Thursday, September 15, 2011

First Time Buyers -- 5 things to do before calling an agent

Everyone remembers their first time...butterflies in your stomach, a million questions, thinking about your future together and wondering how long it will take before you get the keys. Actually, the path to buying a home start with a few simple steps long before you ever sign your first offer. Buying to keep up with your friends, to stop the nagging of your family to settle down or because that's what you think you should do are all the wrong reasons to buy. Buying is a commitment so you want to make sure that you are prepared before you dive in.

  • Look at your budget to see where your money is going now. Owning a home costs money every month and you also have to think about the additional costs of repairs and maintenance. Being a happy homeowner means making sure that you can comfortably afford the house you buy upfront. The best online calculator that I have found is this Suze Orman Budget Calculator. Plug in all your numbers, see how much you spend on housing cost now and then see how much you have available every month. 
  • Make a plan to save for a down payment before you start to look for a house, look at your budget to see how much you can save every month toward your down payment. While you can get a 0% down for a VA or qualifying USDA loan, an FHA loan requires a minimum down payment of 3.5% of the purchase price of the home. Dinkytown has lots of good calculators available to help you create a savings plan. Saving a little bit at a time is easy to do and you can schedule monthly transfers into your savings account automatically through a company like ING Direct for free at 5x the interest available at most brick and mortar banks. Saving automatically means you can set money aside and not be tempted to spend it until you are ready to buy.
  • Run a mortgage calculator to get a rough estimate of how much you can qualify for. Although you will need to be pre-qualified in most cases before you start to look for houses with an agent, there are lots of great mortgage calculators online to run your own ballpark numbers before that point. Dinkytown has lots of mortgage calculators, but this one on includes place for you to enter your monthly salary, debt, child support, savings etc. Then it will show you your qualifying ratios along with the amounts you can qualify for with different loan terms. Just remember that how much you can qualify for is only a guideline and may not be the same as what you can actually afford in your monthly budget.
  • Improve your credit before you buy to reduce the cost of your mortgage and to give yourself more choices when you go look for a loan. Pull a free copy of your credit report from to check for any incorrect or dated items. You can dispute incorrect items on the report, remove any account history or information that wrong or even ask companies that you still do business with to remove a past late payment from your report if your account is in good standing. Keeping your credit card balances no more than 30% of your limit to help your score and do not close old accounts or pay old collections as that could actually lower your score.
  • Consider the cost of houses in your area to check out the monthly costs. Look at all the costs of ownership including the mortgage, taxes, homeowners insurance and any HOA dues or condo fees. If this is your first house, your PITI should be something that you can afford easily every month because if you have never owned before you will need to budget a little extra every month for maintenance and repairs. You can find out how much houses are being listed for on a site like, but you also need to choose the type of area or neighborhood that you want to live in. Do your own research for that on sites like Zip Skinny and City-Data so you have some idea about what type of house and area you want and how much it will cost.
Doing those 5 things before you call an agent will help you feel more comfortable, let you focus on choosing a good agent and put you on a solid path to responsible homeownership and getting approved for a loan. There's a first time for everything. With a little planning before you buy, your first time can be great!

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