Owning your own home can be great, and the more prepared you are, the better it can be. Here are six simple steps on the path to home-sweet-home:
1. Six months to a year out: clean up your credit. To get the best possible rate on your mortgage, you need to get your credit score squeaky clean. You can access your credit history for free once a year at annualreport.com, so do that, check it carefully for errors and dispute any you find with the reporting agency. You'll have to pay to get your credit score; read the fine print. Be careful you don't accidentally sign up for subscription credit monitoring you don't want.
2. Six months to a year out: Gather up your down payment and put it somewhere safe and interest-accruing like a certificate or money market account. Isolate it from your regular accounts so it doesn't get whittled away. If you can put down 20% of the purchase price, you'll avoid private mortgage insurance (PMI).
3. Three to six months out: Establish a family budget. Start tracking your monthly expenses so you know how big a payment you can really afford. Be realistic and take into consideration that if your dishwasher leaks, it's going to be your problem, not your landlord's. It can be tough to establish an emergency fund when you're trying to save for a down payment, but you don't want to resort to high-interest-rate credit cards in a crisis.
4. Three months out: find a real estate agent. Find someone who will listen to you and respect your needs. It's no fun being shown homes you can't afford. Find an agent who knows the territory and takes the time to be sure you understand everything. Referrals from friends are a good place to start. Interview prospects the way you'd interview someone for a job: how long have you been an agent? Have you ever had complaints from clients? Can I get references?
5. Three months out: Find a lender who won't pressure you into an unmanageable mortgage. There are a lot of options: fixed-rate, adjustable-rate, interest-only, 30-year, 15-year, etc., so know your priorities. Do you plan to stay in your new home for many years? Then a 30-year fixed might be best. Do you plan to stay only a few years, then sell? Then perhaps an adjustable is better. You want a lender who will discuss the pros and cons of all your options.
6. Two to three months out: Find the right home for you! Remember, it isn't just the home you're committing to: it's the neighborhood, the local schools, the work commute, the resale value. This home might suit your needs for now, but is there room for a growing family, the dog you want, a garden?
Owning a home is a big deal, but you don't have to go it alone. Find expert help, ask questions, and welcome home!