Buying a home together is likely to be one of the most important and expensive things you'll ever do. If you’re thinking about buying in the near future, or even if you aren’t quite there yet but hope to be eventually, a little planning can go a long way. And it’s never too early to start saving for a down payment. Here's a checklist of the major factors in the homebuying process to help you find that home sweet home of your very own.
Check Your Credit
The first thing you should do when you start thinking about buying a home is check your credit. Order a copy of your credit report, with credit score included, from one of the three major credit rating agencies. An excellent credit score is 760 or above, and you’ll need that in the current lending climate to get the best interest rate on a mortgage. If you or your significant other needs to improve your score, pay down your credit cards as much as possible, be sure to pay your bills on time and avoid opening any new lines of credit or closing accounts.
Check Out the Schools
If you’re thinking about having kids, or even if you’re not -- you may change your mind later -- check out the schools. Remember that many school districts have several elementary schools that feed into a middle school and high school, so pay attention to which elementary school is zoned for a particular house – it’s not always the closest one. Pay attention to test scores, but don’t stop there. Tour the schools if you can, or at least drive by and have a look around. Talk to local real estate agents, who frequently have children who have attended the local schools.
Going to open houses is a great way to become familiar with a town and a neighborhood, and it’s great fun besides. You can also get an idea of whether you can afford the type of house you want in a particular location. Spring is prime open house season, but in most places, you can find open houses all year long. Aim to visit several houses each weekend until you start to narrow in on an area you’re serious about. Pay attention to the property taxes for each house as well as the listing price. Taxes can be a significant part of your monthly mortgage payment.
Get Preapproved for a Mortgage
Preapproval from a lender shows sellers that you’re serious, and it helps you figure out just how much house you can afford. There’s no obligation for you to actually take the mortgage. The lender will require documentation of your income, assets and debts as well as a credit check. For a joint application, the lender will consider only the lower credit score in making a decision about the terms of the loan. Lenders like to see significant assets and steady employment of two years in the same job, or at least the same line of work, so try to avoid changing jobs before applying for a mortgage. Preapprovals are usually good for about two months.
Find an Agent
By now, you should have a good idea where you’d like to buy, what you can afford and what kind of houses you like. Although you don’t absolutely need a real estate agent, a good buyer’s agent can help you narrow down your search, show you properties that aren’t having open houses and help you negotiate. The seller is responsible for paying the real estate agent fees. Usually the seller’s agent will collect a commission, typically a percentage of the final sales price, which she'll split with the buyer’s agent.
Make an Offer
In a buyer’s market like the one we’re currently in, sellers expect an offer below the listing price. You should research comparable sales figures in the neighborhood to find out how much similar houses have been selling for, as well as how much below list price final sales tend to be. Don’t make a lowball offer just because you think you can – you may wind up insulting the sellers and blowing the deal. Be prepared to negotiate, but don’t get into a bidding war or get so attached to one particular house that you wind up paying more than you wanted to. Have alternatives if your first choice doesn’t work out.
Secure a Loan
You can go with the mortgage lender that handled your preapproval, but you don’t have to. Shop around for the best interest rate and terms. If your credit score, assets or debt-to-income ratio are not as attractive as they could be, you may have to pay a higher interest rate, and to avoid private mortgage insurance, you’ll need a down payment of at least 20 percent. The lender will order an appraisal of the house to determine its market value in the opinion of a licensed, independent professional. This protects the lender from approving a mortgage for more than a property is worth, and it protects the buyer from overpaying.
Hire an Inspector
Once the seller has accepted your offer and you have a signed contract, you should have the house inspected for any damage. Hire a professional, independent home inspector who’s not working with any of the real estate agents involved in the transaction. The inspector will look at the structure of the house, including walls, ceilings, foundation and roof, as well as plumbing, electrical wiring, heating and air conditioning. If he finds any problems, get an estimate of the repair costs. You can request that the owners fix the problems, or you can renegotiate the purchase price based on how much you’ll have to spend to have the repairs done yourself.
Close the Deal
At this point, you’ll need a good real estate lawyer to help you navigate all the details of closing the transaction. You want to make sure the house has a clean title and obtain title insurance and homeowner’s insurance. You’ll also have a number of fees to pay, so don’t forget your checkbook. Closing costs include title service costs, inspection and appraisal fees, attorney fees, mortgage application fees, prepaid property insurance and a portion of the annual property taxes. These costs can really add up, usually to about 2 percent to 4 percent of the amount of the loan.
Julianne Slovak is a writer and editor based in New York City. She specializes in business and financial topics and consults for several financial services firms. Slovak has also worked for Time Inc. and CNN. She holds a bachelor's degree in English literature and master's degrees in English and Management.