Buying A Home Home Loans

9 Steps for Preparing to Buy a Home

There’s a formula — actually several of them. The most basic suggests that your mortgage should be 2.5% or less of your gross income.

Another one is based on what the principal, interest, taxes and insurance combined will be; that total should not exceed 28% of your gross income.

With your mortgage and other debts (credit cards, etc.), your payments should not exceed 36% of your gross income.

Multiple mortgage calculators are available online. Use one that explains how it is calculating the number.

When considering how much you can afford before you buy a home, begin to consider how much you need. Take into account your lifestyle and personality. Do you travel a lot and are never home? Will you need a yard you can dig up? Do you always dine out? Do you expect a barrage of visitors? Will your family be growing?

Answers to questions such as these will help you determine what you need in a house and therefore how much you should spend. This is a long-term commitment and your life will change.

7. Shop for loans and get preapproved

Multiple types of mortgage loans are available, and rates can vary from lender to lender. Check the conditions and requirements of loan packages. FHA loans require less money down and have stricter requirements on home inspections.

Know whether you are getting numbers pertaining to a fixed-rate, adjustable rate, with points or not, with a balloon payment or not, or any of the other possibilities available.

After you decide, get preapproved, not just prequalified. Getting preapproval lets you know if you and the bank are on the same page regarding the potential amount, your credit report, and the interest-rate range.

Some sellers won’t negotiate with potential buyers who aren’t preapproved. Having that preapproval in your hand when you’re making an offer could be the difference in you winning a bid in a tight market.

8. Find a real estate agent

Don’t forego your own real estate agent just because everything seems available online. Get yourself a buyer’s agent who will take you from searching to closing so you can buy a home you want to live in.

Clarify with your potential agent that you want someone who is working exclusively for you, not a seller as well. While the seller’s agent is trying to get the best deal for the seller, which gets him/her a better commission, the buyer’s agent will watch out for you.

Many will seek houses that may not be traditionally listed but fit your needs, check neighborhoods that fit your needs and recent homes sold in those neighborhoods. And they will write offers and negotiate for you to avoid contractual surprises. By the way, this doesn’t cost you extra; buyer’s agents get paid via the seller and seller’s agent.

9. Get an inspection before you buy a home

Don’t let liking a house stop you from getting a home inspection before you sign all those papers and buy a home.

Houses hide secrets. Let an inspector try to ferret those out to save you money possibly right away — it could lower purchasing price. Or, it could cost you down the road — how much life is left in the roof or are there foundation issues?

Homebuyers, what have you learned from your big, life-changing purchase?

About the author

Aaron Crowe

Aaron Crowe

Aaron Crowe is a freelance journalist in the Bay Area who specializes in personal finance. He has been a writer and editor at newspapers and websites, including AOL's personal finance site WalletPop.com, WiseBread, Bankrate, LearnVest, AARP and other sites. Follow him on Twitter at @aaroncrowe, or at his website, www.AaronCrowe.net.

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