Before you shop real estate listings, take these five simple steps to help you clarify (and speed up) the process.
Whether you're a first-time homebuyer or a seasoned real estate veteran, there are several steps to take when you are shopping for a new home. Before you peruse real estate listings, you need to determine how much you can spend and what features you need. Here are five simple steps you can take that can help you breeze through real estate listings and find exactly what you want and need in a house:
1. Determine your budget
Determining your budget should be the first step you take in the home-buying process. Getting pre-qualified or pre-approved for a mortgage allows you to know how much you can comfortably and reasonably spend. It also saves you time because you won't look at houses on real estate listings that are out of your price range. There is a very important, technical and legal distinction between getting pre-qualified and pre-approved: to get pre-qualified, the lender will look at your overall financial picture, but won't run your full credit report. Pre-qualification will give you a general idea of how much you may spend on a home. For a pre-approval, the lender will look at all of your financial information and will run and review your complete credit history. If you are in the early stages of house hunting, you may only want to be pre-qualified because a pre-approval will expire if you take your time. However, if you want to be ready to make an offer on a home, going through the formal pre-approval process (which culminates in the lender issuing you a pre-approval letter) shows any seller that you are serious. It will also accelerate the buying process.
When you meet with bank loan officers, mortgage lenders or even mortgage brokers to discuss your financial situation and just how much house you can purchase, they will look at your income, down payment amount, debt-to-income ratio, work history and credit history. As a rule of thumb, they generally want to see a debt-to-income ratio that is 36 percent or lower. To calculate your debt-to-income ratio, divide your total recurring debt by your gross income. Debts include car loans, student loans, credit cards and your estimated mortgage payment. If your ratio is above 36 percent, you may not get approved for a traditional home loan.
Rules created by the Dodd-Frank Act add challenges to getting a mortgage from a bank. Among the many tighter credit requirements, you cannot have any 30-day past due obligations when you apply for a loan or any 60-day past due obligations in the previous two years.
If you do not meet the requirements of traditional lenders, you may be an ideal candidate for a Federal Housing Administration (FHA) loan or some other government-insured mortgage. FHA loans are ideal for you if your income, down payment amount or credit history do not meet traditional requirements. These loans often require a down payment as low as 3.5 percent. Many lenders offer FHA loan programs, so ask if your lender of choice participates in government loan programs. You can use an FHA loan for homes in traditional real estate listings as well as homes the U.S. Department of Housing and Urban Development (HUD) is reselling. To learn more about getting a mortgage through the FHA, go to this article. It discusses the advantages and possible disadvantages of an FHA mortgages. Additionally, if you are interested in homes HUD sells, you can learn how to find and buy them here.
2. List your home needs and wants
Once you have determined your home-buying price range/budget, create a home wish list and a home needs list. A detailed list of features your new home must have will save you time when you shop real estate listings. You also want to list the amenities your neighborhood needs to have. On a piece of paper, create two columns: features you absolutely must have and features you would prefer to have. If you have four people in your family, then three bedrooms may be on your must-have list. If you want your children to be in a particular school district, then a home in that area may also be a must. This worksheet from HUD is a great tool for creating your wish list.
Examples of must-have features:
- Two bedrooms
- Two bathrooms
- Near an elementary school
Examples of prefer-to-have features:
- Hot tub
- Remodeled kitchen
- Separate laundry room
3. Shop real estate listings
Using your lists as a guide, look at several homes, including ones that may not seem like a perfect fit. This is especially true if you are a first-time homebuyer. Often, you may think you know what you want, but you won't really know until you investigate what actual homes on the market have to offer. Real estate agents suggest an initial house search that is broad. Ask your agent for listings with basic guidelines rather than strict parameters. For example, if you have a dog, you may believe you must have a big backyard. If you say you only want to see homes with a big backyard, then you'd miss the home with a smaller backyard that is two blocks from an amazing dog park.
