Millions of Americans dream of buying their own home. It can be a powerful financial move, allowing you to gradually build equity in real estate rather than paying your rent to a landlord. It can also make you feel a greater sense of ownership in your living space, and fill you with comfort and pride.
That said, buying a home can be a stressful and overwhelming process—especially if you’ve never bought one before. If you want to have the best possible experience, it’s a good idea to prepare for your home buying journey weeks, or even months in advance.
Analyze Your Purchasing Power
First, spend some time analyzing your purchasing power. In other words, how much home can you reasonably afford? To do this, you’ll need to analyze your current income, and calculate the amount of money you’ll pay on a monthly basis to live in a given home.
You’ll need to consider:
· Mortgage principal and interest. Each month, you’ll be responsible for paying a portion of your mortgage principal, as well as interest on your loan. This will vary depending on the amount you’re borrowing, your interest rate, and the terms of your loan.
· Home insurance. Don’t forget about home insurance. Most modern lending institutions require you to purchase home insurance; even if it’s not a strict requirement, this is an important way to protect your investment. Shop around to get multiple home insurance quotes, and choose the policy that makes the most sense for you and your goals.
· Property taxes. Most areas require you to pay annual property taxes, which will be due at the end of the year. However, in most cases, you’ll contribute a monthly amount to cover these costs.
· Utilities and other expenses. When calculating the costs of home ownership, it’s easy to neglect utilities and other expenses, including the costs of repairs and maintenance.
Typically, these costs (aside from utilities and other expenses) are rolled into an escrow account for convenience. Ideally, you won’t want these to amount to more than 30 percent of your gross income (though this percentage varies, depending on where you live).
In addition, you’ll want to consider the initial costs of buying a home, which include:
· Down payment. This is the amount of money you initially put into the home.
· Closing costs. The seller may pay closing costs, or you may be responsible.
· Repairs and changes. Be prepared to make some initial repairs and changes to the home before moving in.
Improve Your Credit Score
A better credit score may help you qualify for a better home loan. You can spend the months leading up to your purchase increasing your credit score by:
· Making payments on time. Try to make payments for all bills on time, consistently. This includes credit card payments, loan payments, and even payments for monthly utilities.
· Paying off debt. The less debt you have, the higher your credit score will climb. Try to pay off standing debt if you can.
· Avoiding opening new lines of credit. New loans or credit cards can hurt you, so avoid opening new accounts.
Establish an Emergency Fund
You’ll be much stronger financially if you have an emergency fund in place. This will help you cover emergency repairs, expensive maintenance, and other unexpected expenses associated with home ownership. Recommendations on emergency fund amounts vary, but you should aim to have at least a few thousand dollars set aside.
Set Your Goals and Priorities
Work to establish your home buying priorities. What’s most important to you when buying a home? These are some major points to consider:
· Budget. How tight is your budget, and are you willing to stretch it to get your dream home?
· Location. Which locations are you willing to consider? Do you need to be within a 20 minute drive of your workplace, for example?
· Neighborhood. How much do you care about the neighborhood, including amenities, crime rates, and school district ratings?
· Features. Finally, consider the physical features you want in your home. For example, do you care about the age and style of the home? Is there a certain number of bedrooms or bathrooms you want?
Get Preapproval and Find an Agent
At this point, you’ll be ready to get mortgage preapproval—this won’t guarantee you a loan, but it can help you understand how much you qualify for, and show sellers that you’re serious about buying. You’ll also want to look for a buying real estate agent, so you can find better options.
Once you’ve taken these measures, you’ll be in a much better position to find your first home—and improve your overall financial situation. Remain patient, and keep your main objectives in mind throughout the process.