Steps to Take Before Buying a Home

With housing prices and mortgage rates at a multi-year low, it is very tempting to purchase a home this year. While the temptation is there, there are a few steps you should take prior to making this big decision.

• Build Up an Emergency Fund. When you own your home, you can no longer call your landlord when something breaks or a plumber needs to be called, because you are that landlord! As a benchmark, you should have the greater of three months mortgage payments or $3,000 saved in a low risk, liquid savings account. This money should be easily accessible in case of an emergency. Call your bank and ask about their money market options. You may also want to look into ING's Orange Account. www.ingdirect.com
• Determine a Reasonable Budget. When purchasing a home, you are now responsible for paying those bills that were always covered by the landlord at your rental property. When I received my first water bill, I almost fell over! I had never paid a water bill and was extremely surprised when I received a bill for $120. An expense I had not budgeted for. By laying out your expected costs, you will have a better idea of what to expect and what you can reasonably afford. A few you should include: water bill, home owners insurance, home owner's association dues, gardener, repairs, etc.
• Just Because You are Approved for a Loan Does Not Mean You Can Afford it. While this falls under budgeting, I think it is important to emphasize this reality. When you are approved for a loan, the bank will look at your income and assets and determine how much they are willing to lend you. Do not be fooled! While you may be approved for a $350,000 loan, you may comfortably only be able to afford the payment on a $300,000 loan. Make sure you do the math, or have someone do it for you, so you know how much you truly can afford.
• Find a Loan Officer You Can Trust. Like most professionals, loan officers are sales people. They are paid commissions based on the loans they sell you. Whether you have a loan officer you trust or not, you should get quotes from two different loan officers. You will be surprised at the reduction of fees and reduction of interest rates that may occur when you have two people bidding for your business. This is also a good way to ensure that person you trust is really trustworthy. Click here for a list of my trusted favorites.

Buying a home is an exciting time.  Emotions can get in the way warping your ability to make a rational decision.  Don’t let them!  Buying a home should be a financial and personal reward, not an expense that seems like a burden.