10 Ways to Prepare for Homeownership

So you think you are ready to buy a home? Here's some tips to get you started along the way to making the dream of home ownership a reality.

1. Decide what you can afford. Generally, you can afford a home equal in value to between two and three times your gross income. However, it will be less if you have a high amount of revolving credit debt

2. Develop your home wish list. Write down what you would like to have, then prioritize importance of the features on your list.

3. Select where you want to live. Drive around different neighborhoods to find the ones you like. Compile a list of three or four neighborhoods you’d like to live in, taking into account items such as schools, recreational facilities, area expansion plans, and safety.

4. Start saving. Do you have enough money saved to qualify for a mortgage and cover your down payment?  There are zero down payment loans that might fit you, but don't count on it. Ideally, you should have at least 5 percent of the purchase price saved as a down payment. Also, don’t forget to factor in closing costs. Closing costs — including taxes, attorney’s fee, and transfer fees — average between 3 and 5 percent of the home price.

5. Get your credit in order. Obtain a copy of your credit report to make sure it is accurate and to correct any errors immediately. A credit report provides a history of your credit, bad debts, and any late payments.The lower your credit score, the higher your rate will be.

6. Determine your mortgage qualifications. How large of a mortgage do you qualify for? Explore different loan options — such as 30-year or 15-year fixed mortgages or loans with adjustment periods. Then decide what’s best for you based on your current income and projected income.

7. Get pre-approved. Organize all the documentation a lender will need to pre-approve you for a loan. You might need W-2 forms, copies of at least one pay stub, account numbers, and copies of two to four months of bank or credit union statements. No seller will even consider your offer unless you are pre-qualified to buy their home.

8. Weigh other sources of help with a down payment. Do you qualify for any special mortgage or down payment assistance programs? Check with your state and local government on down payment assistance programs for first-time buyers. Or, if you have an IRA account, you can use the money you’ve saved to buy your fist home without paying a penalty for early withdrawal. 

9. Calculate the costs of home ownership. This should include property taxes, insurance, maintenance and utilities, and association fees, if applicable.

10. Call me. When you are ready, I will walk you through the process. If it's been a few years since you've purchased a home, I will go over the changes in financing rules. If this is your first home, I will go over it step by step to make sure you understand the process from start to finish.