Home Buying: How Do You Start?

First let’s focus on money in/money out. Each month, how much money do you:

• Make?
• Spend?
• Save?

Track your numbers over several months. This will give you an idea of how much money you would be able to comfortably devote to your monthly mortgage payment, given your current level of spending. Although every person’s situation is different, a good rule of thumb is that your housing payment should be no more than 28% of your gross income (this is your income before taxes). Play around with some financial calculators to get an idea of how interest rate and loan amount will affect your monthly mortgage payment. Those calculators are only estimates, but once you start talking to mortgage lenders you will get much more detailed and specific information.

When you are applying for your home loan, mortgage lenders will look at your debt-to-income ratio. That is calculated by adding up all your monthly debt payments and dividing by your gross monthly income (before taxes).

debt-to-income ratio =	monthly debt payments
	gross monthly income

Lenders like to see a low debt-to-income ratio. So if you are considering anything that would increase your debt, it would be best to wait until after your home purchase is complete (if possible). That might mean putting off buying a new car, or postponing a large purchase that would increase your credit card balance. In fact, if you can pay down any existing debt, doing so would help decrease your debt-to-income ratio. Lenders will view you as less of a risk, and you could be approved for a larger home loan.

Home buying (while hopefully fun!) can still be an all-consuming process. It might seem impossible to find a period of time when you’ll have the bandwidth to focus on your new home, but there are probably some periods that are better than others. Big project coming up at work? Going out of town for a while? Based on events you can foresee, determine when the home buying process would be the least hindered by other things going on in your life. Keep in mind, though, that the process can be long. You should be prepared to be hunting for months. And, once you successfully close on your new home, you will have to manage the stress fun of moving in!

That might seem like a no-brainer, but hear me out. It’s not just that you should remain employed, but you should actually keep your current job. There are several reasons you might want to put job-switching on hold until after you’re settled into your new home:

• Lenders like to see a history of steady income. Starting at a new company always carries some risk; lenders might worry that your new job won’t work out in the long term. If you’re thinking about switching to a different field entirely, lenders might worry about your ability to maintain job stability in your new career. In either case, a gap in your recent income history might look problematic. Stay at your current position so that you can demonstrate consistent, reliable income.
• The home buying process is distracting. You might need to take time off work, whether to tour a potential house, to meet with a home inspector, or to rent a moving truck. It’s best to lay low in your current position while you deal with these distractions. If you were just starting at a new job, it might be more difficult to take time off.

Keep an eye on what the housing market in your area is doing. This will help prepare you for when you start making offers. Pay attention to:

• The number of available houses in your desired neighborhood(s).
• How long houses last on the market before they are pending.
• If houses are selling for over/under list price.

When property is first listed, it is Active. Once the sellers have accepted an offer, the sale is Pending. After all of the paperwork is complete and recorded, the sale is Closed. It usually takes about a month for the sale to transition from pending to closed. The final sale price is not public information until after the home closes. You should keep a list of homes that fit your criteria, so you can review them after closing to see the final selling prices. Speaking of homes that fit your criteria…

It can feel a little strange going to open houses when you aren’t really ready to buy yet, but it’s totally okay! Seeing open houses is a fun way to start getting a sense of what you do and don’t like in a home. And standing inside is way better than just looking at the pictures online. Make a list of what you want for your home, including your:

• must-haves
• nice-to-haves
• must-not-haves (what you don’t want for your home)

Keep this list on your phone so you can amend it in the spur-of-the-moment, when ideas pop into your head. Get specific! As you keep going to open houses, your list will probably change. You might realize that some of your wants/don’t-wants are not as important as you thought, or you might find new ones you hadn’t even considered before.

Find someone who makes you feel comfortable and answers your questions clearly. The seller’s realtor will be working for the seller, and you need someone who will put your interests first. But choosing a realtor can feel almost as bewildering as choosing a home itself. Luckily, here’s a blog post devoted to that very topic!