{"id":2023,"date":"2008-09-03T05:00:29","date_gmt":"2008-09-03T12:00:29","guid":{"rendered":"http:\/\/getrichslowly.org\/blog\/?p=2023"},"modified":"2024-03-05T12:26:21","modified_gmt":"2024-03-05T19:26:21","slug":"how-to-prepare-for-buying-a-home","status":"publish","type":"post","link":"https:\/\/www.getrichslowly.org\/how-to-prepare-for-buying-a-home\/","title":{"rendered":"How to Prepare for Buying a Home"},"content":{"rendered":"

\"\"When I bought a home three years ago, the economic climate was different from today. Back then, a house would could be listed on Friday and a contract signed by Monday. It was easy to get a loan (too easy, in fact) and you could make every mistake in the book and still find yourself a home.<\/p>\n

Despite the market differences, sound financial planning and a handful of smart moves will ensure that you won’t regret grabbing your piece of the American dream. This post isn’t going to go over the merits of buying versus renting<\/a> or how you should pick a real estate agent. Instead, I’ll focus on the things you should do to prepare yourself before applying for a loan and then buying a home<\/b>.<\/p>\n

<\/span>Don’t borrow money<\/span><\/h2>\n

Your home will likely be the single largest debt you will take on and represents the greatest risk in the eyes of potential lenders. With lending rules tightening, it’s becoming more and more important that you make yourself look as safe as possible. Safe means as little debt as possible and as little access to credit<\/i> as possible.<\/p>\n

Don’t apply for any new credit cards. They could be offering some hot credit card offers of a hundred bucks to make one purchase or 0% balance transfer, but you must avoid it at all costs. That hundred dollars will cost you thousands, if not tens of thousands, over the life of your loan. Don’t buy a car. Don’t take advantage of 12-month 0% financing “same as cash” offers at Best Buy to get that new flatscreen HDTV you’ve been thinking of.<\/p>\n

<\/span>Don’t make any drastic changes<\/span><\/h2>\n

Don’t shuffle your funds around, don’t change your bank, and most of all don’t change your job. This won’t necessarily affect your credit score (some banks will do a hard credit check, which negatively affects your score) but it will give the lender headaches when they try to decipher all the moves you’ve made.<\/p>\n

Making large transfers will bring up questions of fund origins. Is this really<\/i> your money or did you receive it as a gift? Why are you opening up new accounts and shifting your money when you expect to spend it soon? Such moves will result in more questions for you to answer, which takes energy and will prolong the review process. It’s not necessarily bad \u2014 just a pain.<\/p>\n

The only exception to the “not necessarily bad” is the part about changing jobs. Lenders like stability; stability equals low risk. If you’ve been working with a company for thirty years (or even five), chances are you’re going to work there for a while. If you’ve been working with a company for three months, there’s no saying how long you will work there. Maybe you have a falling out and are fired, maybe you can’t hold a job, maybe you’re perfectly fine and will have a successful career there. All those maybes make lenders nervous. Avoid changes if you can.<\/p>\n

<\/span>Play house<\/span><\/h2>\n

There are two crucial steps to “playing house” (financially). First, you need to correctly estimate your monthly payment. Remember that your monthly payment will include the mortgage, taxes, and homeowners insurance. You will also probably want to add a buffer for maintenance and repairs, as you likely will have both. \"\"In three years, my wife and I have spent at least $10,000 in repairs and improvements (windows, roof, carpeting).<\/p>\n

Another bit of information to research is how the recent federal housing rescue bill or how local first time home-buyer assistance programs may apply to you. The federal housing rescue bill offers a 15-year zero interest $7500 loan in the form of a tax credit to new home buyers. In Maryland, first time home buyers get one half of the transfer tax waived, which can be up to 0.75% the sale price of the home. Both of those will play crucial roles in how you calculate your monthly payment.<\/p>\n

The second step is actually playing by budgeting for the mortgage. If you are currently renting, deduct rent from your monthly mortgage payment, and transfer those funds to an account that offers high-interest savings. A great place to put those funds is in a fund you designate for your downpayment. As the months pass, you will get a feel for how much you can comfortably afford rather than simply guessing.<\/p>\n

This also serves another purpose: it will keep you within your house budget. The Realtor will likely want to show you homes that are outside of your price range. It’s always good to see what is a little above and a little below your range just to see what the difference in value is. By playing house, you have a more accurate feeling of how differences in the monthly payment will affect your lifestyle because you’ve lived it.<\/p>\n

<\/span>Sell or donate your junk<\/span><\/h2>\n

Two things will happen when you buy your house:<\/p>\n