10 Ways to Prepare for Homeownership
1. Decide
what you can afford. Generally, you can afford a home equal in value
to between two and three times your gross income.
2. Develop your home wish list. Then, prioritize the features
on your list.
3. Select where you want to live. Compile a list of three or
four neighborhoods you'd like to live in, taking into account items
such as schools, recreational facilities, area expansion plans, and
safety.
4. Start saving. Do you have enough money saved to qualify for
a mortgage and cover your down payment? Ideally, you should have
20 percent of the purchase price saved as a down payment. Also, don't
forget to factor in closing costs. Closing costs - including taxes,
attorney's fee, and transfer fees - average between 2 and 7 percent
of the home price.
5. Get your credit in order. Obtain a copy of your credit report
to make sure it is accurate and to correct any errors immediately. A
credit report provides a history of your credit, bad debts, and any
late payments.
6. Determine your mortgage qualifications. How large of mortgage
do you qualify for? Also, explore different loan options - such as
30-year or 15-year fixed mortgages or ARMs - and decide what's best
for you.
7. Get preapproved. Organize all the documentation a lender will
need to preapprove you for a loan. You might need W-2 forms, copies
of at least one pay stub, account numbers, and copies of two to four
months of bank or credit union statements.
8. Weigh other sources of help with a down payment. Do you qualify for any special mortgage or down payment assistance programs? Check with your state and local government on down payment assistance programs for first-time buyers. Or, if you have an IRA account, you can use the money you've saved to buy your fist home without paying a penalty for early withdrawal.
9. Calculate the costs of homeownership.
This should include property taxes, insurance, maintenance and utilities,
and association fees, if applicable.
10. Contact a REALTOR®. Find an experienced REALTOR® who can
help guide you through the process.
