Ten Ways to Prepare for Home Ownership
- Decide what you can afford.
Generally, you can afford a home
equal in value to between two and three times your gross income.
- Develop your home wish list. Then, prioritize the features on your list. The better prepared you are to find what you want, the less pressure you'll feel during the process. Consider all the qualities that are ideal to your dream house: size, location, amenities, school systems, style, etc.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- Calculate the costs of homeownership. This should include property taxes, insurance,
maintenance and utilities, and association fees, if applicable.
- Contact a realtor. Find an experienced realtor who can
help guide you through the process.