Budget First. What do you make vs. what do you spend. Whatever home you decide on, factor in its utility costs, taxes, maintenance etc, Back these out of your budget and whatever you have leftover, you can apply towards a home payment. From that amount reduce it further for unforeseen expenses, savings etc. NOW you have a figure that can support a loan payment. Use this in determining your loan amount/purchase price. Most people will find that banks can typically lend them more than they can afford to budget. ARM loans and buy downs are great examples of this and explain a lot of the record foreclosures. For example, there was a time, and is still probably in practice today, you could go buy a $150k home for $725 a month. The builder was subsidizing the initial years. After 2-3 years your loan adjusted 2-3 points up and your taxes kicked in, plus homeowners insurance, neighborhood fees etc. So in the end your "affordable $725 home, went to $1300 over 1-2 years. Now this is an example case but demonstrates the need to understand everything about your loan and how you will budget for home ownership. This should help in determining what you can realistically spend monthly on a home payment. Next, what type of loan do you need? Do you have 20% to put down or are you trying to finance as much as possible? Are you a first time homebuyer? Are you buying new construction vs. a resale? Are you buying a repo? You have many choices in financing depending on what your buying motivations are. Before you even call anyone to get "prequalified", as suggested by some previous posters, determine your objectives and what you want to accomplish in terms of how much money you have to invest in your home, and what kind of home you are buying. A "preapproval" usually is a process of running your credit through the credit bureau and figuring out what you make, vs. what you spend, and figuring the ratio of money left over after expenses. This gives a dollar figure they say you could spend on a home and then it is reflected as a sales price. Quick math demonstrates that $6 per thousand dollars finances a 30 year loan at fixed rate of 6%. So a $100k loan = P&I of about $600. Add in taxes insurance etc., for your final loan payment. I would provide your loan officer a figure you are comfortable with for a payment and let them tell you what that equates to in a home sales price. I believe negotiating your loan is almost as important as negotiating for your home. Do you get a FHA, Conventional, VA loan? What is acceptable in points closing costs, loan charges etc.? What is the APR on my loan? What type of yield spread is factored into the loan? All these are important questions you should have a working knowledge of. Your real estate agent who is looking for your home should also have a working knowledge of them. We are not all financial wizards, but should at least be able to advise you a little better than telling you to just go get three estimates. Look for an experienced agent with financial knowledge who can explain these options. Why is this important? Anyone can negotiate the market average of 2-3% list to sales price off a home. If you lock in the right loan, you can sometimes demonstrate $50 difference a month, or more, in your payment. Thatâ€™s $600 a year. $18,000 over the life of your loan. Thatâ€™s just money you left on the table. Once you determine your budget and determine your financial objectives, then call for a preapproval. 2-3 loan agents should be able to provide that over the phone and fax/email a "good faith" estimate. Now here is where it's a good idea to ask your real estate agent which loan officers are good. Call them for your pre approval and let them know the name of the agent. You are no longer just a call from the blue shopping rates. You are a referral from a valued real estate client and will get better service as the loan officer probably receives multiple referrals from that real estate agent through the year. If they don't provide good service, they get booted from the referral list, simple as that. You get a fair comparison since you are looking at multiple quotes. Then compare your "good faith estimates". Once you have your budget, your financial objectives, and financing pre approved, Go buy a home! Pick location first, then assess condition, and then if it meets all your needs and desires, go for it! Now in reality, I don't think there is ever a perfect home. I usually see it's a mixture of compromises, which only you can decide what fits best. These are the things I think you should do first. They will provide a solid "base", if you will, in which to make future home decisions on. By focusing on these, you will address other items in their normal course.
2)Ask your REALTOR to recommend an experienced, ethical mortgage broker or two and see them as soon as possible
3)Find out your price range which will be comfortable and get pre-qualified
4)Ask your REALTOR to set you up on an automated client gateway to the Broker's Listing Cooperative (BLC aka MLS).
5)When you visit properties ask your REALTOR for the comps within the last 6 months
6)Look for what lights you up (that tells you what you're wanting in a home - a good realtor will watch for this)
7)Estimate cost per sq. ft. and do the math
8)Make an offer!
