Buying a home is a big commitment and can be one of the most important decisions you will ever make. It’s best to be thorough and strategic before making a final decision.
It’s also helpful to get mortgage preapproval so you can move fast in a competitive market. Here are 5 tips to help you find the right home for your lifestyle: 1. Consider location.
1. Know Your Budget
It’s important to get a good idea of what you can afford before jumping into the homebuying process. This isn’t just about your mortgage or rent — you’ll also have to pay for property taxes, utilities and possibly HOA fees. A good way to determine how much you can comfortably spend is by tracking your spending for a few months. Several apps that link to your bank account can do this for you, or you could use a simple spreadsheet.
You should also be aware of “sleeper costs” such as potential maintenance or property-tax increases, which can add up over time. Having this information will help you avoid overspending or being tempted to purchase a house that is too expensive.
2. Know What You Want
Whether you’re buying your first home or upgrading to a bigger one, knowing what you want from the property is crucial. Narrowing down preferences will help you zoom in on the right house at the best price, especially during a competitive market.
It’s also important to determine the area you want to live in. This will affect the quality of life, including the proximity to local amenities like shopping and entertainment. If you have school-aged children, you should also consider the schools.
Be sure to drive by the house at different times of the day to see how the neighborhood feels during rush hour and after dark. It’s not uncommon for an area to feel completely different at those hours! It’s also worth considering the commute time if you work away from home.
3. Know What You Can Afford
Knowing what you can afford is an essential step in home buying. The best way to figure this out is by getting a preapproval from a lender who will factor in your income, recurring debts and expenses. Buying nice appliances and knowing if appliance warranties are worth it or not are huge decisions when it comes to buying a home.
A good rule of thumb is to look for homes that are 3 to 5 times your annual household income, but this depends on a variety of factors, including whether you have significant debt or not. Also consider property taxes, homeowner insurance and any homeowners association fees that may be associated with the home you choose.
Finally, remember that most new homeowners will spend money on some
immediate repairs or upgrades. Ask your lender and agent about the average costs in your area. Then save enough money to cover these expenses plus any closing costs.
4. Know What You Can’t Afford
There are plenty of factors that can influence how much home you can afford, including price, property taxes and mortgage rates. You can get a ballpark estimate of your home-buying power with our home affordability calculator.
A good rule of thumb is that your monthly debt payments (including student loans, credit card and auto payments) plus the proposed monthly mortgage, homeowners insurance and property taxes shouldn’t be more than 36% of your pre-tax income.
To reach that point, it’s important to be debt-free and have 3-6 months of expenses saved up in an emergency fund. Also, don’t change jobs or open new credit cards prior to buying a home as this can impact your debt-to-income ratio. Instead, focus on reducing your debt or saving for a bigger down payment.
5. Know the Process
The journey to homeownership involves a lot of steps, including saving for a down payment, finding an agent, and getting preapproved. First-time homebuyers should also take advantage of national and state first-time buyer programs if they qualify.
Having a clear idea of your must-haves, nice-to-haves and deal breakers can help you be more focused when viewing homes. It’s a good idea to prioritize features that will affect your daily life, such as the number of bedrooms, location near parks and schools and more.
When you’re ready to make an offer, it’s crucial that you fully understand the process and all of its moving parts. That includes understanding your financing options, making sure you’re aware of any mortgage contingencies and not skipping steps like getting a property inspection.