4-Step Plan for Rookie Home Buyers

With prices and loan rates low and inventory high, this is an ideal time to buy a home. Many first-timers are taking the plunge, but it pays to have a plan first. The high foreclosure rates show what can happen if you buy without doing your homework.

Responsible buyers can follow these four steps to ensure they're financially prepared to purchase and own a home:

• Credit check. Order a credit report and assess your credit. Most mortgage lenders use FICO scores to determine loan eligibility. Generally the higher your FICO score, the lower your interest rate. If your score is higher than 650, you shouldn't have any trouble qualifying for a mortgage. If it's under 600, try to reduce your debt before applying. If you spend more than 36% of your gross monthly income on debt, lenders are less apt to consider you a good loan risk.
• Do the math. Figure out how much you can comfortably borrow. It's not always a good idea to borrow the full amount offered. Many mortgage lenders will loan you up to 33% of your gross income, but financial planners say you're smarter to borrow no more than 25%.
• Leave some breathing room. If you've been renting, you're used to calling the landlord when the sink leaks or the A/C goes on the fritz. As a homeowner you'll be shouldering all the maintenance costs of your new home. Don't forget to factor into your budget a monthly amount to cover present and future maintenance, repairs and improvements.
• Save first. Save enough money to cover purchase costs before you buy a house. The mortgage amount won't generally cover closing costs or a home inspection, appraisal or warranty. Closing costs run from 3% to 6% of the purchase price depending on where you live. Your realtor can give you a fairly accurate figure.

An experienced realtor like John Day can help you prepare for buying your first home. A good listener and patient teacher, John will guide you effortlessly through every step of your home purchase from prequalification to closing and escrow. Visit John Day's website for more valuable information for home buyers. (You'll find great tips for sellers too!) Take a virtual tour of hundreds of the latest listings in the Maryland and Washington DC metro area. Give John a call and start shopping for your dream house today. If you're buying or selling a home, John Day is your key to success.