Credit: Shutterstock photoA few things are cornerstones in the old American dream: marriage, a successful career, a family and a home. Yet, to most of Gen Xers and millennials one of those characteristics seems farfetched. Guess which one?
Homeownership is one of the top priorities among many young professionals and single families. As the average age of the first-time homebuyer has increased to 33 years old, it is safe to say that a little guidance in the planning stages could potentially help expedite the process.
To assist you, we have created a list of 10 things that can help you plan for your first home:
1. Assess Where You Are
Home-buying is a goal for almost everyone, but it is wise to assess where you are. By doing this, not only will you be able to project how long it will take you to save and invest for your home, you’ll also be able to improve in other metrics needed to complete home-buying process. The last thing you want to do is force a purchase that you are not ready for. Plan for it, then execute your plan. (For related reading, see: Are You Ready to Buy a House?)
2. Consider Debts and Your Credit Score
Buying property is a huge responsibility. Consider how much debt you have and how much you can afford to spend on a mortgage while maintaining a healthy emergency fund. Your credit score will be one of the key factors in determining your mortgage interest rate. The higher your credit, the more advantageous your interest rate should be. Be sure to check your credit score and identify areas where you can improve it.
3. Save Rigorously
Make no mistake about it, buying a home is no small feat. You will have to pay a down payment and potentially for closing costs on your future residence. If you are not getting any assistance, you’ll have to save early and often. This may require more than a savings account. Consider opening an individual retirement account and taxable investment account to help you earn additional interest on your money. Keep in mind that by tweaking your lifestyle just slightly, you may be able to save additional dollars for your home buying goals.
4. Be Specific About What You Want in a Home
What does your dream home look like? Do you have that picture in your mind? Did you include all of your non-negotiable characteristics? Good. Now, can you afford it? If you don’t know, use a home affordability calculator to determine what’s within your current price range.
5. Organize Your Documents
Be prepared to illustrate your entire financial life when buying a home. Lenders will at minimum ask for your most recent pay stubs, W-2s for the last two years, your tax returns, and bank statements for the most recent two months. In some cases, they may ask for the statements from your investment accounts.
6. Get Pre-Approved
If you’re serious about buying a home, the best way to show it is by having a pre-approval letter. Most people skip this step. It is important to not confuse this for a pre-qualification letter. A pre-qualification is when a lender takes your information and determines how much they could lend to you – no guarantees. With a pre-approval letter, the lender then verifies exactly how much they will lend to you. With this approval, you’d be able to match your dream home with the size of your wallet. (For related reading, see: 5 Things You Need to Be Pre-Approved for a Mortgage.)
7. Find a Trustworthy Realtor
Find a realtor who you can work well with, understands your needs and is familiar with the region where you are looking to buy. Picking the right one could save you thousands of dollars.
8. Research Down Payment Options
While saving rigorously will help you prepare for a down payment, it is important to understand your options. First-time buyer programs allow down payments as low as 3%. Research your options and if your home of choice is eligible for one of these programs.
9. Research Mortgage Options
There are a few different options for your mortgage. It all boils down to how much you can afford. Fixed-rate mortgages are the most traditional and most common type of mortgage loans, but the best option for you may vary depending on your circumstances. You should use a mortgage calculator to determine what you can afford.
10. Go to Open Houses
This is the grueling, but fun part. During this process, you’ll get the chance to fall in and out of love with houses only to get to the home that you can’t live without. Be sure to go to as many homes as necessary to get a feel for neighborhoods, asking prices and to measure your imagination against the reality of the real estate market.
Your first home will be one of your proudest financial accomplishments. Be sure to have a strategy, budget and financial professionals to help you navigate the process. (For related reading, see: First-Time Homebuyer's Guide.)
This article was originally published on Investopedia.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
