What to Do Before You Buy a Home
The purchase of your first home can be a very exciting and very stressful time. If you’re considering buying your first home, then you owe it to yourself to be as informed as possible. That way, you can avoid potential snags and surprises. Follow these 8 important steps, and you’ll be much better prepared to purchase your first home.
Pay Down Your Debts
Carrying excessive debt reduces the amount of money you’ll be able to borrow when taking out a mortgage. Lenders are eager to have you as a client, but not if it looks like you’ll have serious trouble affording your monthly payments.
By paying down your debts, you’ll be a better risk to a lender, and you’ll be able to afford a higher purchase price, which can give you more options when it comes to selecting the perfect Portland home.
Save for a Down Payment
To avoid mortgage insurance (an insurance policy you pay for that compensates a lender, should you default on your loan; it also adds an additional fee to your monthly mortgage payment), you'll want to have 20% of the purchase price to use as a down payment on your first home.
Of course, that's a perfect-case scenario. But for those of us who don't have that much in savings, there are certain FHA (Federal Housing Administration) mortgage loans that allow you to put a down payment on a house that is less than 4% of the total purchase price.
If you can’t afford to save 20% or are unable to get financial support from your family, then you shouldn’t let that stand in the way of making your dream of homeownership a reality.
Having said that, you should certainly save up as much as you can. The more you can afford to put down, the less interest you’ll have to pay over the course of the life of your mortgage, and a big down payment ultimately means lower monthly payments.
Monitor Your Credit Carefully
You know that lenders will check your credit score when evaluating your mortgage application. If you have lackluster credit, then you should do whatever you can to polish it up before applying for a mortgage. The above point about paying down your debts should be very helpful in that regard.
If you already have stellar credit, then keep it that way by paying all of your bills on time and avoiding taking out new credit cards or auto/bank loans until your home purchase closes.
And whether your credit is great or not so great, you should definitely keep tabs on it while preparing to buy your first home. Credit monitoring services allow you to track your progress when grooming your credit, and to prevent reporting errors or missed payments from tarnishing your credit rating.
Gather Your Paperwork
Don’t expect potential lenders to take your word for anything when evaluating your financial situation. You’ll need to keep the right documentation readily accessible if you want to be taken seriously as a mortgage borrower.
Gather all of your W2 forms, paycheck stubs, tax returns, and bank and investment statements for the past two years, and keep them all in a dedicated file tote or easily accessible in PDF form on your computer.
Find a Great Real Estate Agent
You can buy a home without the assistance of a real estate agent, but there are some very good reasons to have a real estate professional in your corner throughout the buying process. A professional real estate agent can educate you on the local market, help you find the perfect home for your needs and budget, keep you abreast of paperwork and deadlines, and negotiate on your behalf.
And perhaps most importantly, consider this: buying a home will likely be the largest and most important purchase you make in life. Be careful to choose someone who you trust and enjoy spending time with, because the home buying process necessitates both!
Figure Out How Much Home You Can Afford
There’s nothing wrong with dreaming big, but you don’t want to take on more than you can handle. Consult with a recommended mortgage specialist to find out exactly how much home you can really afford.
Get Pre-approved for a Mortgage
When you do find the perfect home, the last thing you want is to see it snapped up by another buyer who is better prepared. When you get pre-approved for a mortgage, you’ll be able to make an offer backed by a lender with the capital to make good on your bid.
A conscientious Realtor won't even take you out on a buying tour until you get that pre-approval in hand. The last thing they want is for you to fall in love with a home and then to not be able to compete for it, because you don't have the backing of a mortgage professional to support your offer!
Find the Right Home to Buy
There are often many homes to choose from, and each one is completely unique. Having lots of options in a given market can make finding the right home a daunting task. To make sure you choose the right home, take some time to define your needs.
How much space do you need? Are there any amenities you can’t live without? If you have kids, you’ll probably want a home where the neighborhood schools are highly respected. If you have a dog, perhaps a fenced yard is a must. Do you need a garage? How large of a kitchen are you looking for?
Your Realtor can help you fine-tune your list and also give you great advice as to what is realistic given your price range and preferred neighborhoods.
Make a list of your needs and wants, and decide which of them are deal breakers. That way, you’ll be able to zero in on the homes that have the features you need, and quickly weed out the ones that don’t.
Ready, Steady, Go!
We hope this advice helps make the process of buying your first home as easy and painless as possible. Oh, and if you happen to be purchasing your first home in Portland, Oregon, get in touch with Urban Nest. We’d be glad to help you find a wonderful home that fits within your budget and has most if not all the features you love!