Step 1: Spiff up your credit
Good Credit can lower your mortgage interest rates, potentially saving you hundreds of dollars a month. Order a credit report (usually free online). You can dispute any mistakes, but the most important thing is to build up good credit from here out.
Lenders want clients who can pay their bills on time and and who don't owe too much to anybody else. Automated bill-paying services help. Stop applying for credit cards just for a free t-shirt or shuffling your debt around. Consider closing some of your accounts, but that's tricky. Maxine Sweet, Vice President of public education at Experian, says lenders don't want you to owe near your limit, which can happen if you consolidate to one card. Your score can dip temporarily when you make any big changes even for the better so work on your credit long before you seek a mortgage, she says.
Step 2: Start saving for a down payment and closing costs
Home buyers traditionally had to put up a 20% downpayment. Now it's more like 5-10%. Some don't put anything down. There's nothing typcal today, says Pat Vredevoodg Combs, president-elect of the National Association of Realtors.
You'll always get a better deal if you make a downpayment. Until you paid 20% of your home, your lender will probadly want you to buy insurance on your mortgage. The buyer also has to come up with closing costs, about 1-2% of the price.
Step 3: Calculate how much house you can afford
Housing eats up more of everyones paycheck these days, but as a rule of thumb buyers spend 25-30% of their pre-tax pay on housing. That translates roughly to a mortgage of 3 to 4 times your salary. Consider your entire budget: How is your credit card bill, student loan or kids tuition? How much will your new palace cost to maintain? Will you get a big break on your taxes from the mortgage interest rate deduction?
Step 4: Shop for a mortgage
New loan offerings make it easier to buy a home, but harder to pick which mortgage is right for you. The standaard 30-year fixed rate mortgage allows predictable payments. If you're planning on moving quickly, consider an adjustable rate mortgage, which has low interest and payments for the first few years. Buyers have really low starting payments with thise who want to buy more house than they can afford. Compare terms and rates from several sources. A pre-approved mortgage will let you pounce on the right house. Your lender usually calculates your monthly expenses including principle, interest, taxes and insurances. You'll pay a monthly bill into an escrow account instead of getting clobbered by annual taxes.
Step 5: Shop for a home
Make a list of the features you want or don't want. A realtor can be a great help, so much so that some start planning here months or years before they're ready to buy. The buyer pays the sale commission, which typically runs 5-7%, split between the seller's agent, and the buyer's agent. So especially first time buyers get the service basically for free. Some also shop from people who are selling their own homes, figuring the lack of a commission means a lower price.
Some agents specialize in buyers. To put customers at ease about potential conflicts of interest, some go as far as not working at firms that take any listings. Kathleen Chiras, a spokesperson for the National Association of Exclusive Buyer Agents, says the potential for a double commission gives agents a reason to sell homes that are not neccessarily the best house for that person.
Step 6: Make an offer
How much did similar homes sell for nearby? How long has this house been on the market? (Weary sellers may be more flexible.) Your realtor can evaluate market conditions and help you make a reasonable offer.
Step 7: Sign a contract
You sign and pay a deposit that is held a neutral third party. In some states, you'll want a real estate lawyer to go over the deal. Typically buyers can back out if the home inspector finds big trouble or if they can't find financing or, or in a new twist, Combs says, homeowners insurance.
Step 7: Take a close look at your house
Make sure your contract is contingent on a home inspection for a detailed, objective evaluation of your home's infrastructure. Afterwards, negotiate with the seller over the needed repairs. Be sure the title of the house is free of any liens. Your bank will appraise your house, too.
Step 8: Show for homeowners insurance
Shop around, but your own car or life insurer will probadly give you a good package deal. As always, a higher deductible saves you money.
Step 9: Sign papers
You'll meet at a lawyer's office or title company, sign a big stack of paers and receive the keys to your new home.
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