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Make Your Move... Opening the Door to Your First Home
If you’re like most newlyweds, owning your own home is a major part of the American dream. Though buying your first home can be one of the most exciting times in your life, the process can often be intimidating and overwhelming. The following steps will help you get started on the path to home ownership with confidence:
Step 1: Get Educated: A recent survey from the South Dakota Housing Development Authority asked first-time home buyers what their greatest barriers were to owning. Nearly 40% said fear or unfamiliarity with the home buying process. Fortunately, there is a way to become more comfortable buying your first home. Seek out pre-purchase home buyer education and counseling opportunities. Pre-purchase programs can explain the pros/cons of owning, preparing a household budget, credit reports, financing and the loan process, down payment assistance programs, shopping for a home and details of the purchase agreement, and maintenance involved in owning a home. There are multiple agencies that provide home buyer education opportunities across South Dakota. Visit www.sdhda.org to find one in your area.
Step 2: Create a Budget: It is very important that you review your monthly spending and lifestyle before you purchase. Knowing your spending habits will help you determine the monthly house payment you can afford. You don’t want to get yourself into a situation where you are ‘house poor’ and have no budget left for dining out, taking vacations, buying clothes, etc. Only you can decide if you are willing to change some of your spending habits to afford a home. It is up to you, not your lender, to determine what amount of monthly payment you are comfortable with.
Step 3: Know Your Credit History: Before you apply for a home loan spend some time reviewing your credit. Your credit history is a critical factor in determining if a lender can loan money to you. How well have you repaid your past debts: car loans, credit cards, student loans and so on? How you’ve paid your debts in the past gives lenders some indication of how you can be expected to pay back a home loan. Sometimes credit reports are inaccurate or perhaps there are some negatives that you were unaware of. To check the accuracy of yours, you can obtain a free copy of your credit report from all three bureaus each year by going to www.annualcreditreport.com. Make sure you’ve corrected any errors and have developed a history of paying all of your bills on time. It will make the process a lot smoother for you.
Step 4: Get Pre-Approved from a Lender: When you get serious about buying a home, it's crucial to find a lender and be pre-approved for the loan so you know how much you are able to borrow. You don’t want to begin looking at homes and then discover you’ve been searching outside your price range. Rule of thumb, a lender will want your monthly mortgage payment to total no more than 31% of your monthly gross income. However, the amount of monthly debt that you have will also impact how much you can borrow. Remember, it is your responsibility to tell your lender how much you are comfortable spending each month. Since lending decisions are based upon your gross income (before taxes and other deductions are taken out), you can often be approved for more than you are comfortable borrowing. During the pre-approval, your lender will also be able to advise you on how much cash you’ll need for your down payment and closing costs, and will be able to point you to the various down payment assistance programs available for first-time buyers. As a first-time buyer in South Dakota, you may be eligible for a reduced interest rate loan and cash assistance for your closing fees. To learn more about the qualifications involved and to find a listing of lenders across South Dakota who participate in the South Dakota First-time Home buyer Program, visit www.sdhda.org.
Step 5: Find a Reputable Realtor: Once you’ve been approved, it’s then time to start shopping for a home. Using a realtor is the most efficient way to look for a home. A good realtor can make the home-buying process less time consuming and provide a valuable range of services, including: researching the list of homes for sale in your price range and showing you homes that meet your needs, providing you with information about the community, schools, real estate taxes and prices of recently sold homes in the neighborhood, assisting you in writing your offer to purchase and presenting it to the seller, negotiating the details of the sale and assisting you with arrangement for your closing. Because you’ll be spending a lot of time with this person, it’s best to find a realtor by asking friends, family or even your lender if they can give you a good referral.
Step 6: Get a Home Inspection: When buying a home, it’s important to look past the decorations and furniture to the house itself so you prevent yourself from moving into a money pit. One of the best actions you can take to protect yourself is to get a home inspection. An inspector will go through the home with you and identify any current problems, potential problems, and future maintenance issues that you will need to consider and provide you with a full written report of the condition of the home. The inspector has no emotional or financial interest in the home and can give you an unbiased evaluation of the home, its condition, what problems you may need to deal with, and the approximate costs for needed repairs. Once the inspection is complete, your realtor will help you negotiate any issues you’d like the seller to assist with prior to the offer being finalized.
Step 7: Close the Loan and Set Up a Savings Account: Closing day is the date you review all your final documents, sign them and pay any money you still owe. Once you sign all the paperwork, you will receive the keys to the house and you will be the official homeowner! It’s then time to start moving in and to celebrate your wonderful accomplishment. The most important thing you can do when you are a homeowner is to set up a savings account. You may not be able to furnish and decorate every room in your house right away. You may need to prioritize and get your savings account built up before fixing up your house. As a homeowner it is your responsibility for maintaining your home. To prevent yourself from future financial problems, you must have a savings account set aside and money going into it each month.
Owning your own home can be a wonderful thing! It brings a sense of pride like none other plus it can be a great financial investment. When you surround yourself with the right people and take these steps to properly prepare yourself you will feel more comfortable and the process becomes enjoyable. