5 Steps to Start the Home Buying Process

Many buyers have a vision for their new home and may feel ready to jump into the market. However, the process can quickly descend into a chaotic mess if they don't impose some order upon it. Before starting to look at homes, here are five things to do before diving into the housing market.

1. Create a Budget

The very first thing you should do is create a budget. There is no reason to consider homes outside what you can reasonably afford. A common rule of thumb is to set a budget no more than three times the annual household budget, but it is important to remember that everyone’s situation is different.

Perhaps more important, the mortgage payment shouldn't be an uncomfortable portion of monthly income. Let it creep higher and you may find yourself struggling to meet all your other financial obligations: food, utilities, car upkeep, and so on. It can particularly strain finances when emergencies arise, as they periodically do.

And don't forget that, without a 20% down payment, private mortgage insurance can add a noticeable cost on top of the existing monthly payments. Even if you can easily make the monthly mortgage, having enough savings for the down payment may help in the long run. There are alternatives to putting 20% down, but all of them typically cost you more in the long run.

2. Get Mortgage Pre-Approval

While it might feel early, shop around for lenders and get a mortgage pre-approval now, before you even start looking. It will speed up paperwork later, making it easier to close in a timely manner when you find the right home.

There's two kinds of mortgages: fixed rate and adjustable rate. Fixed rates are constant. You'll owe the same amount of money throughout the life of the mortgage. Adjustable rates are not. They may start out cheaper than a fixed rate, but they can be adjusted over time by the lender. One common use for adjustable rates is for those that will only be in the home a few years and want sell it before the rates change.

Be wary when being pre-approved for far more money than you can safety afford. When it comes time to shop for homes, stick to your budget.

3. Research

Before you start actively looking for a suitable home, look at local listings to get a rough idea how far your money will go. When it's time to actively look, you'll have an idea what is and isn't reasonable and adjust expectations accordingly. And don't just look at prices and home features. What does the neighborhood offer? What's the school district like? What's within walking distance? How far do you have to drive for groceries?

4. Make a List of Needs and Wants

Buyers usually can't have everything they desire in a home right away, so you need to sort things into needs and wants. Needs are things you can't go without, such as number of bedrooms. They're also things that can't be easily changed after purchase.

Wants are things you would prefer to have, but they're not deal-breakers. Many times, these are things you can change yourself or things that break the budget with little return.

5. Find a Real Estate Agent

Don't pick the first real estate agent you see on a billboard. Ask around for recommendations. A good agent will be a lifesaver, finding the best homes for you to consider according to your requirements. They know the market, specific properties, neighborhoods, and the prices of similar properties. They also know the ins and outs of sale contracts so you don't end up with any surprises.

That may sound like a lot of work before you even start actively looking for properties, but it will pay off in the end. Know your budget, get mortgage pre-approval, do your research, create a list of wants and needs and get yourself a sound real estate agent. After so much prep work, your search will go much more smoothly and will create less frustration as you search for the best home for your needs.