When you decide to buy a home, you should be prepared for a lengthy process that may take several years from start to finish. This process includes preparing for your purchase of the real estate, so you should create a plan several years before you start browsing the market. Taking the time to prepare will help you avoid many of the mistakes that inexperienced people make in buying real estate.
Improve Your Credit Score
Your first step in buying real estate is to review your credit reports from the three primary credit reporting bureaus. This will help you clear up any errors and repay any outstanding debts. Your credit score will affect the interest you’ll pay on a mortgage, so you should boost your score as much as possible before meeting with lenders. You can do this by paying all of your monthly bills on time. You can also boost your score by paying down your credit card debt. You’ll be viewed as a better risk when you have more available credit than debt. If you don’t have a credit card, you can use a secured credit card to help you build a good credit rating.
Save For a Down Payment and Closing Costs
It’s also important to start saving for a real estate purchase several years in advance. Although you might qualify for programs that allow you to put 3% of the home purchase down as a down payment, you should be aware that paying less upfront will cost you more over time. Putting down less than 20% will usually drive up the interest a lender will charge, and you will have to take out a longer loan. In addition to saving for your down payment, you should also have a little extra saved to cover your closing costs. On average, you should expect to need between 3% to 6% of the sale price of the home to cover your closing costs. If you want a more accurate assessment of your closing costs, you can invest in real estate closing software to help you calculate how much you’ll need to close.
Make Sure You’re Shopping Within Your Budget
Your next step is to create a budget to ensure you’ll be shopping within your means. It’s best to create an entirely new and actionable budget that incorporates all of the costs of homeownership. In addition to being able to make the principal payments to your lender, be sure to add in the interest that you’ll have to pay. You should also calculate the costs for homeowner’s insurance and household repairs. If you’re not prepared for these extra costs, you may end up in a situation in which you’re borrowing just to keep up with your monthly obligations. Once you know how much you can afford each month, you can calculate how much you can pay for a new home.
Get Pre-Approved For a Mortgage
There are a couple of reasons to get pre-approved from a mortgage lender before you start looking for real estate to buy. First of all, a pre-approval letter will tell you exactly how much you can afford to spend on your new home. If you’re pre-approved for more than the amount you arrived at in calculating your budget, keep in mind you can spend less than the amount for which your lender approved you. A pre-approval will also tell sellers that you’re a serious buyer and prepared to move forward with a home purchase. This may make sellers more flexible in negotiating the sale price.
Talk to a Real Estate Agent
You should also work with an experienced real estate agent who is looking for your new home. An agent knows the market, and they can help you look in areas that are up and coming. They may also recommend waiting if they forecast a change in the housing market. Your agent will make your search easier by keeping an eye out for homes that meet your needs. They will keep you apprised of open houses and new properties that are soon to enter the market. A real estate agent can help you get a better deal on a home that more perfectly meets your expectations.
Even after you close on your home, you should be prepared for unexpected expenses. It’s a good idea to contribute a percentage of your income to a high-interest savings account. This will help you prepare for the expenses associated with owning a home, such as installing a new roof or replacing a water heater. Staying prepared will make it easier for you to keep your home in great condition throughout your lifetime.
