The idea of buying a home can be exciting–especially if it is your first home purchase. Homeownership can offer a number of financial and emotional benefits. While there are several steps to get through before you can start to enjoy homeownership, it’s important to be sure you’re ready for what lies ahead before you start viewing properties.
Here are three important questions to ask yourself as you embark on your new home purchase:
Am I in position to qualify for a mortgage? You could find the home of your dreams, but if you can’t get approved for a mortgage, that dream can be shattered. It can lead to a huge disappointment if you shop for homes before getting your financing on track. That’s why you should get prequalified before viewing even your first home.
Not only will you learn whether or not you are likely to qualify for a mortgage, but your lender can determine just how much home you are likely to afford. When you know where you stand, you can then make a strong offer with confidence. You will also avoid the frustration of shopping outside of your budget.
Do I have enough to cover closing costs? There’s a lot of focus on saving for a down payment. While that’s important, it’s not the only upfront cost you’ll have in buying a home. Closing costs and fees can often run about 3 percent or more of the contracted price.
That means if you are getting a government-backed loan requiring just a 3 percent down payment, you can plan on doubling that amount when it comes to what you will actually need to bring to the table if you want to purchase a home. There are also stipulations on where and how that money is sourced, so be sure to discuss the total anticipated costs–and how you plan to pay for them–with your lender.
Can I afford to buy a home in my preferred neighborhood? Once you have spoken with a lender and become prequalified for your home, it’s time to draw up your list of criteria for finding just the right one. It’s very common for a buyer’s wish list to outpace their budget. Of course, the home’s price is just part of the equation. Consider whether you can afford property taxes, HOA fees, insurance and maintenance on a home in your desired area.
Taking all these additional costs into account can help you evaluate whether you can afford the type and location of the home you have in mind. If not, you may need to compromise. For example, rather than a popular neighborhood, you may need to focus on an adjacent one that is “up and coming.” You may also need to take a few items off your wish list. As your agent, I can guide you on realistic expectations for what you can afford, saving you frustration on your home search.
The bottom line
Before you dive into viewing properties, be sure you have your financial house in order. You will avoid disappointment and ensure you aren’t wasting time if you prepare for your home purchase before viewing that first home. A bit of readiness on your part will have you moving confidently toward the closing table.
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