Buying a new home can be an overwhelming process, especially for first time homebuyers. Without any experience, you may not know where to start. It’s tempting to jump right into looking at houses and skip the tough questions about your finances and whether or not you’re really ready to make this commitment. There’s a smarter way to go about home buying, and here’s a few things you can do before you start.

Family signing the papers to buy their first home.

Choose the Right Real Estate Agent

Buying a new home has many components, and you need the help of an expert to guide you through the process. A real estate agent can answer questions you don’t even know you have. They will guide you to the tools you need to figure out your financial picture, help you narrow down the areas you want to focus on, and make sure you don’t skip any of the crucial steps. Having an agent you trust is important as they guide you through finding which homes to look at and negotiate on your behalf for the best price. There are so many benefits to using an agent, and since it will come at no cost to you as the buyer, do your homework and find a good one that has time to focus on you and your search.

Figure Out What You Can Afford

Before you fall in love with a dream home that is out of your reach, take a look at your finances. You’ll need to understand your monthly income and expenses to know how much you can afford to pay for a mortgage every month. Ideally, your mortgage should be no more than 25-30% of your take-home income. Look at the income that hits your bank account each month and calculate 25% of that. That’s your ideal monthly payment.

Your actual house payment will include everything: the home’s annual insurance cost, taxes, and PMI if applicable. That “estimated payment calculator” found on trusted real estate websites are only approximating the principal payment plus interest based on current mortgage rates. They do not account for escrow, and interest rates can vary greatly based on your credit score and debt to income ratio, but it can give you a ballpark figure.

Calculate What You Need to Save

When you’re doing these calculations, look at how much you’ll need to save for the upfront costs of home buying. Buying a new home means having the funds available for both the down payment and closing costs. Look at the price range you’re considering and calculate 10-20% for your down payment and another 2-7% for closing costs. This can be a large amount even for a modest home, but this is where having an expert can help you. Your real estate agent can steer you toward experts who can get you through this stage successfully.

Prepare to Apply for a Mortgage

The first step you need to do is look at your full financial picture and check your credit. The higher your score, the lower the interest rate you may get. Most mortgage lenders look for a minimum score of 620 and some will even automatically reject any loan if the score doesn’t meet their minimum. If your score isn’t where you hoped it would be, take some time to improve it before looking for your new home.

You may also want to pre-qualify for a mortgage. This is a less in-depth process than a pre-approval, but it also doesn’t guarantee you’ll get approved. The lender will look at your income, assets, debts, and credit score and give you a number. This number may be higher than you calculated on your own, but make sure you don’t overextend yourself. Once you feel your finances are in order, you can begin the pre-approval process. This is much more involved, but having pre-approval paperwork makes you a much more attractive buyer.

Take and Honest Look at the Neighborhood

It’s easy to be romanced by the thought of owning your own home, but a beautiful house in the wrong neighborhood isn’t a good investment. What is going to make a home the right fit for you?

  • Does the school system meet your needs?
  • Do you need easy access to public transportation?
  • What will your commute look like?

Many agents suggest looking for your ideal neighborhood in the day and at night so you get a full picture of what the neighborhood may feel like at all hours.

It may seem overwhelming, but the pieces are easier when you have an agent to guide you. Look at your finances, make the financial adjustments necessary, determine your price range, and settle on what you need in a neighborhood. When you start with a good real estate agent, you’ll move through the checklist quickly and easily. If this has helped you understand where you are in the process of buying your first home, but you still have unanswered questions, contact Amberwood Real Estate today. We have the experience and local network to guide you through this process, and we love helping people achieve their home ownership dreams. The perfect house for you is out there, and we’ll help you find it!