1. Decide what you can afford. Generally, a home's sale price should not exceed 2.5 times your gross annual income or salary.
2. Develop your home wish list. Decide what you absolutely must have, and what you would like to have but can live without. Then, prioritize those features on your list.
3. Select where you want to live. Compile a list of three or four neighborhoods you’d like to live in by taking into account items such as schools, proximity to family and friends, commute time and public transportation options, recreational facilities, health care facilities, real estate values, area expansion plans, and safety (crime rates and statistics).
4. Start saving. Do you have enough money saved to qualify for a mortgage and cover your down payment? Ideally, you should have 20 percent of the purchase price saved as a down payment. But, you can buy a home with as little as 3.5% or even no money down. Also, don’t forget to factor in closing costs such as appraisal, home inspections, attorney’s fee, recording fees, homeowner's insurance prepaid for 1 year, escrow for taxes and insurance. Closing costs usually average between 2 and 5 percent of the price of the home.
5. Get your credit in order. Your credit score and credit history can affect the mortgage interest rate. Obtain a copy of your credit report at www.annualcreditreport.com to make sure it is accurate and to correct any errors immediately. A credit report provides a history of your credit including any bad debts, judgements, and late payments on credit accounts.
6. Determine your mortgage qualifications. How large of mortgage do you qualify for? Also, explore different loan options — such as 30-year or 15-year fixed mortgages or adjustable rate mortgage (ARMs) — and decide what’s best for you.
7. Get pre-approved. Organize all the documentation a lender will need to pre-approve you for a loan. You might need W-2 forms, copies of at least 2 or 3 pay stubs, account numbers, and copies of two to four months of bank or credit union statements.
8. Weigh other sources of help with a down payment. Do you qualify for any special mortgage or down payment assistance programs? Check with your state and local government on down payment assistance programs for first-time buyers. Or, if you have an IRA account, you can use the money you’ve saved to buy your fist home without paying a penalty for early withdrawal.
9. Calculate the costs of homeownership. This should include principal and interest payments of your mortgage, property taxes, homeowner's insurance premiums, private mortgage insurance premiums, maintenance and utilities, and association fees, if applicable.
10. Contact a REALTOR®. Find an experienced REALTOR® who can help guide you through the homebuying process.
East Bridgewater, MA 02333
Lew Corcoran, ASP®, IAHSP, IAHSP-CB