You know space is at a premium when your laptop is bigger than your stovetop. If you are considering expanding your footprint from 700-square-foot apartment to a 2,000-square-foot one-story house, here are some tips to help get you there.
1. Find out what you can afford
Your mortgage payment should total less than 30% of your gross income. Lenders hone-in on it even more, saying the target mortgage payment -- including taxes, insurance and principle & interest – should be 28% or less of gross income. Total debt, including your mortgage, should total no more than 36% of your gross monthly income.
NerdWallet Inside Tip: One easy rule of thumb for determining how much house you can afford to buy is taking your annual gross income and multiplying it by 2.5 times.
A required down payment will depend on your credit history and the amount you are borrowing. A down payment of 20% or more will keep you from having to buy private mortgage insurance (PMI) which will lower your monthly payment.
2. Check your credit report
Before you start your serious home shopping, pull your personal credit report and score. The report is free, the score is not.
Each of the three primary national credit reporting agencies, Equifax, Experian and TransUnion, are mandated by law through the Fair Credit Reporting Act (FCRA) to provide you a free credit report once a year. The official site for it is annualcreditreport.com, or you can call (877) 322-8228.
Each credit bureau develops its own score, but the information is also compiled and interpreted by Fair Isaac Corp., which generates a “FICO” score. There are free services that can estimate your score but the authentic FICO score is the one most creditors use. Obtaining your FICO score costs about $20.
3. Get preapproved
Sitting down with a lender and getting preapproved for a home loan is an essential first step. It shows the real estate agent and any potential seller that you are serious – and qualified – to purchase. It will also keep you from falling in love with a house you can’t really afford.
A preapproval is not a guarantee that you will ultimately be loan worthy. All of the steps that lead to a loan closing must still be attended to: an appraisal, credit, debt and employment verification and all the rest.
4. Hire a broker
A real estate agent can save you a lot of time and effort in narrowing down the marketplace to the most relevant contenders. A broker can guide you to homes that best suit your budget, as well as provide information as to how long a house has been on the market, comparable sales, etc.
Of course, you’ll want to visit open houses, make a wish list of features you want most in a home, compare neighborhoods, consider the style of home that will work best for your family – and think about the maintenance a home will require to determine if it works for your lifestyle.
5. Hire an inspector
It’s pretty standard fare for home renovation reality shows: Things are going fine; everything is on schedule and under-budget, and then – boom! Termites under the terrace! Mold in the master bedroom! A plumbing apocalypse!
Hidden surprises might make for high drama and keeping you tuned in to see what happens “after the break,” but you certainly don’t need them messing with your move-in mojo. Hire a certified house inspector to find any unseen “gotchas” that might be lurking under the floorboards.
If possible, follow along with the inspector and take your own notes. It may take as much as three or four hours, but being able to ask questions and get advice during a professional inspection can be invaluable. You’ll also receive a detailed report of the findings from the inspector. Combined with your notes, you’ll likely have a long list of possible improvements and upgrades to consider in the future.
But best of all, you’ll know if there are any deficiencies that need to be addressed before closing your loan.
6. Check out the neighborhood
It is easy to fall in love with a neighborhood at first glance, but before you jump into the deep water of homeownership you’ll want to give your potential new neighborhood a thorough review.
First, find out about the real estate market in the area you are considering. Websites like Zillow.com can help. Drive by -- or even better, walk -- to other homes for sale in your price range and consider their comparative value to the house you are considering.
To get an overview of the quality of schools in your area, ask your real estate agent. Then, do a little research for more details. Websites like greatschools.org have ratings, reviews and test results that grade schools on a 1 to 10 scale.
Moving into your first home means not only gaining space but gaining a sense of place, too.
Hal Bundrick, NerdWallet