Buying a home takes commitment to navigate the complex purchase process. Here's a look at how to do it right and save money - possibly thousands of dollars - in the process. The first step: Plan to stay.
Short-term homeownership rarely makes sense, says Ed Conarchy, a mortgage loan originator for Cherry Creek Mortgage Co. in Gurnee, Illinois.
"When you buy a home, you should know you're going to stay for a minimum of five to seven years, and longer is better" Conarchy said. "If you try to do everything you need to do to make that house yours and then you turn around and sell it after three years, you're not going to break even and you're at risk of the market."
If you need a loan to buy the home, a real estate agent will want you to talk with a mortgage professional.
As Jay Dacey, a mortgage broker for Metropolitan Financial Mortgage Co. in Minneapolis, explains, "A good Realtor will ask you what your criteria are and set up a search through the MLS for you, but a good Realtor is also going to say, "The next step is for you to contact a mortgage professional and make sure you're preapproved."
A mortgage preapproval makes your purchase offer more credible. Even more important, when you get a preapproval the lender will tell you how much you can afford to borrow. So a mortgage preapproval is a budgeting tool that lets you know how much you can afford to spend on a home. It prevents you from overspending and narrows down the price range of houses you look at.
Timing is a crucial element in homebuyer readiness, said Amy Butterworth, an associate broker for Gibson Sotheby's International Realty in Boston.
A time frame that's too long doesn't make sense, and neither does a timetable that's too short. For example, if your lease doesn't expire for many months or you need to move within 30 days, buying a home might not be practical for you right now, Butterworth says.
The ideal situation is to be ready to buy and be able to wait, especially if sellers are fielding multiple offers.
You can't be too hesitant, Butterworth said, "and you can't only be ready and raring to go because there will be disappointments - that's just how the market is right now. You have to go into it with realistic expectations."
If you're a first-time homebuyer, you have to save for a down payment. If you own a house and you're selling it, any equity you have can be used as a down payment. Regardless, you'll need to have some savings, says Ken Pozek, a Realtor for Keller Williams Realty in Northville, Michigan.
Tha's because you'll need an emergency fund, moving expenses and home maintenance costs when you budget for a home purchase.
"A lot of people forget that there is a lot of maintenance with owning a home, especially if you've been used to renting. From a financial perspective, (it's important to) make sure that even if you're emotionally ready or excited to buy, that you have nest eggs set up as well," Pozek said.
When you compare mortgage deals, you'll focus on interest rates. But pay attention to fees, too. You will get a three-page document called the Loan Estimate for every mortgage you apply for. If you apply for more than one mortgage (recommended), you can compare the Loan Estimates side by side.
They contain the information you need. The first page of the loan estimate describes the loan's basic terms: The amount, interest rate, estimated monthly payment, closing costs and how much cash you'll need at closing. The second page itemizes the loan costs. Page 3 has a "Comparisons" section that has useful information. It tells how much each loan will cost over the first five years: closing costs plus 60 monthly principal and interest payments. It also tells how much principal will be paid off in the first five years.
When you compare these numbers, it might be simple to identify the best loan offer.