Whether you’re a first-time buyer or a
seasoned homeowner, shopping for a new home can feel daunting. In fact, 56% of
buyers said that “finding the right property” was the most difficult step in
the home buying process.
Buying a home is a significant commitment of
both time and money. And a home purchase has the power to improve both your
current quality of life and your future financial security, so the stakes are
high.
Follow these five steps—and complete the
corresponding worksheet offered below—to assess your priorities, streamline
your search, and choose your next home with confidence.
STEP 1: Set Your Goals and Priorities
The first step to finding your ideal home is
determining WHY you want to move. Do you need more space? Access to better
schools? Less maintenance? Or are you tired of throwing money away on rent when
you could be building equity? Pinpointing the reasons why you want to move can
help you assess your priorities for your home search.
Don’t forget to think about how your circumstances
might change over the next few years. Do you expect to switch jobs? Have more
children? Get a pet? A good rule of thumb is to choose a house that will meet
your family’s needs for at least the next five to seven years. Be
sure to set your goals accordingly.
STEP 2: Determine Your Budget
Many financial professionals recommend following the “28/36 Rule” to determine how much you can afford to spend on a home. The rule states that you should spend no more than 28% of your gross monthly income on housing expenses (e.g., mortgage, taxes, insurance) and a maximum of 36% of your gross monthly income on your total debt obligations (i.e., housing expenses PLUS any other debt obligations, like car loans, student loans, credit card debt, etc.).
Of course, the 28/36 rule only provides a
rough guideline. Getting pre-qualified or pre-approved for a mortgage BEFORE
you begin shopping for homes will give you a much more accurate idea of how
much you can borrow. Add your pre-approved mortgage amount to your downpayment
to find out your maximum purchasing potential.
STEP 3: Choose a Location
When it comes to real estate, WHERE you choose
to buy is just as important as WHAT you choose to buy.
Do you prefer a rural, urban, or suburban
setting? How long of a commute are you willing to make? Which neighborhoods
feed into your favorite schools? These decisions will impact your day-to-day
life while you live in the home.
Another important factor to consider is how
the area is likely to appreciate over time. Choosing the right neighborhood can
raise the profit potential of your home when it comes time to sell. Look for
communities that are well maintained with high home-ownership rates, low crime
rates, and access to good schools, desired retail establishments, and top
employers.4
STEP 4: Decide Which Features You Need (and Want) in a
Home
Start with the basics, like your ideal number
of bedrooms, bathrooms, and square footage. Do you prefer a one-story or
two-story layout? Do you want a swimming pool?
Keep in mind, you may not find a home with all
of your “wants,” or even all of your “needs” … at least not at a price you can
afford. The reality is, most of us have to make a few compromises when it comes
to buying a home.
Some buyers will opt for a longer commute to
get a larger, newer home in the suburbs. Others will sacrifice hardwood floors
or an updated kitchen so that their kids can attend their desired school.
If you’re faced with a tough choice about how
or what to compromise in your home search, return to STEP 1. What were your
original goals and motivations for moving? Reminding yourself of your true
priorities can often provide the clarity that you need.
STEP 5: Meet with a Real Estate Agent
A good real estate agent can remove much of
the stress and uncertainty from the home search process. From setting goals to
securing a loan to selecting the best neighborhood to meet your needs, they will
be there to assist you every step of the way.
No one has more access to home listings, past sales data, or market statistics than a professional agent. And although we’ve listed it here as STEP 5, the reality is, it’s never too early (or too late) to contact an agent about buying a home. Whether you plan to buy today, next month, or next year, there are steps you can (and should) be taking to prepare for your purchase.
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