Now wasn't that easy? :-) Call me I'll help (317) 814-5385
The first step you should take in buying a home is determine what you want in the home. Make three lists: (1) What you absolutely must have; without it, you won't buy; (2) What you really want in a house; without it, you probably wouldn't buy; and (3) What you'd like in a house. Then set the third list aside. Focus on the first one, and see if you can move any of the items into List 2 or List 3.
Different people will rank their priorities differently. If you have 4 children, maybe 3 bedrooms and 2 baths is an absolute priority: List 1. Same scenario, but 4 bedrooms, 2.5 baths might be on List 2.
If you have children, maybe being in a good school district is an absolute priority: List 1. If you have no children, or they're all grown, then a good school district (if it makes your lists at all) would be List 3.
If you have one or more dogs, maybe a fenced yard or a large back yard is an absolute priority: List 1. If you don't have dogs, it's lower on the list.
Now you analyze the list. Some of the same examples as above: Good school district if you have children. OK, but do you earn enough to send your kids to private school? If so, then maybe the school district drops to List 2. Are you an advocate of home schooling? If so, again, perhaps List 2.
Fenced yard for dogs: You put that on List 1. Well, if it's not fenced, could it be? If you could fence the yard, then it's not really List 1. It'd be List 2 or List 3.
Affordability: You will not spend over $3,000 a month on PITI, even if you qualify for more, because you don't want to be "house rich, cash poor." That's List 1. But $3,000 still would be uncomfortable; you'd really like to spend no more than $2,700. That's List 2. And if you could spend less--say $2,500 a month--you'd be able to do some things you really love, like travel. That's List 3.
You go through all conceivable variables: Size of house. Condition. Location. Commute distance. Taxes. Climate. Affordability.
You should have a fairly short List 1, a longer List 2, and a longer List 3. This is your (or your family's) list of priorities.
Then you can contact a Realtor and a mortgage broker. A Realtor will help determine the price range for houses that meet the criteria on List 1. The mortgage broker will determine whether you can qualify for houses in the price range on List 1.
It makes no sense to contact a Realtor before you know what sort of house you're looking for. So, your lists of priorities must come first.
Although it makes sense to contact the mortgage broker before the Realtor, both those steps must follow the development of your priority list.
So what happens if you develop the priority list, the mortgage broker determines what mortgage you'd qualify for, and then the Realtor delivers the bad news that you can't afford the properties on your list? First, you re-examine your list to make sure that all the items on List 1 really are absolutely essential. But if you've done this exercise properly, they probably are. You seek the mortgage broker's advice on what steps you'd have to take to qualify for the home that satisfies List 1. Maybe it's paying off some debt. Maybe it's staying at your job for another 10 months. Then weigh that advice. Can you do it? Do you want to do it? If it means living on pasta for the next year, maybe you decide that you'd rather continue renting.
Or you start thinking outside the box. Now, the mortgage broker may have had some suggestions, such as a co-signer or an equity share arrangement. Good. Think even more creatively. Maybe a lease-option. Or maybe make low (some call them "low ball," but that has negative connotations) offers on properties you can afford. Search out properties not on the market that meet your critera, and make offers on those. Buy a property inexpensively from a real estate wholesaler. There are lots of ways to find houses and to buy houses.
But the first thing to do is determine your priorities. Everything else follows
After you know what your purchasing power actually is, you can start looking at what is out there. I have my buyers start with three lists. The first is must have, the second is must not have, and the third is would be nice to have. You cannot put any item on the more than one list. This will help you determine weather a fireplace is a must have or just a nice to have item. It helps to organize your priorities.
After that find a REALOTR you trust. Referrals from friends are a great way of finding a REALTOR who will have a vested interest in keeping you happy. Best of luck.
Once you have determined a price you qualify for, I encourage my buyers to make a list of items they want in a home, what they don't want and things they would like to have, but can live without. Next would be area of town you want to live in, based on a comfortable commute to and from work and your lifestyle.
There are many items to consider when purchasing a home. These are good starting points.
Let me knwo if I can assist you in finding the perfect home for you.