By David Kexel
When it comes to fulfilling our dreams, owning a home is typically one of those things at the top of everyone’s list. It’s like there’s something ingrained in all of us that makes us want to own the roof over our heads and the walls that surround us.
In fact, in a survey conducted for the National Association of Realtors, nearly nine out of 10 Americans agreed that it makes more sense to own a home than to rent – and only 3 percent of those who did own their own homes said it was a negative experience. But like most things that are worth doing, both buying and owning a home can be complicated – and are definitely not for the faint of heart. So, for those of us who are thinking about taking the plunge into homeownership in Phoenix, we’ve made a list of steps involved in the buying process, to help ensure that your home-owning dreams don’t turn into a nightmare.
1. Decide if it’s right for you.
Now, this may seem like a no-brainer. After all, didn’t we just say that only 3 percent of homeowners thought it was a negative experience? Yes, we did. But there’s a difference between something not being negative, and it being the best thing for you at a given time. So before you start applying for mortgages and scouting neighborhoods, ask yourself these questions:
- Do I want or need the freedom to move frequently?
- Are my housing needs likely to change significantly in the next few years?
- Is the cost or responsibility of maintaining a home something I’m not ready (or willing) to deal with?
- Is my future income extremely uncertain?
- Does having imperfect neighbors drive me crazy?
Answering yes to any of these questions could mean that you’re better off renting, at least for now, primarily because homeownership is not a short-term commitment. While renting can mean signing a six- or 12-month lease with the freedom to move on once it’s over, selling a home and moving elsewhere is another thing entirely. And with all of the upfront costs associated with getting into a home, plus the costs associated with selling, moving on before the property value has appreciated enough to cover those costs could prove costly.
2. Pick your preference.
Even if your habits, lifestyle and current situation seem to make homeownership a fit for you, that doesn’t necessarily mean you ought to rush out and buy a four-bedroom, three-bath rambling ranch on a half-acre shady lot in a quiet neighborhood. That might be right for some, while for others the perfect choice could be a two-bedroom condo that’s a short walk from public transportation, theatres and trendy restaurants. The good news is that both of those options are available for purchase, along with every other conceivable configuration. So to make sure you go looking in the right places, and for the right home, consider things like:
- How handy are you, and do you have time for weekend projects?
- Do you enjoy pushing a lawn mower around the backyard, trimming shrubs and pulling weeds?
- Which neighborhood amenities – restaurants, night life, coffee shops – are must-haves, and which can you live without?
- How close do you need to be to public transportation?
- What role do (or will) children play in your life, and how important is it to have good schools, parks and other children nearby?
- How many bedrooms, bathrooms, offices and other spaces do you need – for yourself and for possible guests – or additions to the family?
- How much stuff do you have? Are you willing to rent an extra storage space if necessary?
- What vehicles do you need parking for? Does parking need to be enclosed or is open parking an option?
- Do you care about curb appeal and the style of the home?
All of these factors have an impact on the size, type and location you ought to look for in a home – large or small; condo, townhome or single-family; suburb or central city. Figure that out before you start looking, or you’ll find yourself overwhelmed by too many possibilities.
3. Set a budget.
There are plenty of publications and websites out there that will tell you how much of your income you should spend on your home, so we won’t get in to that – in part because while there might be general guidelines that are good for getting started, in the end only you know what your priorities are, and can decide best how to accommodate them.
But regardless of how much you decide to budget for your home, the important thing is that you do make a budget, and then make every effort to stick to it (and this doesn’t just apply to homeownership!). Taking on a mortgage, along with the cost of home maintenance and repairs, is not something you should do without knowing how you’re going to handle it.
So, look at your income and expenses, consider what’s important to you (and what might become important in the future), be sure to include sufficient amounts for new home-related expenses such as utilities, repairs, etc., and determine an amount you can afford to spend each month on a mortgage payment. Once you have that, you can use any number of online calculators to find out the size of loan you can get with that payment (make sure it includes principal, interest, taxes and insurance), add the amount of down payment you’ll be able to make, and voila! – that’s roughly the price of home you can afford to buy.
4. Get real.
In your home-buying process, this is the first moment of truth: deciding whether or not the house you can afford to buy is a house you’d want to live in. This process can be done almost entirely online: using one of the many available real estate sites, plug in a price range that tops out at your budgeted amount, along with the geographic area(s) you’d consider and your other requirements (rooms, square footage, parking, etc.), and see what pops up. You might see some dream homes; you might see dumps. But in general, do the houses you see (if you see any) look like what you had in mind?
If the answer is yes, great! You’re ready to start really looking. But if the answer is no, then it’s time to re-evaluate the things you think are important, and decide whether any of them are negotiable. Do I really need that many bedrooms? Could the gourmet kitchen wait until I can afford to remodel? Would a neighborhood a bit farther out be acceptable? Would a carport do as well as a garage?
The answers to these questions may all be “no,” and that’s OK. If you know what you want and need, and it doesn’t fit your budget, then you might want to wait a while, save as much as you can, and try again when your budget matches your appetite. Yes, home prices will probably go up while you’re waiting, and you’ll have to account for that, but to make such a major investment in something that doesn’t meet your needs is probably not a recipe for success.
On the other hand, if some of your requirements are negotiable, change the parameters of your search and try again. If you find homes you think you could live in, you’re ready to move to the next step.
5. Get preapproved.
You might be thinking, “Hey, I found houses I like! Shouldn’t I go look at them?” Not quite yet. Before you go strolling through people’s homes, and finding one you simply can’t live without, you need to make sure you can get the mortgage you need. This is not the same as making sure you can afford the home. You may be able to make the payment, but that doesn’t mean you can get the loan. No, for this you’ll need good credit, and the only way to find out if your credit is good enough is to complete a mortgage application and see what a lender has to say.
This doesn’t mean going in blind. If you’ve been keeping track of your credit report and score, you should have a pretty good idea of where you stand credit-wise. But it takes a lender to look at your credit, income and other factors to determine what you can be approved for. Getting preapproved will help you avoid wasting time looking at homes you can’t buy, and it gives sellers more confidence in your offer, knowing you’ll probably be able to get the funds you need.
6. Get help.
Often in these pages we tell you about financial matters you can learn to handle yourself; this is not one of those times. Once you’ve decided that you do in fact want to own a home, have determined your budget, figured out your requirements and have been preapproved for a mortgage, it’s time to bring in a professional real estate agent: a Realtor®.
Working with a Realtor, you’ll have a licensed expert whose job it is to represent you and your interests at every step of the home-buying process. Sure, you can use online resources to find homes you might be interested in seeing, but your Realtor will bring knowledge of the market and process that can’t be replaced with online tools. Find one you can trust, who has experience with the area and home type you’re considering, and let him or her do the work.
7. Live happily ever after.
OK, so it won’t be quite that easy. But if you’ve completed the steps we’ve described, and have the right Realtor on your side, you’ll have what you need to find and purchase the right home for you – a place where you can rest easy at night, and find the next big thing to dream about! And if you’re looking for more information on navigating the real estate transaction, check out the steps on this infographic.
To learn more about the home-buying process, check out our Expert’s Guide to Home Buying, available at ArizonaFederal.org or at any branch. And when you’re ready to get preapproved for a mortgage, talk to one of our mortgage experts by calling