What to know before you buy

Whether you are buying your first home or second it can be an exhilarating, yet intimidating life event. Purchasing a home is one of the largest financial expenditures most people will make in their lifetime. As a result, it’s critical to understand your finances and the home buying process before making your offer.

Access your financial situation
Mortgage payments, insurance, property taxes, maintenance fees, and utilities are all part of the cost of owning your own home. Review your budget and add in estimates for these expenses to better understand how these may impact your finances. (Don’t have a budget? Click here to learn how to make one) It’s critical to have a steady income and reserves to pay these costs, especially in the first few years when you may face unexpected housing expenses like a leaky roof, new furnace, or a stray rock from the lawn mower that shatters your window.

Strengthen your credit score
Your credit score is another key component to consider when purchasing a home. Your score is important in deciding whether or not you qualify for a mortgage and helps to determine your interest rate. As a result, before applying for a mortgage, you should verify your credit score report. 

Save for a down payment and closing costs
A down payment is the amount of money you need to pay upfront when taking out a loan for a large purchase. In many cases, the larger percentage of a down payment you have the lower your interest rate may be for the loan. However, your credit score and debt-to-income ratio will also impact your rates. (Check out our debt-to-income calculator here).

Closing costs are the charges incurred above the purchase price of the home. These costs may include real estate commissions, taxes, insurance premiums, as well as title and record filings.  These fees vary depending on your mortgage lender, state, and loan type. Talk to your mortgage lender to find out an appropriate amount to save for your situation.

Contact your mortgage lender for pre-approval
Interview mortgage lenders and choose one who is willing to help you understand crucial components of the home-buying process. Lenders will go over your credit score, debt-to-income ratio, and different types of loans to give you an idea about what you may be able to afford. They will also explain expenses related to the financing terms or loan agreement such as property taxes, insurance, and closing costs. If you qualify for a loan they can grant pre-approval to aid you in preparing an offer on a house. If you don’t qualify for a loan, they can give you advice on how to improve your finances for future qualification. Your mortgage lender is there to give you the information to make good financial decisions when buying a new home.

Find the home that fits your budget
Now that you understand your financial picture you can find the right home for your budget. To do this you may want to conduct neighborhood research, attend open houses, and collaborate with a real estate agent. A real estate agent can assist you in locating properties that fit your specifications and negotiate on your behalf.

After choosing a home, you will create your offer and once it is accepted, complete the loan process. Loan procedures will include any items wrote into the offer and an appraisal to obtain financing. It is recommended you have a home inspection as well.

Purchasing a home is a substantial financial investment that demands considerable thought and planning. An experienced mortgage lender is more than a lender, they are a guide on the housing journey, a teacher of financial terms and processes, as well as a resource for you as you search and secure the right home for your family.

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Check out more articles about personal finance: 

Yes, you need a budget! 5 steps to make it happen.

What your net worth and why is it important!

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