Buying your home can be exciting and nerve-racking all at the same time. With a little planning and preparation, rest assured you can walk through this process confidently. I have put together a quick checklist (mini guide) to help you with this process. These 6 steps will prepare you with what’s needed to make your first real estate transaction smart, sustainable and solid.
1. CLEAN UP YOUR CREDIT
Credit scores are heavily considered by mortgage companies. Review your credit score and get advice from your mortgage specialist to build a strategy to clean up any mishaps and pay off any debts affecting your credit score. You will be surprised at how amazing a favorable credit score will be in this process.
2. DEBT RATIO
Here are two numbers you must consider: 33 and 38. 33% of your monthly income should be allotted to housing costs, while 38% to consumer debt. Once you have gone through your credit, hit your budget with a fine tooth comb. You can easily work this ratio to ensure you are within these limits. The consequence of not being within these numbers is not qualifying for a mortgage or being offered an unfavorable rate.
3. INTEREST RATES AND MORTGAGES
Mortgages are like walking into a candy store–SO many options, but each of those options has its own considerations. Interest rates are one of those considerations. It’s not a one size fits all product. This is why I recommend speaking with a mortgage specialist who can shop the mortgage marketplace on your behalf and present you with a more customized fit for your short and long term goals.
Consider all the first time home buyers programs in your state. Whether this is your first home purchase, or you have owned previously, but no longer own for a minimum of 3 years, you can consider yourself in the running for some of the benefits available in your state. Know what programs apply in the state you live in. In Michigan, the Michigan State Housing Development Authority has loan programs for first time homebuyers. I am including the link here for you to review, and to see if any of these options will work for you. If you are looking to speak to someone live, reach out to me personally and I will connect you with one of the mortgage professionals I count on to advise my clients. Once you have been pre-qualified for a mortgage, put this in your back pocket while you shop for your home.
4. DOWN PAYMENT
This is a big one. If you have saved your down payment or were gifted a down payment from a relative, make sure it’s all documented in your accounts. If you are a first time home buyer, and you don’t have all the funds for your downpayment, you may qualify for the Michigan Down Payment Assistance program. The banks also want to see that you have your closing costs set aside. Planning ahead for this is crucial. Don’t procrastinate on this one.
5. BUDGET
It should be that this goes without saying, but I am always surprised when I sit and talk numbers with clients who are not aware of what home ownership demands of your budget. Knowing you can afford a home takes the guessing right out of the equation. Numbers are absolute. Start by listing your fixed costs and go from there. Consider tracking what you spend so you can eliminate the weak spots.
Here are a few costs you may not have accounted for: real estate taxes, homeowners insurance, maintenance fees, utilities, and repairs that pop up unexpectedly. Be sure to leave yourself some wiggle room. Generally speaking plan to reinvest 1% of your purchase price into your home on an annual basis for maintenance, repairs and/or upgrades.
6. YOUR LOCAL HOUSING MARKET
Although I have encountered many buyers who are in a hurry to purchase a home, it’s always nice to have time to educate my clients on the temperature of the local real estate market. Certainly this is my area of expertise, but I have always chosen the path of empowering my clients to have a good understanding of the local market themselves. It makes the buying experience more magical. Take time to get to know the market. This time invested will yield you the peace of mind you need before jumping in.
For your convenience, I have prepared this free printable checklist. As you check every box, you will see how much closer you are to your dream home.
- Article written by the Guzman Team