Owning a home is a popular dream. Especially in Austin, one of the hottest real estate markets in the country. But the complex financial and real estate jargon involved in buying a home, along with the fear of making a costly mistake in the process, is often daunting to first-time buyers.
Here’s a simple checklist that can get you up to speed on the process, help you plan ahead for the next steps and avoid costly mistakes down the road.
1.) Decode the jargon: For first-time homebuyers, the long list of commonly-used finance terms can be intimidating. Take time to learn about things such as adjustable rates, which periodically change, and fixed rate mortgages that are locked in at one rate for the life of the loan. An extensive glossary is available here.
2.) Review your financial outlook: Like it or not, your credit score plays a critical role in your ability to qualify for a mortgage. So as a first step, check your credit history and credit score with one of the three major scoring companies — Experian, Equifax and TransUnion. Get a free annual credit history check.
Next, a quick call to your bank or a visit to a mortgage calculating website can give you a general sense of what you’ll be able borrow based on what you can afford as a monthly payment. Also keep in mind, the larger your down payment, the less you pay back each month.
And just because you can make the payment doesn’t mean the bank will lend you the money. Consider consulting with your bank about a mortgage prequalification, which is a lender’s rough estimate of how much you’re likely to qualify for based on your credit score, cash available for a down payment, income, debt and other financial details.
3.) Develop a budget and consider your goals: You may not want to purchase the most expensive home you qualify for. First, consider your goals. Are you willing to buy a less expensive home in order to have more money in the bank for things like vacations, vehicles and long-term savings? Or are you willing to sacrifice and pay more for exactly what you want? Developing a rough budget that includes your income and expenses can give you a sense of how much you’re willing to commit. Do you already have a pretty good idea on your budget and want to start looking at neighborhoods and houses listed for sale?
4.) Start saving: As we said, the larger your down payment, the less you’ll pay in principal and interest in your monthly mortgage payment. So consider developing a savings plan that will put you on track to have a sizable down payment. Keep in mind that you may want to reserve some of your savings for unforeseen events or other life goals. And for your credit score, as well as qualifying for your lender’s underwriting guidelines, avoid taking on new debt.
5.) Protect yourself from fraud: No matter who you decide to work with for your financing, it’s smart to review common schemes and tips from a trusted source, such as the U.S. Department of Housing and Urban Development.