Questions To Ask Yourself Before Buying A Home
Owning a home is a big part of the American dream, right up there with raising a family and finding a steady, rewarding job. In recent years, home ownership levels have risen to record heights in the U.S., but these days, the unfolding foreclosure crisis and the resulting credit crunch seem likely to drive those numbers down. The current situation also raises questions about whether now is the right time to purchase a home. After all, a home is typically the most expensive single purchase an average consumer will ever make, so you need to do your homework to determine whether purchasing a home will indeed work for you. Knowing a few home-buying tips can help you make the right decision.
Let's start this mini home-buying guide with a few questions you need to ask before buying a home:
Can I afford buying a home? This, of course, is the first question you should answer. And if yes, how much can I afford? The general rule of thumb for figuring out your price range is to multiply your annual income by 2.5. This provides you with a reliable measuring stick and can help you narrow down the range of options to homes you can afford.
Is my credit rating strong? You can determine this by checking your credit report and score, which is practically a mandatory step anyway if, like the vast majority of home buyers, you're going to need a mortgage to finance your home purchase. Also if your credit rating is less than perfect, it is a virtual guarantee that getting a home loan will be more difficult.
Lenders use your credit score as a major factor in determining whether you qualify for a mortgage and, if so, at what interest rate. You should therefore know your credit score before you apply for a mortgage — indeed, before you start looking for a home. If you have a good credit score (generally speaking, at least 700 points; the higher, the better, of course), you may be in a good position to proceed with your home-buying efforts. If your credit score is poor, be sure to check your credit report to make sure the information in it is accurate. If it's not accurate, you can dispute the errors. If it is accurate, you should probably try to improve your credit history; buying a home with bad credit will be very expensive, if it can be done at all.
Do I plan to live in the new house for several years? Beyond the actual purchase price of the home, there are a number of additional costs associated with real estate transactions — closing costs, inspection fees and the like. If you buy and sell homes frequently, these costs will add up, cutting into whatever profit you might hope to realize or, worse, costing you money in the end. Real estate is a long-term investment, unless you "flip houses," so finding a home you can stay in for at least a few years is just as important as finding a home you can afford at the moment.
Once you've addressed the preliminary financial questions, you can start focusing on the nitty-gritty details of finding and buying a home, such as:
Location, location, location. Your ideal location depends on your specific needs and interests, so be sure to factor family and life concerns into your search. Are there good schools in the area? How long is your commute to work? How far away are your shopping needs, highways, hospitals, parks, emergency services, and the other incidentals in your life? What are the neighbors like? Could a heavy storm leave you stranded without power for a few days? You'll undoubtedly have a lot of other questions; just make sure you get the answers you want before you make a bid on a house.
Getting pre-qualified and pre-approved for home loan. If you know you're ready and able to buy a home, take some time to find a mortgage specialist. Getting pre-qualified is a simple step that confirms how much you can afford to spend on a new home. Getting pre-approved for a mortgage is a more involved process, and it may not be available if you're planning on buying a home with bad credit, but the sooner you get that approval, the quicker you can place a bid on a home.
Professional help. While some folks prefer to go it alone, most buyers, particularly first-time home buyers, should consider finding a real estate agent who can help with the ins and outs of the real estate market. While this can add to the overall cost of buying a home, it's usually money well-spent. Experienced agents can help you avoid common pitfalls while walking you through the home-buying process, and they often have insider insights into newly listed (and/or perennially listed) properties. They can also help you determine an appropriate opening bid to make on a house you like, as well as counter-offers in response to the seller's offers.
In the residential real estate industry these days, it's a buyer's market, due to the rise in foreclosures and the resulting glut of homes for sale. If you have your finances in order, you may be able to purchase that dream house you've always wanted. The trick is to make sure your finances are indeed in order, both short-term and over the long haul — and to ensure that the house you've found is in fact the house you want.