Becoming a homeowner is an exciting time but is also one that takes preparation, communication and lots of decision-making. Today, we are breaking down the often overwhelming world of the first few steps of homeownership into a 5 Step Guide to Homeownership for Rookies. We hope these 5 steps will guide you in creating a solid foundation to build your home-buying experience on! #punintended #sorrynotsorry
1. Weigh the Pros & Cons
Are you ready to be married to a mortgage for possibly the next 30 years? Have you decided that it’s finally time for you to have the freedom to paint your walls whatever color you want without the approval of that dang landlord? Can you afford a down payment? We hate to sound like nagging moms over here, but there’s a lot of pros & cons that go into both buying and renting and figuring out what path is right for YOU is the first step.
This helpful guide may help you navigate this hairy process, but the bottom line is…. you have to do what is right for YOU. Involve all key stakeholders and sit down and have a conversation, possibly make a list, and truly figure out what decision is right for you. After you do in fact decide that homeownership is the answer, move on to step #2 (maybe celebrating the first step with a drink of choice and a celebratory cheers!).
If you decide renting is the answer (still enjoy a cheers!), and check out these tips to help you decorate a rental like a rockstar!
2. Get Pre-Approved
So you have decided you’re ready to buy, but now your bank has to decide that you’re ready to buy (say whaaat?!). You’ll need to gather a few documents for the mortgage lender.
- 2 most recent paystubs
- Last 2 years of Tax Returns
- Last 2 years of W2’s
The bank will run a credit check on you and eventually give you the magic number printed on very official letterhead. This paper may not seem like much, but it is THE paper you will need to provide your real estate agent and potential seller to get the home buying party started. This paper will outline how much money the bank is willing to lend you AKA what type of home you can afford. Take this paper and run, don’t walk, to step #3.
3. Identify a Realistic Budget
So the bank says they’ll give you “x” amount but you want to sit back down with all stakeholders (spouse, parents, rich uncle) and evaluate how much you truly want to spend on a house. Just because the bank is willing to lend you this money, doesn’t mean you have to take all of it. But hey, maybe you do want to take all of it.
It’s important that you figure out expenses at all different price points to figure out what your actual budget for a house truly is. Don’t just ask, “How much will this cost me per month?” Yes, it is important to know your total monthly cost (with taxes and homeowners insurance), but also run the numbers on the total you’ll pay for the house WITH interest by the end of the loan. If you can afford it, a shorter loan of 15 years could save you a bunch of money in the long run. For example, that $250,00 house will actually cost you $430,000 on a 30 year loan vs. $327,000 on a 15 year loan. Save more than $100k!
When you have a window of price-points, your search will become more specific and hopefully, a little less overwhelming down the road. Once you have YOUR magic number, yup… you guessed it, onto step #4 you go.
4. Find a Real Estate Agent
A real estate agent is key in helping you find the house of your dreams. Finding an agent that understands YOU, your style, your must-haves, and must-nots will make the process of finding that diamond in the ruff more efficient and effective. Ask around to friends, co-workers, neighbors and see if they have had luck with a real estate agent in the past. Hopefully this networking will assist in finding a realtor that works for you. (These tips may help too!)
Once you decide on the realtor, talk to him/her about your realistic budget, your style, your neighbor needs, and everything else you hope for. Once he or she knows what you’re looking for, it’s time to team up and head to step #5 …. (finally!!).
5. Shop Around
YAY! It’s time to finally shop around and look for your new home. This process is similar to dating. There are lots of ups and downs– some waiting by the phone and being let down, some homes you fall for just to find out they’re already under contract, some that are disgusting and a total waste of time… it’s an emotional roller coaster! But hopefully after kissing a lot of frogs, you find your prince charming aka the house of your dreams.
Stay tuned for the next steps to homeownership to help you land the house of your dreams. In the meantime, happy house hunting future homeowners!