By Brad Pareso
"Your house!" shouted my professor. I was a sophomore in college and a professor asked the class, "What is the single biggest investment you will make during your lifetime?" The responses were varied, from cars to education to a yacht (and if you're worried about financing your yacht purchase you probably don't need to be reading this), yet to the professor, nobody got the right answer.
But he probably shouldn't have been so surprised. Young people aren't experienced in buying houses and usually have no idea how life changing it can be. Just the thought of buying a house can intimidate people, but being prepared for the journey into the real estate market will make the search a lot simpler.
can i afford this?
Before going house or condo shopping, it's a good idea to figure out exactly what you can afford, and the person who can best tell you that is a mortgage loan officer. "[A mortgage loan officer] will sit down with the potential buyers and look at their income versus their out-going debt, and explain to them specifically what they can afford," says Susan Byerley, a mortgage broker for North American Financial. With home prices falling, this might be a good time to buy.
A good rule of thumb is to take your annual income and multiply it by 2.5 or 3-this gives you the maximum amount you can spend on a house without going in over your head.
Another essential move is to get a copy of your credit score. Go to annualcreditreport.com and follow their instructions to get a free report from all three sources. This will show if you're making payments on time (something financial institutions like to see before giving you a mortgage) and make you aware of any errors on the report that you can dispute and fix.
The next step is to get pre-approved for a mortgage. Why is this an important step? From your talk with the mortgage loan officer and the calculation above, you already will know how much you can afford. With a pre-approved mortgage, you know how much the financial institution is willing to bring to the table.
From the seller's perspective, the pre-approved offer you make looks that much stronger and attractive because it isn't just a number you made up; it's an amount verified and backed by the institution.
decide on an area
Now that you know where you can afford to look, it's time to research neighborhoods with homes that fall in that price range. Different neighborhoods are better suited for different people, so make a list of things you consider essential to your ideal area.
Are you young and single? Maybe you want to be close to the downtown area. Thinking of having kids? Things like reputable schools and low crime rates are probably important. Trying to settle down? You might want a quiet area with a well-maintained public space (with paved roads and even sidewalks).
"We had a little one on the way, so we looked at towns with good schools, a good highway department and nice parks," says Michael Hajek, 40, who bought his Kings Park, NY home about two years ago.