A Prospective Homeowner Countdown

Between the frantic rush of the holidays and the terrible weather, winter isn't usually a popular time to buy or sell a home. Now that calmer, warmer spring days are on the way, home-buying season is about to kick back into gear. If you want to purchase a home this year, don't wait - start preparing now. The home-buying process has many steps that can and should be completed well in advance of the time you hope to actually be living in your new home. (For more, check out Top 10 Tips For Buying Your First Home In 2011.) IN PICTURES: 7 Tips On Buying A Home In A Down Market

  1. Scout Locations
    Have you really pinpointed exactly where you'd like to live? What about backup locations that aren't your first choice but that would still be good choices? You don't have to wait until spring to drive through neighborhoods and see which ones suit your needs and tastes. You can see what homes are like in the area, how well they are maintained and what amenities are nearby. You can also research schools and crime statistics.

    One thing that you often can't do effectively in bad weather, though, is get a true sense of what the community is like. The neighborhoods you're interested in might be totally different - in good ways or bad - when the weather is warmer and people start spending time outside. If you want to live in a quiet neighborhood where everyone stays inside all the time, for example, make sure to reexamine your most-desired locations when the weather warms up. (For more, see The 5 Factors Of A "Good" Location.)

  2. Choose a Property Type
    Would you prefer to live in a condo, townhome, semi-detached house, rowhouse or a traditional single-family detached? Do you want a homeowner's association or not? Would you prefer to live in a gated community? Which is your first choice? Are there any that you would consider as a second choice? Are any absolute deal-breakers? The type of property you choose will have a big impact on things like your freedom to change your home's appearance, privacy, peace and quiet, sense of community, resale value and more. Also think about the physical features that are must-haves and no-gos, like yard size, swimming pools and shared community facilities.

  3. Calculate What You Can Afford
    Prepare a monthly budget (if you don't have one already) that accounts for all of your current monthly income and lists all of your expenses. Your list of expenses should include costs like groceries, gas, credit card debt, student loans, medical bills, health insurance, clothing, entertainment, cable, phone, heating and cooling. Then estimate which (if any) of those costs you'll drop when you become a homeowner and what new expenses will come with your home. Figure out how being a homeowner will change your monthly budget - for example, you may have to start paying for trash collection and water. Don't forget to allocate part of your budget to savings.

    Once you know how much you're bringing in, how much will be going out and how much you want to save each month, figure out the monthly payment you can afford for your mortgage principal and interest, property taxes, homeowner's insurance. Then translate that amount into a purchase price given your down payment and a series of interest rates that might be available to you in given market conditions and your credit score. For example, if you qualify for a 6% interest rate (30 year amortization period) and you can spend $1,500 a month on principal and interest, you can take out a $250,000 mortgage. If you have a $50,000 down payment, you can buy a $300,000 home. But if you only qualify for a 7% interest rate, you'll only be able to get a $225,000 mortgage, which means that with your $50,000 down payment, the home must cost no more than $275,000. (To learn more, see 9 Signs You Can't Afford Your Mortgage.)

  4. Talk to Lenders
    See if you have what it takes to get approved for a mortgage, and if not, what you need to change. Talk to several lenders to find one you are comfortable working with, and find out if there are any restrictions on the type of property you can purchase with the type of loan you qualify for. For example, FHA loans require the property to be in good, livable condition at the time of purchase.

    If you do qualify, there will be a lot of paperwork to get in order, like previous years' tax returns, recent bank statements and so on. Get a jump start so you have what the lender needs. Be aware that the underwriter will probably want more information once they start reviewing your application, and that when your closing date nears, you'll have to provide updated information, like your most recent bank statement.

  5. Get a Real Estate Agent
    Ask for referrals from friends, family and co-workers. Look for someone who is experienced and someone you get along with and feel you can trust. Make sure this professional is knowledgeable when it comes to the specific areas where you're interested in buying, and that they will be available to show homes at the days and times when you want to see them. (For more, read Finding A Good Real Estate Agent.)
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The Bottom Line
While you're taking all of these steps, don't forget to keep saving - you'll need as much money as you can get for your down payment, emergency fund and purchases related to your new home. Keep paying down your existing debt, don't take on any new debt and don't do anything that will ding your credit score, like making a late credit card payment. If you take care of all these things now, you'll be well-positioned to shop for a home this spring. (For a step-by-step look at purchasing your first house, check out our Buying A Home Tutorial.)

For the latest financial news, check out Water Cooler Finance: Anti-Government Protesters Rock Egypt.

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