Steps to Prepare for Home Ownership

This is a very sensitive topic to talk about given the current situation that our economy is in.  I am in no way ignorant to the fact that many good people are losing their home due to the downturn in our economy.  The only hopes of this article is to educate my audience on the steps (as determined from my experience) to purchase a home if it is a good investment option for the particular person.

Over a year or two ago, the terms foreclosures, auctions, short sales, etc would have seemed like a foreign language to most Americans.  I mean after all, I have never heard my parents talk about any of the terms previously listed the whole time that they have owned their home.  Now, it is common place to see advertisements for foreclosure auctions, or even receive emails to your inbox announcing a fire sale of condos at "below builder price".

With the abundance of vacant properties in America, in my opinion, it is a great time for the first time home buyer, second time home buyer or even the investment buyer to look at purchasing a home.  It is definitely a buyer's market and with patience and the preparation, home ownership is just around the corner for many Americans.  I did some research on the topic and found the following link that was interesting to try to explain the previous downturns of the housing market in America:

Housing Data Shows Downturn Could Be Prolonged

Although this particular article claims that this housing downturn could persist eight years, I am optimistic that we are at a point where houses are beginning to be a good value again.  I am currently in the process of pursuing an investment property and wanted to share some of the preparation that was needed in order to begin this process:

1. Ask yourself the following questions and be honest
• What is your price point for your house that you can afford?
  
• As a personal rule of thumb, I have always believed that the primary mortgage should not be anymore than 33% of your take home (after taxes) pay.
• What location do you want your house to be in?
• What type of house do you want?  (Townhome, Single Family, Condo)?
  
• How big do you want your house to be?
  
• What special features you want in your home?
2. Write down a description of your home
• This step is important so you do not compromise on getting the house that you want.  Throughout this process of searching for a home, I got discouraged when others beat me to the punch when placing a contract on homes that had 60 - 70% of what I wanted.  However, I eventually found the house that had 90%+ of what I wanted and I currently have it under contract.
3. Research your Credit Score
• There are a multitude of ways to research your credit score on the Internet.  Below are the free alternatives that I use:
1. https://www.annualcreditreport.com/cra/index.jsp
   
2. http://www.creditkarma.com/
   
• Realistically, many of the loan officers I spoke with stated that they are looking for 700+ credit scores.  However, do not get discouraged if your credit score is not that high, I recommend to at least try, the worst thing they can say is "no".
4. Find a Real Estate agent
• A real estate agent can determine how your home buying process will be.  They generally handle all of the paper work and discussions with the seller (or the seller's real estate agent).
• In addition to that, they will be the ones to make the necessary arrangements to view the property.  
• Usually they also have easy access to people you may need during the home buying process (inspectors, general contractors, loan mortgage officers, etc).
5. Research homes
• There are many things to take in consideration when purchasing a home.  Below is a short list with somethings worth considering:
1. Utilities
2. Taxes
3. Repair on the home
4. Maintenance
5. Location
• For more things to consider, look at the article at the following link.
6. Find a Mortgage Broker
• Talk to the mortgage broker to find out what packages they have and make an educated decision on which offered package is best for you.
• Get financial records in order for loan qualification process, what you will need:
1. Last two paycheck stubs
2. 60 days worth of bank and investment account statements.
3. W-2s from the last two years
• A few important notes:
• The loan company should be able to provide you with a loan pre-qualification letter and Good Faith Estimate without any type of commitment to obtain the loan with the company.  You should use these documents to compare offers and get the best deal possible.
• One concern that many people have when it comes to obtaining loans is the credit-check process.  From this article, credit scorers look at all credit inquiries made within a 14-day interval as being the same as one inquiry.  This will allow you to shop around for mortgages for a two week period without substantial negative impact on your credit score.

As I am in the stage of just getting my home under contract, I am currently waiting to proceed with purchasing this home.  However, I find that educating yourself about the home buying process is the best thing that you can do in order to successfully proceed with purchasing a house.  There is a lot that goes into the process of purchasing a home but the information in this article can at least help the novice to get started in the process.  It may seem overwhelming at times, but if you get the right people on your team (real estate agent and mortgage broker), you will find that it will progress and you will be owning your new home before you know it.

Please let us know if you have any comments or questions below.  Stay Disciplined!

Previous articles that relate to this topic:

http://getmoneyandmore.blogspot.com/2008/10/are-foreclosures-good-investment.html

http://getmoneyandmore.blogspot.com/2008/11/more-information-for-foreclosure.html

Disclaimer:  The ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment adviser.