For those considering home ownership for the first time, it may seem as if there’s a long list of details to tackle once the search begins. However, before potential buyers even start looking at homes, there are three important steps to take.
- Financial Checklist
The first step is to get your finances in order. Check your credit rating and get pre-approved for a loan. A good credit rating is key to securing a mortgage at the best rate possible.
Starting at least a year (or even two) before you plan to buy will give you a chance to pay down or eliminate any credit card debt or other debt that may affect a potential mortgage.
What you don’t want to do when planning to buy a home is make another major purchase that involves a loan.
“If you buy a new car before you buy a house, your debt-to-income ratio may be too high. So, if you are thinking about buying a house in the next year or so, hold off on doing any other major purchases so your credit rating is as high as possible. Then, after buying the house, you can buy the car and you can buy the nice furniture,” says Angela Walters, a REALTOR® with EXP Realty and chair-elect of the Greater Milwaukee Association of REALTORS board of directors.
- Lender Conversation
“I would suggest that a first-time buyer talk with a lender,” says Walters. “Sometimes buyers assume they cannot qualify, but they might be pleasantly surprised when they talk to a lender. I encourage people to reach out to a lender whether they think they’re ready or not because an early conversation can help them do the right things. If you apply a year early and find out you’re not ready, at least you’ll know more specifically what you need to do. You might need to pay down or pay off certain debts to improve your debt-to-income ratio. You can also get advice on whether consolidating debt would be a good or bad thing or whether to hire a credit repair company.”
Once you have an idea of how much house you can afford, do some thorough research on the recurring expenses that come (and keep coming) before and after you’ve made your first mortgage payment. Make sure you know what you’ll be paying for closing costs, moving, insurance, taxes, utilities, repairs, upkeep, and even potential changes to your commute.
- REALTOR® Connection
The third step is establishing a relationship with a Realtor. A Realtor can help with the first two steps and more, so it’s a good idea to find one before you’re ready to start shopping for a home.
When looking for a professional, it’s important to know the difference between an agent and a Realtor. A Realtor is a member of the National Association of REALTORS, is committed to a Code of Ethics and has the expertise to find the right home for you. Look for the “R” to determine if your agent is a REALTOR.
“It’s never too early to make a connection and let your Realtor know what you’re interested in,” Walters says. “We have systems in place to help us stay in touch with people and nurture them until they’re at the point where they’re ready to purchase. Just be upfront that you’re not quite ready yet.”
But you may be ready sooner than you think, so being strategic in your planning is important.
“Someone may be looking at houses we’re sending them and, all of a sudden, they see their dream home. Even though they wanted to wait until next year, this perfect house has popped up and they want to jump on it,” Walters explains.
Having your finances organized, a budget in place and a Realtor partnership can help make your dream home a reality.