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Once you've decided you're ready to be a homeowner, you may want to start checking out properties and making offers right away. But buying a home is a complex process, and if you're a first-time home buyer, you have a lot to learn. Make sure you understand these basic concepts before you buy your first place.
Get your finances in order well in advance. Several months before you start home-shopping, get your credit scores and review the report to make sure everything is accurate. If your scores are low, you won't get a good interest rate on your mortgage -- if you get approved at all. The report will tell you where there may be issues, and you can work to pay down some debt or resolve any problems before you share those reports with lenders. Then, once you're in the home-buying process, don't open any new credit cards until your purchase is final.
You don't have to have 20 percent to put down, but it can help a lot. Some lenders will give you a mortgage with as little as 5 or even 3.5 percent down. But remember: If you can put down at least 20 percent, you will probably be able to avoid mortgage insurance, you may qualify for better interest rates, and you'll be that much closer to owning your home outright.
Don't shop beyond your means. Try to only look at homes that you can really afford, so you're not tempted to stretch your budget. Your mortgage payment shouldn't be more than 30 percent of your monthly take home pay. Take a look at this guide about all the costs that can come along with that mortgage; those should be included in that 30 percent. You may need to decide what features you can live without. Do you really need a pool, a fireplace, or a prestigious neighborhood? The answer may be yes, but you might need to cut another feature from your wish list to have those things.
Meet the neighbors, or at least get to know the neighborhood. The perfect floor plan, a beautiful yard, and your dream commute will make a property desirable. But the dream can turn into a nightmare if you don't get along with your neighbors. If you can, try to meet a few people in the neighborhood and find out what it's like to live there. If you'd rather not knock on doors, at least come back to take a walk around the block during the day and at night. You may discover that it's a peaceful place, or you may find out that the neighbors like to have loud parties. You may also want to check websites like CrimeReports.com to see what crimes have been reported there recently and if there are any registered sex offenders living nearby.
Consider your kids. If you have children, look into the schools in the neighborhood where you're home-shopping. Find out if the school district has flexible rules about which school you enroll your children in, or if there is a lengthy waiting list for your preferred magnet school. And whether your "kids" are your children or your pets, you'll want to consider the property itself: Is it on a busy street? Are there parks nearby? Is there a fenced yard to play in?
Don't skimp on inspections. Once your offer has been accepted, you enter a period of time called "due diligence" where it's your responsibility to find out as much as you need to about the property. You can buy a house without doing any inspections, but it's not a good idea to skip them. These go beyond the home appraisal that your lender will do. In addition to having tests done to check for mold, meth, and radon, you'll want to hire a reputable home inspector who will check everything from the roof to the foundation to make sure no significant repairs are imminent. If the inspector does find problems, you can ask the sellers to pay for the fixes or, if the defects are serious enough, you can back out of the sale as long as it's during the due diligence period. The tests and the inspection will set you back several hundred dollars, but they are worth it.
*The calculator is provided as a self-help tool for your independent use and is not intended to provide investment or financial advice. Overstock.com does not guarantee its applicability or accuracy in regards to your individual circumstances, and we encourage you to seek personalized advice from qualified professionals regarding all personal financial issues.
Published March 26, 2013
Updated February 10, 2015
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