Get ready to find, and buy, your dream home
Ready to buy your first home? Is it time to upsize or move to a nicer neighborhood? Or perhaps you’d like to downsize.
Here are some important steps/tools that will get you ready for this purchase and will make for a smooth transition into your dream home!
STEP 1: Get Your Finances in Order
1. Find out how much you can really afford. Your savings, equity, income, expenses and credit score all factor into how much you can afford to spend on your first or next home. The first step is to go online or use a smartphone app with a basic mortgage calculator. You can find calculators on websites such as zillow.com or mortgage calculator.org or use smartphone apps such as Quicken Loans QL Calc App.
Hint: Before using your mortgage calculator, make sure you know your monthly expenses. A good way to do this is to add up your last 3 months expenses, then divide by 3 to get your average monthly expenses- remember to exclude rental expenses, or mortgage expenses that won’t carry over to your next house.
2. Find out your credit score. The better your credit score, the easier it will be to get a loan. If your credit score is on the lower side, you’ll need to take actions to improve it which can take time- anywhere from 3 months to a year, depending on your score.
Hint: You can find out your credit score online. The most popular websites to get your score are creditkarma.com, eqiufax.com and Experian.com. In some cases, you may need to pay for a report, but it is well worth it as you will be in a better position to understand what you can and can’t afford, and how to increase it. You can also work with a mortgage broker to obtain this score for you.
750+: Excellent credit score. You should qualify for the best interest rate and loan terms.
700 – 750: Good credit score. You shouldn’t have any problem getting a loan at a good interest rate.
640 – 700: Average credit score. You may qualify for a loan but may not be qualify for the lowest interest rate.
580 – 640: Poor credit score. You may have a tough time getting a loan or a credit card without improving your credit.
Below 580: Bad credit score. It’s doubtful that you will qualify for a loan or a credit card without improving your credit.
3. The third step, and in some ways the most important, is to get a letter of pre-qualification for a mortgage by working with a mortgage broker. Without this, a realtor might not spend a lot of time with you. Some homeowners won’t even accept your offer without a pre-qualification letter. And that means you can lose out on your dream home when you finally find it.
Hint: By completing the first two steps in this section first, you should have a better sense for what you qualify for. So if you don’t like the result of your pre-qualification letter, you can shop around for a better one!
Where do you get prequalified? Most buyers use local mortgage brokers (search for online reviews for local brokers), most regional banks also offer pre-qualification letters, and you can also look into large national mortgage companies which are available online (Quickenloans, Lendingtree being two examples)
STEP 2: Find your Dream Home
Now that you’re ready to move forward with the home purchase process, follow these 3 guidelines to ensure better results!
1. Go to some open houses. The best way to understand what you want or what you do not want in a home is to look at as many homes as possible to set your dream home criteria. Check your local listings and make a list of open houses that are in your price range. This will give you ideas of the items, features, and amenities that you must have, would like to have or cannot have in your first or next home. It will also give you a better idea of what you can really afford to buy so that you are ready to make the best offer when you find your dream home.
2. Make a list of “Must Have’s” (3-4 Max), “Nice to Have’s” (2-3), and “Don’t want” (1-2 Max). This list will help you stay focused and will help your realtor narrow down the list of homes to show you. You don’t want to waste your time going to see houses that don’t suit your needs.
Hint: Features on your list should include items that are difficult and/or expensive to add or change later. Examples are: number of bedrooms, 1,2, or 3 car garage, fireplace in living area, location specifics (e.g. walking distance to public transportation, quiet street), school system (if you have children in school or about to enter school, understand that school systems vary significantly from town to town).
Hint: Do not focus on items or features that can be added or upgraded later (e.g. paint colors, carpet vs. hardwood floors, appliances, basic landscaping)
3. Find a good realtor. Interview your realtor. Make sure she/he listens to your needs. Get referrals from people you know and trust and the recommended realtor’s previous clients. Ask the agent to show you houses that match your criteria within a week of your meeting. If an agent can’t do this for you, they are probably not the right agent for you.
Following the 6 steps above will significantly improve your home buying experience while maximizing the value of your investment in both the near and long term. Happy house hunting!
