You’ve done your own calculating and have decided you are finally ready to begin shopping for your first home. Here’s a checklist of important items in planning before you start looking.
1. Get Prequalified for a Mortgage
Have you researched current mortgage rates? Prequalifying will tell you how much house you can afford. You may have saved a down payment of 5% but some lenders may require more. Your credit score will also affect your mortgage rate and mortgage eligibility. Some lenders charge processing fees for mortgage applications. Usually inspection costs come out of your pocket.
If you haven’t already done so, gather the documentation needed, from both you and your partner if you have one, such as paycheck stubs and tax returns.
2. Calculate Other Expenses
You may be able to afford your mortgage payment, but what about additional costs? You will have to pay property taxes and hazard insurance. A lower down payment, typically under 20%, may require PMI or Primary Mortgage Insurance as well. If the home is in a flood zone, the lender may also require you to carry flood insurance. Don’t forget to include maintenance, repair, utilities, so on, in your calculations. What about moving costs and homeowners’ association fees if you end up in a townhouse or condo?
3. List Priorities
Make a list of the most important features you want in your first home. How many bedrooms and bathrooms would be ideal? Are wood floors a higher priority than a fireplace? Do you want a fenced backyard big enough for your pet? Do you care about privacy?
5. Be Ready to Compromise
Now that you have your wish list ready in order of importance to you, realize that you will likely have to compromise. Maybe you want three bedrooms but what about size? Would two larger bedrooms versus three smaller ones work for you? You might prefer a double sink in the master bathroom but you could live with one if there’s enough vanity space. If you live in a big city, parking may be a deal breaker. If you have a partner, discuss each other’s must-haves.
6. Focus on Location
You may have to compromise on your location choice. If you want a home in a certain neighborhood that’s beyond your price range, you may have to look for homes just outside of the area and hope to eventually afford to upgrade to that desired neighborhood. Naturally, you want to take into account distance to things like work, transportation, and shopping.
7. Buy for Selling
First-time homebuyers often talk about living in the house long term. Odds are against that. Loss of job, relocation, divorce, and other family or personal matters happen. Plan to evaluate your options for resale. Consider whether the properties have the potential to increase in value.
8. Prepare for the Unexpected
Someone else may fall in love with the same home you want and you could end up in a bidding war. You may not be able to negotiate the high price of a house down to your budget. If you qualify for a 30-year fixed mortgage, a couple thousand dollars more in the selling price may not significantly increase your monthly payment. That’s the number you need to calculate.
9. Be Aware of Fix-Up Costs
You may or may not have the skills and interest in doing fix-ups yourself. You may not have the time to handle repairs. Ask other homeowners in your area about the cost of hiring plumbers, electricians and handymen. Even decorating and/or furnishing items, from blinds to yard tools, can be pricey. You don’t want to end up house-poor. When you do begin shopping, you don’t have to wait for the inspection to check the condition of those big-ticket items such as the roof, heating and cooling equipment and windows. Take note of smaller details, for instance how many plugs in each room.
10. Shop for a Real Estate Agent
A real estate agent can be extremely helpful in guiding you through this complicated process. Ask for recommendations from friends. Most important, pick an agent who knows the area that interests you.