If you have steady income, some savings, a good credit score, and are tired of renting, it may be time to buy a home! Here are some important steps to help you prepare to buy a home.
1. How much house can you afford?
Prepare to buy a home by saving money for your down payment. First, you must determine what you can afford as a monthly payment on the mortgage. Contact a loan officer to run some numbers. It is recommended that your monthly mortgage payment not exceed 30% of your monthly income. This will also help you later as you begin searching for the right house. You can automatically eliminate the 10 bedroom option if you know that is clearly outside your budget!
2. How much is your down payment?
Prepare to buy a home by determining your down payment and then saving up! First-time home buyers may qualify for an FHA loan which allows a down payment of 3.5 %. There are some programs in Arizona that assist first-time home buyers which may allow you to purchase a home for even less down; however, a down payment helps you create equity in your home. If it’s worth $225,000 and you put down 10%, you now owe $202,500 on a house worth $225,000. That’s a good start!
Another way that a sizable down payment can help you is by allowing you to avoid private mortgage insurance (“PMI”). Most lenders require that you purchase PMI if your loan to value (“LTV”) is higher than 80%. If, for example, your loan is $200,000 and your home is appraised at $250,000, your LTV ratio is 0.8, or 80%. In other words, most lenders require that you pay 20% of the purchase price as a down payment in order to avoid PMI. If you do, your monthly mortgage payment will be that much lower and more affordable.
3. Get pre-qualified
Once you know how much house you can afford and how much of a down payment you will pay, next you must prepare to buy a home by getting pre-qualified for the financing. This is important because once you find the perfect home, your agent will submit an offer and must include the pre-qualification form. You will provide a number of financial documents to your loan officer and he will tell you exactly what you can afford.
4. Location, location, location!
Now that you have determined the right price, the down payment, and are pre-qualified, it’s time to find that perfect home! Before you start the official search with your agent, it is important to do some of your own research to determine some basic information such as which area of town do you want to live in? What features in the home are must haves? What features are desired but not required? For example, based on your family size, one of your must haves may be the number of bedrooms or having a den, while one of your desired but not required features is a pool. Make a list and provide it to your agent. It’s an important step as you prepare to buy a home.
5. Inspect the home
One crucial step as you prepare to buy a home is the home inspection. A typical tendency is to tour the home with blinders on, caused by the excitement of walking through a home that you really like! At least, on the surface. But what about inside the walls, in the attic, the water heater, roof, and HVAC? A home inspector’s job is to inspect everything from the roof to the foundation and the results of his inspection may just save you from future expensive problems.