Ready to take the plunge into home ownership? Making a move from renting to owning? Re-sizing your lifestyle? Whatever your motivation, buying a home is exhilarating and rewarding. But many rookie – and returning to the market – home buyers find the process trickier to navigate than they expect or remember.
A 12-month timeline can help you sidestep many common mistakes and anxiety.
12 Months & Counting…
Review your credit report. Get a copy of your credit report at www.annualcreditreport.com. The three credit bureaus (Equifax, Experian, and TransUnion) are each required to give you a free credit report once a year. A Federal Trade Commission study found one in four Americans identified errors on their credit report, and 5% had errors that could lead to higher rates on loans. Work diligently and quickly to correct any mistakes as it can take a 30-day cycle or two for errors to be corrected.
Determine how much you can afford. Figure out much house you can afford – and want to afford – in a monthly house payment. This can be significantly different. Lenders typically look for a total debt load of no more than 43% of the gross monthly income of the borrower(s), called the debt-to-income ratio, or DTI. This figure includes your future mortgage and all other debts, such as a car loan, student loan(s), and revolving credit cards. Shoot for a lower DTI ratio; it is unwise to pursue a strategy of “house-rich, cash-poor.”
There are calculators on the web to help you determine what you can afford. If you’re pushing the limits, start reducing your DTI ratio now. And keep in mind that with home ownership comes new expenses that you may not have – such as maintenance, repairs, and home emergencies.
Make a down payment plan. Most conventional mortgages require a 20% down payment. Your loan costs will be much less, and you’ll get a better interest rate. If you can swing it, do it. However, if you’re not quite able to save this amount, there are options that can help make a down payment as low as 3%. They will require mortgage insurance premiums, which will push up your monthly payments.
Keep in mind that lenders like you to “season” your down payment money. That is, they like to see that you’ve had stable funds in your account for 60 to 90 days before applying for a loan.
9 Months & Counting…
Prioritize what you most want in your new home. What’s most important in your new home? Proximity to work or family, recreation or schools? A big backyard or none? An open floor plan on one level? Being on a quiet street? Walk out basement? You’ll make a much better decision on what home to buy if you focus on your priorities. If it’s a joint decision (husbands, who are we kidding, right?), now is the time to work out any differences to avoid frustration and wasted time. Know what trade-offs you’re willing to make. Use this worksheet to help determine your priorities.
Research neighborhoods. Now the fun begins. Explore areas and neighborhoods. Use property listing sites, such as www.REcolorado.com and www.DougMovesYou.com to get an idea of what kind of homes are in your price range. Good websites to research schools are www.coloradoschoolgrades.com and www.greatschools.org. A helpful website to answer questions and many others about particular communities is www.city-data.com for info about public transportation, crime, and cost of living.
The countdown continues shortly….