5 Questions to Ask Before Starting a New Home Search
You’ve been thinking about buying a home for a while, and you’re ready to start the process. Before you do, take these five steps to a better home buying experience. (And congratulations!)
Do you have a solid down payment?
The more you pay at closing, the less you’ll pay each month. First time buyers may have the option of putting less money down, and that can be a great way to afford a home sooner rather than later, but be aware that putting less than 20 percent may mean you are required to pay private mortgage insurance (PMI), a monthly fee, calculated as a small percentage of your loan. Try setting aside a small amount each month -- have it automatically withdrawn from your bank account -- towards a down payment. How much is your gym membership? How about your cable and internet package? Add those numbers together and put the same amount in savings every month.
How’s your credit?
Your credit score, also known as a FICO score, will determine in part what interest rates you’ll be offered when you apply for a mortgage, and how much money you’ll be able to borrow. Don’t go in with blinders on. Know your score, and see what you can do to raise your credit score.
What is your debt to income ratio?
This is another factor lenders take into account when considering you as a client. The debt to income ratio is the percentage of your monthly income that goes towards paying debt, which can include student loans, credit card debt, other mortgages, car payments, and more. If your ratio is greater than 43 percent (generally the highest a borrower can have and still get a qualified mortgage), make a sincere effort to pay down that debt or increase your income. Making a budget to see where your money goes will help you put more towards the debt. You may even consider getting a part-time job to earn more and lessen your debt.
Where will I be in five years?
You should plan, within reason, to keep your home for at least five years. Are you planning on going back to school in the next few years? Do you love your job and think there’s a good chance you’ll keep your steady income? Are you in a long-distance relationship and thinking about picking up and moving in a year or two? Now is the time to be realistic.
What do I have to have in a home?
What are the deal breakers? Check out neighborhoods and determine a few that are right for you. If you have an outdoor pet, add “yard” to the list and “sidewalks,” if you and Fido like to walk together. How far are you willing to travel to work? Do you need a second bathroom for guests or possibly a roommate? What do you love and hate about your current place? Try to picture the perfect home for you, and make two lists: must-haves and would-love-to-haves (hello, fancy deck for spring entertaining!). If a home doesn’t have everything on your list, ask if you could find it in your budget to make those changes, or move on. The perfect house is out there, but you may have to look a little harder.
Ready to go? Call your mortgage broker and get pre-approved for a loan, then find a realtor and start looking!