So you're finally ready to get serious and buy a house -- chalk it up to the amazing spring weather, or maybe a precious bun baking in the oven, or that much anticipated promotion at work. Whatever the reason, you feel primed to start poring over listings and spending your weekends open-house hopping. Exciting!
Yet while you might feel prepared for this next giant step, just remember -- there's a lot of planning and prep work that goes into this purchase, even before you start to look at homes. So make sure you've got all your mallards in a row first! Use this checklist to figure out if there are any things you may have missed.
1. Crunch your numbers
First, ask yourself not if you're ready emotionally -- because it sounds like you are -- but ready financially, says Kristen Robinson, senior vice president at Fidelity Investments. A perfect place to start is at our Home Affordability Calculator, where you can punch in your income, desired location, and other factors to see if your expectations jibe with reality. Good luck!
2. Know your credit score
Your mortgage's interest rate -- and, as a result, the size of your monthly payments -- will be directly related to your credit or FICO score, essentially a summary of how reliably you've been paying off your debts.
"If you've had too many problems or late payments leading up to the purchase of a home, your score could be lower, and you might get a higher mortgage rate," says Ali Vafai, president of The Money Source, a national lender and servicer. Many major lenders require a score of at least 620 for a mortgage, but if you find out you're below that or want to boost your score, now is the time to get started, since it can take months to take effect.
3. Amass a down payment
Most mortgage lenders require a cash down payment of 5% to 20% of the price of a home. For the U.S. median home price of $292,700, that's anywhere from $14,635 to $58,540. If you don't have this kind of cash lying around, it's high time to start a saving goal for the next few months. You can start by putting off buying any big-ticket items, fancy vacations or other extravagances. This is a new home we're talking about, remember? You can also explore other ways to come up with a down payment fast -- like borrowing from your IRA or even getting a gift from your parents (lucky you).
4. Get educated
The most important aspect of purchasing a home? Understanding the nuts and bolts of how it works. Consider taking advantage of local home-buying seminars, often offered by banks or nonprofits. Such resources will explain aspects of a home loan, like the criteria lenders use to evaluate a borrower, the documentation buyers will need to provide and what each portion of a mortgage payment goes toward. Even better: these seminars are usually free.
5. Interview at least three real estate agents
Just about everyone knows a real estate agent or five, which explains why 52% of home buyers find their agent through a friend. But don't just settle for the first agent to cross your path -- remember, a house is a huge purchase, the stakes are high. In the same way you'd want to thoroughly vet a surgeon before upcoming surgery, make sure to do the same here, too. Here are some questions to ask a real estate agent before deciding which one is right for you.
A real estate agent can also help in the education department, according to Christine Lutz, director of residential brokerage for Chicago-based Kinzie Real Estate Group. "An agent will often have relationships with lenders that buyers can work with to determine a budget and down payment percentage and get pre-approved for a mortgage."
6. Go mortgage shopping
In the same way you wouldn't buy the first house you set foot in, you shouldn't commit to the very first mortgage you meet, either.
"Mortgages are not one-size-fits-all," says Scott Haymore, head of mortgage pricing and secondary markets at TD Bank. He advises buyers to find a lender they trust and to discuss their financial situation. A lender will then help buyers "understand what financing options are available."
7. Ballpark your closing costs
Buyers sometimes forget, amid their scramble to make a down payment and monthly mortgage fees, that that's not everything they need to pay for. Another sizable chunk are closing costs, and they're no small chunk of change, ranging from 3% to 6% of the purchase price thanks to taxes, transfer fees, and other expenses. So, make sure to budget for this expense too, just so you aren't blindsided come closing time.
8. Ponder the future
Home buyers sometimes think of the purchase "inside a vacuum," says Jeremy Hallett, CEO of Quotacy.com. That's why he advises "making sure you have a will in place. Buyers should also consider a term life policy that runs at least 20 years and would pay off the home if something tragic happened -- $20 a month buys a $500,000 policy."
Robinson adds that before buying a home, you should have "an emergency fund established with enough money to cover three to six months of living in case you're faced with an unexpected financial hardship. Considering your retirement savings is also important; you should continue making contributions towards your future."
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