No one likes to owe money – debt incurs anxiety and stress.  So when you decide you are ready to prepare for buying a house, you face the fact that you will owe someone the largest sum of money in your lifetime.  What a daunting thought!  However, you may take a number of steps to reduce the amount of anxiety and stress this step forward in life can create.  Knowing that you will purchase the best home you can afford for the least amount out of pocket will certainly help.  This article will focus on laying out these steps for you to follow, so that you know going into buying a house that you can take that rewarding step with confidence.

Cost of Buying A House

You can look at the cost of a home two different ways.  1 – How much will buying a house cost you on a monthly basis, and 2 – how much will buying a house cost you in total.  Buying a house valued at $250,000 for only $100,000 sounds like a phenomenal deal, but it you have to pay cash and you do not have the cash, the deal no longer sounds so amazing.  On the other hand, paying $900 per month for a $350,000 property sounds like a good deal, until you realize even after 30 years you will never own that home and paying the bank loan interest is the only thing that monthly payment accomplishes.  To keep it simple though, one factor affects both the monthly payment and the total cost – the interest rate.

So now the list of goals includes going into the buying a house process knowing how much home you can afford and getting the best interest rate possible.  The first step when considering buying a house includes getting your finances in order. Your credit score will play a big role in the type of financing as well as the interest rate of the loan. For tips on how to improve your credit score, see this article where we provide starting points and other information.  You will also need to start saving money for your down payment as well as other expenses while going through the process of buying a house.

Expenses While Buying A House

Every home purchase differs from the next however some relatively common expenses include the home inspection, appraisal, and survey.  For the first-time home buyer, estimate roughly $1,000 for these expenses.  Each will differ in cost depending on a number of factors, including the size of the home, and the market, so make sure to speak with your local REALTOR® for a better estimate.

Down-payment

Although some lenders and loan programs will take as little as 0% for a down payment, you may want to give 20% of the purchase price as a down payment.  How do you know how much you want to put down, how much your monthly payments will cost you, and which type of loan works best for you and your family?  Talk to the experts – more on this in just a bit.

We all know having some cash to put down and a good credit score are pretty important, however this blog intends to talk about some of the other steps you can take to get ready to purchase your first home.

Wish List For Buying A House

We actually request this of every buyer we help.  Sit down with your partner and create a list of everything you both could possibly want in a home.  Do not worry about order of importance (yet), just sit down and talk about what you both want and write it all down.  If you have decided you cannot afford a pool, it is unrealistic to have a pool on your wish list. If you have dogs, a large yard may top your list. Maybe you find a large kitchen with an island and double oven really important, or maybe a neighborhood close to a school you like. Create a wish list to include all of the things you truly want and need from your new home.   Try for 15 items on the list – this should get the brainstorming sessions into full swing.  The hardest part follows next… order of importance.

You and your partner need to order the list you both just created with the top items as the most important to the both of you.  This list may save you the most amount of stress while in the process of buying a house, because once completed, you will know exactly what homes you do not need to look at, giving you a better chance to get to the home of your dreams before someone else does!  Remember to be open-minded with your list though. If one of you insists on a home in a cul-de-sac, you may miss out on a home that has all of the other features you need.  However, the most important thing includes completing it together and agreeing!

Prequalified For Buying A House

Remember those experts mentioned earlier?  Finance Lenders!  An extremely common mistake many people make includes not shopping for a Lender.  Many times families mistakenly feel obligated to use the bank they use on a daily basis.  What makes this a mistake?

First, you should always seek a second opinion when dealing with a large sum of money.  In the case of a loan you will pay interest on for the next 15 to 30 years, you should speak with multiple lenders. Second, most big banks have very strict guidelines their corporate offices require they follow.  Mortgage brokers on the other hand, because they usually sell the note later, have a large number of programs they can choose from.

The chances of finding a lender with more favorable terms increase significantly when using a Mortgage Broker. That is not to say you should not speak with the bank you use daily – you absolutely should!  Just make sure you interview 3 lenders at the very least.  You typically have 60 days to interview as many lenders as you would like with only one hit to your credit, so take advantage of this.

Interviewing Lenders

Give each lender all the information they require and discuss your options with them. Let them know you intend to shop around!  Make sure to ask about any programs you may qualify for, such as the type of loan and down-payment assistance.  After speaking to a few lenders, you should have a good idea of how much you want to put down, how much your monthly payments will cost you, and which type of loan works best for you and your family.

After interviewing as many lenders as you deem appropriate, decide who you want to “hire” and ask them to pre-qualify you.  This process does not guarantee anything, however having a lender provide you a letter stating that they pre-qualified (pre-qual letter) you accomplishes a couple things.

A pre-qual letter lets you know your buying power, or in other words how much home you can afford. This in turn helps keep your home search focused. You may also need a pre-qual letter to make an offer on a home, depending on your market.  In some markets, agents and owners will not even look at an offer if a pre-qual letter does not accompany the agreement.

There is nothing worse than finding your dream home and not being able to send an offer for it because you haven’t been pre-qualified. Having a pre-qual letter says, “I am ready to buy my dream home!”

Hire a Real Estate Agent For Buying A House

Finally, find a REALTOR®.  In many markets, the services of a REALTOR® finding a home cost you, the home-buyer nothing, as they are paid by those selling the home.  However, even though you may not pay the REALTOR® anything out of pocket, remember you are hiring a professional. Just like you interview lenders, you should interview real estate agents.  Even if you signed an agreement with someone, if they do not perform the way you would like, notify them in writing (this is required if you signed an agreement – email is typically fine) and find another agent.  Buying a house is an important decision and you want a professional in your corner that will communicate not only the process but provide information and advice so you can make an informed decision.

Summary

So to summarize; to prepare for the process of buying a house you should:

• Use this article to ensure an optimal credit score
• Make a List of 15 things you and your partner want
• Understand the cost of buying a house, both short-term and long-term
• Interview multiple lenders and choose the one most favorable for you and your family
• Know how much home you can afford
• Interview REALTORS® and choose one that will keep your best interests in mind