Examine your finances
It’s important to consider your income and the total of your other debt payments (like credit card debt or car payments) when deciding if you can afford to purchase your own home. Think about how much money you can use for a down payment.
*REAL Story Tip – Many financial experts recommend spending no more than 28 percent of gross monthly income on your mortgage, property insurance and taxes, but each person’s situation is unique.*
Use an affordability calculator to get an idea of how much you can afford.
It is important to check your credit score and fix any errors that may appear before starting the loan approval process. Lenders often look at credit scores as one factor in determining whether or not to approve a loan. Your score may also affect the interest you can get. The NATIONAL ASSOCIATION OF REALTORS® offers more information on how FICO scores are calculated and how long negative information will remain on your report.
Consult with a mortgage lender about how much you can realistically afford.
*Real Story Tip- When looking at your finances, consider how you will pay the mortgage if you or your co-borrower becomes unemployed.
Find a REALTOR®
REALTORS® provide expertise on market trends, property conditions, and many other aspects of a real estate transaction. By working with a REALTOR®, you will be able to see comparable homes for sale, track sale prices in the desired neighborhood and gain insight on many other aspects of a real estate purchase.
A REALTOR® is a real estate professional who is a member of the NATIONAL ASSOCIATION OF REALTORS®. These professionals abide by a Code of Ethics, which sets forth standards of practice that includes honest and ethical treatment for all parties in transaction-related matters. REALTORS® may be identified by the REALTOR® "R" logo on a business card, website or other marketing and sales materials.
*Real Story Tip- Ask for referrals from family, friends and co-workers who have recently had successful experiences buying or selling a home.*
Use the NJAR® REALTOR® Search to locate a REALTOR® in your area.
Interview several professionals to ensure that the REALTOR® you choose works with prospective buyers and is knowledgeable about the area in which you want to purchase. Make sure the professional you select is someone with whom you are comfortable sharing personal information.
Shop for a mortgage
After determining a ballpark figure of how much you can afford start talking to different lenders to get their insight and to start requesting quotes. Check with your REALTOR® for a list of lenders in your area. You should talk to several lenders so that you can compare costs and interest rates for your loan and be able to negotiate a better deal.
*Real Story Tip- Consider obtaining a loan pre-approval, which can require providing proof of income, reviewing outstanding debts, and running a credit check. A pre-approval signals to a seller that you are in a strong financial position when making an offer.*
Here is a list of questions you should consider asking the lenders you meet with:
• What is the interest rate? How long is that rate available?
• Are the rates fixed or adjustable?
• What is the length of the loan?
• If it is adjustable, how will the rate and loan payment vary?
• Can you quote points in a dollar amount?
• Points are fees paid to the lender that are linked to your interest rate, and can usually lower the rate if you pay more points. Finding out this amount in dollar figures will help you make an informed decision.
• What fees are there? What does each of these fees include?
• What are your requirements for down payments? Are there any special programs available?
• Is PMI (private mortgage insurance) required? What would the total cost be?
More information that can help you make smart financing choices is available from the NATIONAL ASSOCIATION OF REALTORS®.
Finding your home and making the offer
A REALTOR® can help you research the area where you want to live to learn about home prices, taxes, local amenities, etc.
Decide which home features you feel are essential and which are optional, such as a backyard, basement, number of bedrooms/bathrooms, etc.
*REAL Story Tip – Your REALTOR® will guide you in the house hunting process, but it will be helpful for you to create a wish list – what you feel like you need to have in a home, what you’d like to have, and what you’d like to stay away from. The Department of Housing and Urban Development (HUD) offers a useful wish list that you can work from and share with your REALTOR®.
Many buyers are considering homes that are undergoing a distressed sale due to financial hardship. If you are considering the purchase of a short sale, bank-owned property or foreclosure be advised that these transactions often take longer because a third party must approve the sale. Frequently these homes are also sold “as is” and may need repairs.
More information on short sales and foreclosures can be found at njar.com.