Are you Ready to Buy a Home? 3 Ways to Prepare
Posted by Alex Narodny on Monday, February 27th, 2023 at 9:13am
Are you ready to take the plunge and buy a home? Homeownership is a big commitment, so it's important to do your due diligence and make sure you're as prepared as possible for the home buying process. Here are three important steps that you should take to ensure you're ready to buy a home.
1. Analyze Your Financial Situation
The process of buying a home isn’t typically a snap impulse purchase. There are a lot of steps to buying a house that have to be made months or even years in advance, especially if saving up for a down payment is involved.
Take a look at your current financial status starting with the ‘why’ behind your decision to look into buying a home. Some people prefer to spend their money on a mortgage payment that costs just as much or less than renting because they want the additional freedom of being able to make home improvements and have an investment that can appreciate over time.
Others want more space than they can find in rental properties or real estate, or they are making a lifestyle change from city to country, moving to be near family, or looking for extra space to both live and run a business from home.
Whatever the reason, financial pros and cons will be attached to a real estate purchase, and they need to be weighed carefully before deciding to buy. While asking for advice is often helpful, remember that every person’s financial situation is different, and your parents or friends’ experience with the housing market was likely very different months, years, or decades ago.
Get in touch with a financial advisor who can help you evaluate your current debt-to-income ratio, analyze your credit score and how to improve it, and what type of purchases and financial steps to both aim toward and avoid to make sure everything is in order when you go to get pre-approval for a loan.
2. Shop for a Mortgage
The days of going to your local bank and applying for a mortgage with a banker are long gone. Today, shopping around for a mortgage is extremely important to make sure you are both getting the best customer service as well as the best interest rate you can afford. Very few people in the market to buy a home shop around with different lenders before finding one that fits their needs, which is unfortunate.
Shopping around not only gives you a broader picture of the current mortgage market, but it also gives you ample opportunities to ask questions and get a sense of common industry terms and fees so nothing surprises you as you move forward in the process of buying. The more quotes you receive from various lenders, the more you may potentially save in the life of the loan by making lower monthly payments.
There are many different kinds of mortgages available depending on your specific needs and financial situation. Some of the most common types of mortgages include fixed-rate, adjustable-rate (ARMs), FHA loans, and VA loans among others. By researching each of these mortgages you’ll find out the unique features and benefits of each that align best with your current and future needs.
Some, such as the fixed-rate and adjustable-rate mortgages have lower interest rates, but each one has a different benefit depending on how long you plan on living in the home before selling, or the level of risk you’re willing to take on for the potential of your payment increases over time.
FHA and VA loans are great for first-time home buyers and veterans, opening up the opportunity to own a home to those who have lower credit or smaller savings for down payments. Select people will qualify for these types of mortgages, but if you fit the requirements they are definitely worth exploring!
3. Research Different Neighborhoods
Once you’ve got the financial aspect of house hunting nailed down, the fun part begins! Many of the reasons in your ‘why’ behind buying will present themselves in this decision process and will help you narrow down your search significantly. Some of the aspects to consider when looking at neighborhoods are:
- Cost of living
- Commute time to work and school if applicable
- HOA fees and their requirements
- Local economy and job market
- Property taxes
- Quality of infrastructure and amenities within driving distance
- Safety and security
- Schools and nearby education opportunities
Everyone’s list of priorities will look different, and that’s great! Work with your realtor to come up with a top-ten list of non-negotiables to check off when finding a neighborhood. Additionally, put together a list of things that you would like to have, but are willing to negotiate on when it comes to making the final decision to put an offer down on a house. For instance, the safety of a neighborhood might come at the expense of a longer commute time to work or school, but having that peace of mind is priceless to you and your family.
Final Thoughts
Buying a home is a large and transformative financial decision, so it's important to prepare yourself with research and due diligence beforehand. For first-time buyers, taking time to consider all the factors and potential costs associated with homeownership can save you from potential pitfalls, and help you make a smarter purchase.
Evaluate your financial situation, and take the time to shop around for a mortgage with multiple lenders. After you’ve collected a variety of quotes from mortgage brokers you can go with one that fits your needs and start the process of house hunting! Do up-front research on the highest items on your priority and work with your realtor to find the house that ticks the most boxes. With a clear understanding of the process and your finances, you are ready to start your home buying journey!
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