10 Steps to Financing Your Dream Home
1. Get Your Finances In Order
Whether you’ve got house envy or just want to start building equity instead of renting, the first time you think about becoming a homeowner is the moment you should start financial planning.
While it may be tempting to begin looking at homes for sale, you need to be financially prepared so you don’t fall into the trap of identifying your perfect home—and then realizing you can’t afford to buy it.
Casual visits to open houses or random Internet searches are fine to see what homes cost where you want to live, but you will need to start working on your finances, too.
The most important elements of the financial planning you need to put in place before buying a home are developing a budget and starting to save.
2. Crunch Your Cash Numbers
To start the home buying process, you need to establish a pattern of fiscal responsibility and develop a budget—and you also need to figure out where you will get the cash you need to move from renter to owner.
While you may be hoping to find a zero down-payment loan and a seller who is willing to pay your closing costs, the reality is that most consumers need at least some cash to buy a house.
3. Check Your Credit
(and Repair if Needed)
Easy loans for bad credit borrowers were common amid the housing boom in the early 2000s, but they’re now rare.
If you’re interested in buying a home nowadays, lenders will carefully check your credit and rarely will approve a loan for someone with bad credit.
For that reason, it’s important to check your credit report and your credit score.
Many consumers are surprised by their credit score and many find errors on their credit reports. Carefully review your credit report and focus in particular on negative items to see if there are ways you can address them and improve your credit profile and your access to a mortgage.
4. Know Your Purchasing Power With a Pre-Approval
There’s nothing more frustrating than falling in love with a home and then discovering you can’t afford to buy it.
Consulting with a mortgage lender is the first step you should undertake in the home buying process. Almost all first-time buyers need a mortgage to finance their home purchase, so get prepared before you look.
When you’re armed with the knowledge of what you can afford, it focuses your search and allows you to make a move when you find a home you love.
5. Understand Your Monthly Mortgage Payment
As a renter, you are used to sending your landlord a monthly payment, which sometimes even includes your utility payments.
Once you become a homeowner, your monthly mortgage payment becomes more complicated.
Here's an excellent Loan Calculator that also shows your Amortization Schedule
6. Learn About Your Loan Options
When you need help understanding the various ways you can finance a home, your lender will be the best resource.
But it’s still wise to have an overview of the types of home loans available and how they might fit in with your particular financial plan and your tolerance for risk.
7. Make a Fair Offer
Home-buying is one part love, one part legal transaction, and starts with a proposal. When you’re ready to buy a home, making an offer is important: oral promises are not legally enforceable in real estate sales.
8. Secure a Home Loan
Once you’ve made an offer for a home and the sellers have accepted it, you may feel you can relax and just get ready to pack up and move.
However, until you get to the settlement date and have the keys to your new home in hand, you will need to stay vigilant about finances and keep in close communication with your real estate agent, the title company and—most of all—your lender: your home loan may still need attention.
9. Get Insured
No sensible car owner would drive without insurance, so it figures that no homeowner should be without insurance, either. The essential idea behind various forms of real estate insurance is to protect owners in the event of catastrophe. If something goes wrong, insurance can be the bargain of a lifetime.
10. Enter Escrow
Once your offer on a home has been accepted, your inspections are complete, and your financing is in order, you’ll likely breathe a sigh of relief and get focused on packing for the move. But before you’re handed the keys to your new home, you’ll need to attend the settlement or closing. The more you understand about the closing process, the easier it should be.