Whether you are a first time home buyer or someone who is looking to move up or down, or if you are being transferred to a new area, getting into the market can be both an exciting and a scary feeling.
So, where do I start?
First, discover if you have enough money to buy a home?
The first step to finding out how much home you can truly afford is to get pre-qualified for a mortgage. This is a quick, painless process that gives you an idea of whether or not a bank or a mortgage company would be willing to lend you money for a mortgage based on the information you provide to them.
Next, take a look at your finances. Ideally, you should have around 20 percent of the purchase price to put down. There are a variety of loan types but for a conventional loan, you'll need 10 to 20 percent down. With 20 percent to put down, you will get a better interest rate and since your mortgage lasts for a long time, you want to get the lowest rate you can.
You should also have less than a 36 percent debt to income ratio. Be sure to include all of your monthly obligations in that equation, including student loans, child support payments, alimony, car payments, credit cards, etc. Any bill you receive on a regular basis is considered a debt. That bill does NOT have to be a paper bill, but an obligation you have to make payments on a regular basis - monthly, quarterly, yearly, etc. Look at your savings. Make sure that you have enough for the 20% down payment and enough to pay closing costs, which include such things as title insurance, homeowners insurance and transfer fees. The National Association of Realtors (NAR) reports that this amount averages between 2 and 7 percent of the home price. You also need to have money left as a cushion. What if unexpected repairs, either to your house or car, come up? What if you or a family member needs medical attention? Be sure that you have enough money leftover after the purchase to keep your life running smoothly. You don't want to be "house poor".
What kind of house should I buy?
There is no such thing as the perfect house, so you should prepare yourself for some mild feelings of "what if". Make a list of your "wants" and "needs". (Hint: your "wants" will be longer than your "needs"). You don't want to compromise on your "needs", but if the home you are looking at can accommodate most of your "needs" and the "bones" of the home will allow you to add the remainder of your "needs", you should seriously consider the home. You may have to give up a few "wants" for now. It basically depends on:
•1. Do you have to move? If you have been transferred and need to move, or for whatever reason, you need to move now, you may be willing to give up more of your "wants" to move quickly.
•2. Is this your first home?, You may have to buy something a little less than your dream house, but you'll be building equity that will let you move up at a later date. Try not to lose sight of the big picture. This is a home that you own. You'll be paying off your own home rather than helping a landlord to pay off theirs. You'll now get the benefits of tax breaks. And, hopefully, your home will appreciate in value over the coming years.
I'm not handy so how can I handle repairs that would come up?
Before you swear off doing some of your own projects or repairs, know that everyone starts somewhere. Take a class at your local home improvement store, invest is a handyman's guide, or ask a friend that has already tiled their bathroom or fixed a leaky sink to come and give you some pointers. Start with the easy ones and take your time. Watch some of the "Do it yourself" home and garden shows. They have projects that they walk you through.
All homes require maintenance. Be prepared for repairs, maintenance, and updates. Even with a new home, there will be projects. Make sure you keep some savings to handle these and plan accordingly. If the repair job is beyond what you are comfortable doing, hire a professional.
What if I fall out of love with my home? How soon can I move?
Experts recommend that to build equity, you need to have owned your home for at least 3 to 5 years. If you put 20% down, then, hopefully, you probably have at least that much equity. The NAR recommends, "Look at your annual mortgage statement or call your lender to find out. Usually, you don't build up much equity in the first few years of your mortgage, as monthly payments are mostly interest, but if you've owned your home for five or more years, you may have significant, unrealized gains." If the time is less than five years, then you should be prepared to not make any money on the sale of your home, and even, to "lose" some -- in the form of closing costs.