5 Steps to Prepare for Buying a Home
SOURCE: Freddie Mac
If you are planning to buy a home, getting educated and organized before you start house hunting can help the homebuying process go more smoothly. From understanding the financial responsibilities of owning a home to finding a team of professionals to guide you along the way, these five steps can help you prepare to buy a home.
Understand the Expenses of Homeownership
The financial obligations of owning a home go beyond saving for a down payment. As a homeowner, you will be responsible for many home-related costs, including:
Paying your mortgage on time. You made a financial commitment to your lender to pay your mortgage on time and in full every month.
Home repairs and maintenance costs. You'll need to account for the time and money you'll spend on routine home maintenance.
Other housing costs. These include homeowner association dues (if applicable), homeowners insurance, property taxes and unexpected emergencies.
Get Your Finances in Order
Before you start house hunting, you need to get a firm handle on your finances.
Keep an eye on your credit score. Credit is key to getting a mortgage and is one of the factors lenders use to determine your interest rate. Find out what your credit score is and, if needed, take steps to improve your credit.
Make a budget. Determine if you are financially ready for homeownership by creating a budget that keeps track of how much you earn, spend and save each month. You can adjust from there to save for the expenses of buying and owning a home.
Save for upfront costs to buy a home. You'll need to save for a down payment, closing costs and other upfront costs. If you're trying to save money, consider setting up a monthly automatic deposit into a savings account.
Gather Your Documents
Buying a home involves you providing many documents to your lender, and it’s helpful to get organized as early as possible.
Your lender will need both personal and financial documentation to determine your eligibility for a loan. When applying for a home loan, you will need copies of:
Paycheck stubs.
W-2 forms.
Statements from all bank and investment accounts.
Statements for all outstanding debt.
Tax returns.
Proof of any supplemental income.
Find Your Team
You don't have to navigate the homebuying process alone. A trusted team of industry professionals can help you through the homebuying journey, as well as save you money in the long run.
A housing counselor can help you assess your financial situation, build or improve your credit, and ensure you're well-prepared for homeownership.
Your real estate agent will be with you through every step of the process to help you find a home that meets your location, size and price needs.
Your lender will evaluate your credit, finances and employment information to determine if you qualify for a mortgage and help you secure the best financing.
Get Preapproved for a Loan
Getting pre-approved for a mortgage from your lender will tell you the maximum amount you are qualified to borrow for a home loan. Keep in mind that you should only borrow what is comfortable for you and within your budget, making sure not to overextend yourself.
Having a pre-approval letter allows you to search for a home with greater confidence and alerts sellers that you're a serious buyer.