Real estate agent suggestions:
- Visit 20-50 homes
- Consider older homes - a remodeled older home often has lower taxes than a new home of the same size
- Visit homes of varying sizes and layouts - one 800-square-foot home may be much smaller than you think, while another 800-square-foot home with a great layout and livable outdoor spaces may seem spacious
- See homes with unfinished basements not included in overall square footage on the listing
Agents also recommend that you become an expert on homes in your price range located in your target neighborhoods. In addition to studying property listings and visiting the houses, walk through the neighborhood, visit local stores and talk to homeowners in the area.
Additionally, you may want to research the area’s schools, crime statistics and if there are any registered sex offenders living in the area. The Great Schools website allows you to search for schools, preschools and daycares by city, state, zip code or school name. You can check for sex offenders in the area on the U.S. Department of Justice National Sex Offender Public Website. The Drug Enforcement Administration (DEA) also provides a list of homes that have been drug labs on its National Clandestine Laboratory Register. The DEA site isn't that user-friendly (it simply lists the property addresses) yet the information is valuable. Homefacts aggregates this data and provides many other statistics, such as the probability of an earthquake, the distance to a police station and any known environmental hazards.
4. Find and work with a good real estate agent
You can find a new home without a real estate agent; however, a good agent can save you time by using the multiple listing service (MLS) database to find homes that fit your needs. (MLS services are just one of a number of tools that are only available to licensed real estate agents.) Agents can also find real estate listings that aren't yet advertised online or in publications. Real estate agents tend to know of similar neighborhoods that may offer homes that match your search. A good agent is also invaluable when it comes time to write a home offer, negotiate price and review closing documents.
To find a good real estate agent, start by asking for recommendations from friends, family, co-workers and neighbors. You can also call state and local real estate associations to ask for a list of member agents who specialize in your area. Your state’s agency regulating the licensing and certification of real estate agents will also have any information regarding sanctions or violations involving a particular agent or agency. Once you have a list of prospective agents, you want to interview them before you pick one.
When you interview real estate agents, it's important to choose someone who is willing to tell you what you need to hear, not just what you want to hear. A good agent will give you real estate listings that creatively fit your budget and needs - like the home with a smaller yard and nearby dog park. A good agent will also be realistic with you about matters like the trending value of a particular neighborhood and what you should reasonably be expecting to get for the budget you are working with.
Some basic interview questions to ask any prospective agent include:
- How long have you been a real estate agent?
- How many buyers have you helped find homes in my area this year?
- How many properties do you preview weekly?
- How do you prefer to communicate with clients?
- Can you provide references?
The prospective agent should feel like the right person for you. He or she also needs to communicate in ways that you prefer. For example, if you cannot check your email during the day (or if you’re the type of person who doesn’t routinely check email) then you need an agent who is willing to accommodate you with some other form of communication. One other important thing to note is that while every house you consider will likely have an agent attached to it, that agent is primarily working for the best interests of that seller. An agent working on behalf of the seller is known a listing agent and any agent you engage to help you with a home purchase is known as the buyer’s agent. (Agents routinely work both sides of a deal and many people buying a home de facto rely solely on the listing agent.) It will not cost you more to engage the services of a buyer’s agent, as any and all commissions will come from the proceeds of the sale of a property. (Buying and listing agents negotiate the terms of those commission transactions in consultation with the seller, not you.)
5. Tell all your networks that you're house hunting
Whether you use an agent or not, you want to share your home-buying intentions with friends, family and acquaintances in case they know of people in their networks who are selling a home, or if they know of any other pocket listings. Pocket listings are home sales that never register or get advertised through the MLS. You can easily share your wish list with people through social media sites like Facebook, Google+ and Twitter. You may also consider researching for-sale-by-owner listing websites. This article provides more information about buying a home for sale by an owner.
You could find a perfect house in a couple weeks or search for months, depending on the local real estate market and how particular you are about your prospective home's features. Real estate agents say that if you've visited several houses during your search, you will just know when you find the perfect one. If you want to look at free property listings now, or connect with real estate agents in your area, go to Reply!
To learn more about buying a new home, financing options or finding your home value if you are also selling, check out these articles.
- Selling your home first? How to find your home value
- 6 steps for buying homes in pre-foreclosure
- Where to find foreclosure listings
- Home financing options for you
- HUD homes and financing
- Types of houses for sale