1. Run the numbers. Put together a financial plan to determine whether you can really afford to buy. After all, just because it's a good time to purchase a home doesn't mean it's a good time for YOU to buy. It's important to understand how much home you can afford and whether home ownership might preclude you from addressing other important financial issues in your life.
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2. Save 20 percent for a down payment. I'm not a huge fan of putting down less than that amount (although the Federal Housing Administration allows it). Keep your downpayment fund in cash or cash equivalent accounts, so that market movements don't thwart your plans.
3. Use this great "rent vs. buy" calculator from the New York Times.Renting might still be the better deal in your area.
4. Be an informed buyer. You're not going to buy a house simply because there's a pretty photo posted online, but you can conduct a lot of price research. That said, there's nothing better than talking to people in the neighborhood for "on the ground" intelligence.
5. Obtain a copy of your credit report. If you haven't done so in a while, go to AnnualCreditReport.com and request your free copy. It's important that you correct any errors on the report before you start the mortgage process.
6. Get pre-approved for a mortgage. Pre-approval is a good gut check on your price range for a home. Gone are the days that banks will fork over cash to anyone with a heartbeat. The best way to start is to ask friends for referrals from mortgage brokers and to shop around with banks and credit unions. Make sure to compare apples to apples and to ask the broker about your total costs to you at closing. You should also know that once you actually find a home, the mortgage process is on the same pain level as a root canal, only it requires more patience and there's no Novocain. You'll need to dig up tons of paperwork and fair warning -- there will be multiple requests for even more documents as you move toward closing. Eventually, you will need "commitment letter," which details the terms of your loan approval.
7. Find an agent. As much as everyone complains about realtors, I still think that it's tough to go through the home buying process alone. In some markets, buyers' brokers are available, but the most important qualities in brokers are honesty, experience, good connections with other agents, and good referrals from buyers like you. Remember that most agents represent the seller, not the buyer.
8. Hire a real estate attorney. This is a major transaction in your life, so don't try to save money when it comes to legal fees. Even if your mortgage company provides a lawyer, hire your own to help draft all documents and to ensure that your interests are being represented at every step of the process.
9. Get an appraisal. An appraisal will determine the market value of the property and ultimately will be used by your lender to determine the amount of your loan. You have a legal right to get a copy of this and will want a copy for your records.
10. Schedule a home inspection. Think you've found your dream house? Maybe, but unless you have an engineer walk through the premises with you, you might be buying a new roof in a couple of years. Don't get freaked out if a problem arises during the inspection; it can often be addressed with a simple adjustment in price. It's imperative to protect yourself, so don't blow off this important step.
11. Start with a fair offer. The offer should be based on similar houses sold in the neighborhood in the past six months. Your agent will help you with the process, but the offer should include the price you're willing to pay for the house, your financing terms and contingencies such as specifying what will happen if any problems come up during the inspection.
12. Purchase homeowners insurance. If you are a life-long renter, this can be an eye-opener in terms of cost. Make sure that you understand the difference between insuring the structure and insuring the contents. And if you are buying property that is close to water, make sure that you have an agent who can help you enroll in the national flood insurance program.
13. Review your HUD statement BEFORE closing. The government document provides basic details about the involved parties and a lot of numbers. Mistakes do occur, which is why it is vital that you review the statement and confirm that everything is correct.