ratio. Raise your credit score by making payments on time, keeping credit card balances below 30% of the available balance, and keeping unused accounts open.
2. Determine your true income. Calculate the total income for you and your co-purchaser, if applicable. This includes you monthly income, including investments or alimony. Then list all your monthly expenses such as a car note and insurance premiums, utility bills, childcare, and even groceries. Finally, include credit card payments, personal loans, and other monthly obligations. Next, subtract your expenses from your income. Use Bankrate.com’s mortgage calculators to determine how much house you can afford. The result is an estimate of what income is available toward repaying a mortgage.
3. Get preapproved before you go looking for a home. One of the biggest mistakes that first-time home buyers make is finding a home they love but not knowing if they can afford it. You can receive a preapproval letter from any mortgage lender, even online ones. Just be prepared to provide the lender with documentation about your assets and income, and let them run your credit report. Otherwise, the most you’ll be able to get is a prequalifying letter, which is meaningless to most home sellers and real estate agents.
4. Put together a team of professionals. Whenever possible, use referrals from people you trust to help you locate a realtor, real estate attorney, lender, title company, home inspector, and appraiser. You can call your local chapter of the National Association of Realtors (www.realtor.org). Also, check with your local real estate association to see if any complaints have been filed against those you are considering. “Find someone you can trust. Even with referrals, you need to listen and see if the person has your best interest at heart,” advises Helen Flowers, winner of our 2006 Own Your First Home Contest. “Find your own team of professionals that are not connected to a builder, a seller, or a real estate agent. And don’t always go with the cheapest service, because this decision will last for years and the costs are significant.”
5. Study the market. Begin your research early. Review neighborhoods, types of homes, crime rates, transportation, infrastructure, price ranges, and school rankings at SchoolMatters.com or GreatsSchools.net. A good school district will help increase the value of your home. Sites like www.property shark.com and www.zillow.com offer property tax information, estimates on values of neighborhoods, the last sale price of a home, tax assessments, and even an aerial view of a property. Also, interview several realtors in the area and don’t be afraid to stake out ideal locations, speak to the neighbors, and attend zoning and planning meetings.
6. Determine the right mortgage for you. A 30-year fixed-rate mortgage is the most common and the safest. However, lenders do offer adjustable-rate mortgages that will have a lower interest rate initially but can jump several percentage points, in effect changing your monthly payment by several hundred dollars. Steven Limehouse, a 28-year-old who closed on his Summerville, South Carolina, home in April, found