DISCLAIMER: Since this post is a little lengthy, and has some crazy important stuff, and I don’t want you to snooze off or (heaven forbid) click the “back” button, I have inserted pictures of my dogs, Wyatt, Jack and Lucy to keep things interesting. And adorable.
Depending on who you talk to, you’ll probably here things like “find a realtor!” or “go get a loan!” as responses to this ever looming question: What’s the first step in the process to owning a home?
And it makes sense. No one pulled you aside in school and said, “hey, want me to walk you through the process of homebuying?” So it’s completely normal to be unfamiliar with where to begin.
After years of housing counseling experience, I can tell you that the first step is definitely not an agent, nor a lender, nor a banker, nor choosing how many bedrooms you want (though it’s always good to think about 😉 )
Get knowledgeable – On YOU
The first step is YOU getting to know YOU. It’s a sad fact that most people don’t budget, keep track of their money or know their credit score. If you want to be a smart homebuyer, knowing your own circumstance will alleviate SO MUCH pressure and fear in the homebuying process. If you skip this step, you’ll be relying on other professionals to tell you what your situation is. Know it for yourself!
1- Check your credit score
This is a pretty simple thing to do with the numerous tools out there.
Super Quick Credit Lesson: Credit is a HISTORY of your financial life. Your score can go up, or down based on what you do in the future, but your HISTORY cannot be changed (contrary to popular belief, you rarely can remove things that happened in the past from your credit). You can, however, make better choices going forward to put yourself in a better spot.
Without boring you to death about credit, know that there are 3 major credit bureaus. I am not a credit expert, nor do I claim to be, these are just the basics. You’ve got TransUnion, Equifax and Experian. Different credit agencies report to different bureaus. That’s why your score may be different on all three.
Websites like CreditKarma* can give you a good general idea of what your credit looks like, though there may be a few variances.
When you see your credit report, pay close attention to things like late payments, liens, judgement, etc. When you talk to a lender, having an idea of what your obstacles are ahead of time will help you prepare.
*This is an unaffiliated source. I neither recommend nor encourage CreditKarma’s use specifically for credit checking. It is simply one source.
2- Mind Yo Money
Do you know much your electric bill is on average? How about your kids’ soccer practice? How about your income? Most people don’t. Most mindlessly pay their bills, and only check into the deets when they see that – or red on their bank balance.
I shudder when I am tasked with anything to do with numbers, and if you do too, I feel your pain, but this part is one of the biggest mistakes people make when it comes to home buying.
Make yourself a budget. Look back at the last 3 month’s bank statements, and figure out what you’re expenditures are. Are you currently paying $400 to rent your cousin’s spare bedroom? Do you have room in the budget to go up to a $1200 mortgage payment? Or maybe you’re paying $1600 to rent a nice 3 bedroom home, and you could buy the same thing for $1200. What would you do with the extra $400? Save it, hopefully.
Know how much you spend, and what you can afford. A lender will tell you how much you qualify for. THIS IS NOT HOW MUCH YOU CAN AFFORD. Only YOU will know that, after you make your budget.
3- Your Budget as a Homeowner
Now that you have your budget, consider how it will change when you become a homeowner. You’ll probably spend more in some arenas, and less in others.
Some things you may be likely to spend less on :
Gas – if the new place is closer to schools, work, etc.
Housing Cost – if your mortgage is lower than your rent
Deposits- no more pet or damage deposits with owning
Laundry- if your laundry is currently coin or off site, you can do your laundry right at home
Car Insurance- typically, your car insurance will be less if you’re a homeowner
Renter’s Insurance- no need for this anymore
Some things you may be likely to spend more on:
Utilities – electric, gas, water usage
Savings- a nest egg is necessary to maintain a home and prepare for any repairs
Decor & Renovations- prepare for any changes in appearance you’ll want to make to a home as a homeowner
Home Insurance- as a homeowner, you’ll need home insurance. This is part of your monthly mortgage payment each month
Property Taxes- also part of your mortgage payment, but a necessary part of the puzzle. Darn that government.
Gas- if the house is further from work, school, etc.
Special Services- if you plan to get monthly insect treatment, or lawn maintenance
Tools & Equipment- you’ll need a good tool kit for minor repairs or issues
This may sound like a lot. There’s no doubt that being a homeowner is more responsibility, but it also reaps great awards. If you do a little extra upfront work to lay out a solid foundation of knowing yourself, your money and your situation, the process will be smoother, easier and much less stressful from offer to closing.