Let’s see. You have been renting for a year or more and you are tired of throwing your money away. Besides, you can definitely use that mortgage interest tax deduction. Maybe you have been saving a bit and have a little money put aside for a downpayment. And, of course, there is that yearning for a piece of property of your very own...
But where to start? How do you know what you can afford? Will you overextend yourself and be “house poor” or will you be too conservative and regret your choice of a house later? How do you know what to look for in a house? How do you protect yourself from making a costly mistake?
We have put together some basic steps to help organize your thinking and give your confidence as you go out and begin the process of finding your first “very own” home!
Step 1. Know your rental limitations. If your lease is not up for 9 months and you lose your first and last month’s rent if you leave before that day, it doesn’t make much sense to go house-shopping prematurely.
Step 2. Evaluate your finances. If you have outstanding debts, try to get them paid off before assuming the obligation of a large morgage payment. Try to determine what kind of monthly payment you feel comfortable with. Remember to include homeowner’s insurance (approximately $30-40 per month) and property taxes (typically 1-1.5% of the purchase price) in your projections.
Step 3. Find a reputable lender and get “pre-qualified”. This is usually done at no cost and will give you a quick idea of what the lender feels you can afford to buy. Again, only you know your own comfort level.
Step 4. Educate yourself on the market. Read the real estate section of the newspaper and the go through the local real estate magazines offered free in grocery stores. Drive around areas you think you might like and, if you like, go into some open houses. Try to be realistic about what areas you can afford.
Step 5. Prioritize. What features are really important to you? What would you like to have but can do without? What are not important at all? Remember, you probably cannot have everything you want in your first home, so this will help you to organize your thoughts and determine what you are willing to give up.
Step 6. Find a Realtor who will represent you as a Buyer’s Agent. Remember that the Realtor you meet at an open house represents the seller of that house. If you decide to make an offer, choose another Realtor to be your Buyer’s Agent and have him or her view the home with you before making the offer. It is very important that someone represents your interests in negotiations. (For advice on choosing a Realtor, see our report entitled “How to Choose a Realtor”.)
Step 7. Be straightforward with the Realtor. Now that you have done your homework, (see Steps 1-5), you have a realistic idea of what you can afford and what you can expect to find in your price range. Give your Realtor all this information and let him look for properties that fit as many of your requirements as possible. Try to whittle down the list to a manageable size and allow the Realtor to set up appointments to tour the homes you have selected. If you have chosen a good Realtor, she will pay careful attention as you react to each home and, eventually, lead you to just the right one.
