5 Crucial Steps BEFORE You Start the Home Buying Process

on May 11, 2015


Shop smart.

Ah, the spring of 2015 is in full swing. Flowers are blooming; birds are singing; children are hitting baseballs, and everywhere you look, people are either out there in droves-buying or selling their homes.

But a smart home buyer doesn't just leap into the real estate market like one might jump into a pool on a hot summer day. A smart home buyer knows there are several vital steps to take before starting the home buying process. Here are five steps that experts recommend taking FIRST, before you even set foot inside that first home.


1. Talk to a lender and get pre-qualified for a loan.

Research the different types of loans that are offered. Do you know the difference between FHA, VA, USDA, or Conventional mortgages? Also, when choosing a lender, don't just shop the lowest interest rates. You should also consider the number of points (1% of the loan amount) being charged, and other associated fees as well. It's also a good idea to ask your lender for references from their past customers. Last but not least, review your credit report with the lender, in case there are any inaccuracies in your file.


2. Give some serious thought to what you can afford on a monthly basis.

What is your total amount of debt-both with and without a mortgage payment? Lenders call this the debt-to-income ratio. If your total debt with a mortgage is above 40% of your total monthly gross income, you may not qualify for a very large loan, so consider paying off some debt if you have enough in savings. But remember, you may need 3%-5% of the home sale price for your down payment, and another 3% for closing costs.

Here's another question to ask yourself: Do I really need to buy as much house as the pre-qualification letter allows? After all, you may have some new expenses, such as furniture and other household items to buy. One "gotcha" moment comes when you discover those higher electric bills for the larger space, an ever-increasing cable bill, landscaping costs, new commuting costs...

Related: How Much House Can You Really Afford?


3. Do some neighborhood researchu2014school districts, crime rates, etc...

If you have children and affordability is not an issue, you should look for neighborhoods with nearby top rated schools. In addition to the better education your children will receive, top rated schools are more likely to insure that your home value will appreciate over the years.

Another important area for investigation is the crime rate in different areas. Stay away from areas with increasing crime rates. Some other key questions are: What is the commute like in the morning? How well-kept are the other homes in the neighborhood? Where does the school bus stop?


4. Interview at least two or three realtors.

When I moved to Florida back in the mid 1990's, and before I myself became a Realtor, I called a local office to ask about a home I liked. The Realtor who was on "desk duty" (answering phones in the office to get new leads), told me that home already had a contract, but he could help me find another great home. I said I specifically wanted a pool home. He replied, "No problem, can do."

A few days later, he drove me around to look at different homes, but not one of them had a swimming pool! He kept pointing to the large backyards and saying, "You could put a great big pool right there!" Never mind that I didn't have the $20,000 to install a pool, or that he hadn't shown me one home that already had one. There probably were no pool homes available, but rather than being honest with me or saying he would call me as soon as one was listed, he lied and instead tried to sell me what I didn't want. Needless to say, after that experience, I learned to research Realtors more carefully.


5. Research different types of homes in the area.

Try to decide what type of home you are interested in before you spend a lot of time and effort looking with your Realtor. Do you like older or newer homes? Would you consider a foreclosure to save money, or do you prefer a home with little work needed? What about short sales? Do you prefer a one story or two story home? Would you consider a townhome or condo, or do you prefer a single family?

If all of this makes your head spin, remember you are not alone. Every homebuyer has had to make these decisions at one time or another. Most did it while trudging from one house to the next that didn't really strike their fancy. That's why I'm suggesting you do the research BEFORE you start your search.

Remember, a smart shopper is a prepared shopper, whether it's buying laundry soap with coupons, a new lawn mower on sale, or the home of your dreams where you may spend the next 10 to 20 years of your life. So prepare yourself with these five smart steps, and in no time at all, you will find the home of your dreams!

Ethan Roberts is a real estate writer, editor and investor. He's a frequent contributor to InvestorPlace.com and Auction.com. He's also written for SeekingAlpha.com and MarketGreenhouse.com, and was one of five contributing editors to TheTycoonReport.com. He's been investing in real estate since 1995 and has been a Realtor since 1998. He also teaches classes on investing in residential real estate.

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