Shopping for a home is one of the most stressful, yet exciting, events you’ll experience. But with a little preparation, you alleviate quite a bit of the stress and make the entire process go much more smoothly. Here are a few things you need to know before you start shopping for a home.
Know Your Credit Score
When you are shopping for a home, you’ll need to know how much you can spend and your credit score determines how much money a lender will give you. Find out what your credit score is and determine whether or not you need to improve it. Chances are you will need to work on it unless you have a score over 750.
If you are purchasing a home with someone else, like a spouse, you’ll need to know their credit score as well. If you have a perfect score, but the co-applicant has a much lower score, it will drastically change how much you’ll be able to borrow and how much your mortgage will be.
Can You Afford It?
Before you start shopping for a home, you’ll need to know how much you can borrow, how much you can afford monthly, and how much you are willing to pay overall for a home. You’ll need to choose a lender and find out how much you will be pre-approved for which will help you determine which homes are in your budget saving you time.
Don’t make the mistake of only thinking about the here and now. You should determine how you’ll pay for this home in the future. Ask yourself a few questions:
- Do I have enough of an emergency fund to cover three to six months of expenses including this mortgage?
- If you lose your job, will you be able to find another one quickly enough to keep current on payments?
- How secure is your current job?
- Will you need to make another large purchase in the near future like a car?
- Do you have or are you planning to have children? Getting married? What about divorce?
You’ll also need to consider home maintenance and repairs, especially if you are purchasing an older home. Some repairs could be appliances that need replacing or a roof that leaks. These repairs mean you’ll need extra money to fix them, and you should avoid using your emergency fund if you can.
But life happens, and something always comes up when you least expect it like medical bills or an expensive car repair. Keep this in mind when determining what you can afford when shopping for a home.
Will You Be Moving in Five Years?
If there’s a chance you’ll be moving in the next few years, you may want to rent instead of buy. The first five years of a mortgage go to the interest, not the principal. This means if you sell your home within five years of buying it, you most likely won’t recoup a lot of the cost of the original purchase.
Use a Trusted Realtor
A realtor works on commission meaning they get a portion of every sale. This commission is typically paid by the seller, but that also means the realtor will be looking out for the interests of the seller not you, the buyer. Work with a realtor you trust. They can walk you through the process of buying a home including price negotiation and home inspections.
Buying a Home is a Contract
Contracts can be negotiated. You don’t have to sign the papers you’re given, which are typically standard home buying agreements. You can negotiate terms and a good, trustworthy realtor can help you do that.
Don’t Forget about Home Owner’s Insurance
When you buy a home, you’ll need to purchase an insurance policy. It’s similar to buying a car. You’re required to have comprehensive coverage on the car until it is paid off and home owner’s insurance is no different. But it is more expensive, so you’ll need to consider this extra expense and whether or not you can afford it on top of the mortgage and any other expenses.
Shopping for a home is an exciting experience, but it can also lead to financial disaster if you don’t plan ahead and consider all the options. Be sure to start your research on the buying process by visiting our page on Everything You Need to Know About the Mortgage Process (and Then Some) and know what you are getting into before you sign the paperwork.
If you've liked what you've been reading, do us all a favor and subscribe to our blog. We'll send our new blogs straight to your inbox weekly, so that you'll always be in the know.