Whether you’re a first-time homebuyer or a seasoned real estate investor, buying a home is an exciting process. However, there’s also a lot to consider when you decide to buy. So before you begin your search for the perfect property, here are four questions you should ask yourself.
What Do I Want?
Take the time to figure out what type of property you want to buy. From single-family and multi-family homes to condos and co-ops, there are many different options on the market and it’s important to choose the type that best fits your needs. Figuring out the town or neighborhood you want to live in is equally important. While a property might have all of the amenities you’re looking for, factors like crime rate, school ranking, and proximity to highways can impact the overall home-owning experience. A good idea is to list out and prioritize your needs (e.g. large backyard, great school system) before you begin your search.
What Can I Afford?
The rule of thumb is that you should never spend more than 30% of your monthly income on a mortgage payment. An alternate rule states that you can afford to buy a property that runs about two-and-a-half times your annual salary. For a more tailored look at what you can afford, use an online mortgage calculator to see what your monthly mortgage payments would be if you bought a home today. A simple Google search will yield a number of good options.
Am I Financially Prepared?
A few months before you start searching for a home, review your credit history and make sure it is in good standing. Get copies of your credit report, ensure that it’s accurate, and fix any issues you discover. It’s likely that you’ll also want to get pre-approved for a home loan, which will put you in a better position to make a serious offer once you find the right property. Many sellers won't even entertain offers unless accompanied by proof of funds. A pre-approval from a lender is based on your credit history, debt, and income, so making sure this is in order ahead of time can help move the process along. Of course, don’t be scared away if your credit is less than perfect or you don’t think your debt to income ratio will work. There are many different loan products available that help potential buyers with less than stellar numbers get on their feet and the path to home-ownership.
How Do I Make the Best Bid Possible?
Do your research! Your opening bid should be based on the sales trends of similar homes in the area. So before making your opening bid, get online and review the selling prices of comparable properties. This is called a CMA and something your agent will help do and explain. If these properties sold for less than the current asking price of the home you’re looking at, you can feel comfortable making a bid that’s slightly lower than what the seller is asking. Of course, the CMA is merely a guide and a number of factors can affect whether an offer might be accepted, from including or leaving out contingencies, to the down payment amount, cash offers, days on market, etc.