Preparing for Home Ownership

The decision to purchase your first home may seem like an easy one, but the process can be daunting. To get started, you need to actually prepare for the process to be successful. As I prepare to purchase my second home, I am reminded of the good advice I received eight years ago when I was a first time home buyer.

Preparing for Home Ownership Tip #1: Pay down your debt.

Before you take on a huge debt, known as a mortgage, on a new home, you need to get a handle on your current debt. If you’re swimming in credit card bills, work to pay them down before even considering taking on more financial responsibilities. Having some debt is good for your credit, but you don’t want your debt to income ratio to scare the mortgage lenders away from loaning the money you will need for your first home.

Preparing for Home Ownership Tip #2: Check your credit score

Your credit score is a number that reflects your past ability to deal with bill payments, outstanding debt, number of credit card applications you’ve submitted and current available credit. How much “open credit”, or possible debt, do you have? If you have several credit cards activated, but never use them, it could damage your credit score simply by having too much “available credit” that could become debt. There are three national credit companies that can calculate your credit score; Experian, Equifax and TransUnion. Mortgage lenders look at this score to help decide if they can trust you with such a huge amount of money. Closing out unused credit cards, paying bills on time and lowering your current debt will make your credit score increase.

Preparing for Home Ownership Tip #3: Don’t make any large purchases

While house shopping, don’t get carried away and purchase a new car, or boat for your future driveway. Newly acquired debt is frowned upon by lenders. Since it is a new purchase, you haven’t been able to show consistent payments on that purchase. Without showing the ability to make steady payments, lenders are wary of giving you the money you’ll need for your first home.

Preparing for Home Ownership Tip #4: Pad your bank account

When you apply for a pre-approval from a mortgage lending agent, you will fill out an application with many financial details, including your current bank account balances. Before you get to this point, you need to pad your bank account with the money you plan to use for earnest money when you make an offer on a house, and possibly the money you plan to use for a down payment. If you can’t show the bank that you have money to get started, they are likely to wonder how you’ll keep up on the mortgage payments and home maintenance.

Preparing for Home Ownership Tip #5: Get a pre-approval

Once your bank account is secure, and your debt is under control, go to a bank or mortgage broker and get a pre-approval. This is essentially a good faith estimate of how much money a lender is willing to loan to you based on your finances and credit score. You will now know how much house you can afford, and can shop accordingly. A pre-approval is only good for a set period of time, usually 4-5 months. Most realtors only want to deal with buyers who have taken this step, because it shows their genuine interest in buying, rather than just shopping the market.

Preparing for Home Ownership Tip #6: Find a realtor

Now that you’re ready to start looking at houses, you will need to find a good realtor to help you along the way. Talk to friends and family to see what companies they have used. Some realtors do real estate sales as a full time job, others dabble in it as a hobby. Be sure your realtor is ready to help you find the perfect home. Ask him or her what neighborhoods they tend to work with, and see if it matches your needs. Be sure they are willing to work with a lower dollar amount sale since it is your first home. Some realtors will only deal with high end property, and will not want to work very hard for you.

Preparing for Home Ownership Tip #7: Shop the market

Before setting for the first home with a pretty yard and good price tag, be sure you have shopped the whole market. Is the location close to work? Is the home in a good school district for your current, or future, children? Is the home located close to amenities that you use often such as parks, walking trails or shopping centers? It is easy to fall in love with the first few homes you see, because you’re loving the idea of your first home, not necessarily the actual property itself. Look at the broad picture and make sure all aspects of the area are right for your needs.

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