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10 Ways to Prepare for Homeownership
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1. Decide what you can afford. Generally, you can afford to be a homeowner if you buy a home equal in value to between two and three times your gross income. However, to be on the safe side, you might want to buy a house for no more than 1/4 your gross income. It is wise to shop around for the best deal for money~ and that means talking to different loan officers at a bank, a mortgage company~ whether a mortgage broker or mortgage banker~ or credit union. Ask about their different homeowner programs, such as for a first-time buyer, as well as their interest rates and discount points. Then, after deciding which institution or loan-package is best for you, ask about the process for obtaining a Pre-Approval Letter, in which the lender issues you a letter, stating how much money you can borrow, at what interest-rate & term-length, which should hold good for the next 30 days. Now you can go house-hunting~ you've taken your 1st step toward becoming a homeowner!
2. Develop your home "wish list". Then prioritize the features of a home you would want as a new homeowner.
3. Select where you want to live. Compile a list of three or four neighborhoods or areas of your town or city where you’d like to live, taking into account items such as schools, hospitals, churches, and shopping malls, as well as proximity to other family members, recreational facilities, area expansion plans, and safety.
4. Start saving. Do you have enough money saved to meet your down payment requirement and qualify for a mortgage? Ideally, a prospective homeowner should have 20 percent of the purchase price saved as a down payment. Also, don’t forget to factor in Closing Costs. Closing costs include title insurance, taxes, homeowners insurance, attorney’s fee, transfer fees, and lenders' fees— altogether, they average between 2 and 7 percent of the home price.
5. Get your credit in order. Obtain a copy of your credit scores and credit reports from each of the 3 Credit Bureaus, to make sure each report is accurate and to correct any errors immediately. A credit report provides a history of your credit, bad debts, and any late payments. The 3 Credit-Reporting Bureaus in the U.S. are Equifax, TransUnion, and Experian. Contact all 3 for your Credit Reports, and Credit Scores. Having a good Credit Score is essential to obtaining a loan, as well as a lower interest rate.
6. Determine your mortgage qualifications. How large of a mortgage do you qualify for? Also, explore different loan options— such as 30-year or 15-year fixed mortgages or ARMs— and decide what’s best for you.
7. Get Pre-approved. Organize all the documentation a lender will need to pre-approve you for a loan. You might need W-2 forms, copies of at least one pay-check stub, bank checking and saving account numbers and balances, and copies of two to four months of bank or credit union statements.
8. Weigh other sources of help with a down payment. Do you qualify for any special mortgage or down payment assistance programs? Check with your state and local government on down payment assistance programs for first-time buyers, such as FHA loans that allow for as low as 3 - 5% down payment~ but these government programs usually have very strict rules for income-requirements, in order to qualify for these types of loans. Or, if you have an IRA account, you can use the money you’ve saved to buy your first home without having to pay a penalty for early withdrawal.
9. Calculate the costs of homeownership. This should include property taxes, homeowners insurance, maintenance and utilities, and homeowner association fees, if applicable.
10. Contact a REALTOR®. Find an experienced REALTOR® who can help guide you through the process and give you great tips on how to buy a home!
Content originally from Realtormag.realtor.org on 2/25/2014