Home ownership continues to be an important part of the American Dream, and a top financial goal for many of my Generation X and Millennial clients.
Buying a home is both a significant financial and emotional investment, and in the San Francisco Bay Area home ownership is not always an easy goal to meet. With a median home price of $806,000, houses in our desirable neighborhoods may seem like a huge stretch, and when I show clients the numbers, discouragement often sets in.
After the initial shock wears off, I remind my clients that everything starts as a dream… but home ownership begins with a plan! Together, we work on a detailed, multi-year strategy to buying their first home.
Plan for Your First Home
The plan has several components:
1. Start a dedicated savings plan
Without financial resources, purchasing a home is impossible. Immediately start a dedicated savings plan for the down payment, closing costs, moving expenses, and home improvement & furnishings expenditures. If relatives are willing to assist with the down payment, begin discussions about that now.
2. Check your credit score
Lenders won’t make a loan to people without good credit. Now is the time to pull your credit report, review for errors (mistakes are not uncommon…go over that report carefully!), and have it corrected if necessary. If your credit score is below 700, work hard to raise it: never be late on payments, keep credit card balances at 30% or below of the maximum limit, do NOT close dormant credit cards, and make sure to have more than two types of credit.
3. Get educated on mortgage financing
A great place to start is this excellent article, “The Simple Dollar’s Mortgage Lender Recommendations” on The Simple Dollar blog. It is a very thorough and unbiased review of how to secure a mortgage.
4. Research potential neighborhoods
I am often surprised when clients, who have such a strong desire to own a home, have just a vague idea of where they want it to be! I recommend researching potential neighborhoods early, and often: visit open houses, talk to local real estate agents, spend time in the area, study price history on sites like Zillow, and learn about the school districts.
5. Get pre-approved by a lender.
Once you are financially ready, get pre-approved by a lender. Pre-approval is a process in which a lender acknowledges that you can afford to buy a home of a certain price. For pre-approvals, lenders look at your income, savings, and credit score information.
6. And finally, find a real estate agent.
Interview several – maybe you met a potential match while you were researching neighborhoods – a good agent can make the home buying process significantly easier. An added bonus is good chemistry; in our competitive real estate market, it’s likely you will be spending quite a bit of time with your agent! No rush, no pressure – after all, this plan started with a dream…
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