crucial that you keep track of your income and expenses. Remember, also, that buying a home means you will need to start paying real estate taxes, and that can potentially complicate your personal finances and tax filing.
4. Save enough cash for the down payment.
In case you are not familiar with how mortgages work, a down payment is the amount of money you have to pay in cash in order for the lender to cover the remaining amount owed to the home seller. Down payments are required in almost all residential mortgages – the percentage can be anywhere from 5% to 20% of the total sale price of the property, and the more you put down, the lower the monthly payment is. You can also avoid purchasing a mortgage insurance if you pay enough down payment. In other words, the advantages definitely outweigh the disadvantages when you pay more in terms of the down payment, and so it is better to start saving some cash now!
5. Be emotionally prepared.
Buying a house can be scary, no kidding. After all, you are not just buying some woods and concretes. You are buying a place you call “home” for (perhaps) the rest of your life. It is a lengthy process – you might need to interview dozens of people before finding the right broker to work with, and there would be a lot of negotiations happening throughout the process. It will not be easy, and chances are that it might take longer than you expect (as the housing supply has been pretty low in recent months). Therefore, you need to be emotionally prepared for this. You might want to join a couple of online forums to get not just more information but also emotional support, and remember, work with a broker you trust and keep good communication with him/her — a good broker can make the entire home buying experience pleasant and enjoyable.
We have compiled a checklist for your reference – these are some of the things you should keep in mind before and during your home searching. We hope you find it helpful! You might also like “10 Tips for First-Time Homebuyers Part I” and “10 Tips for First-Time Homebuyers Part II“.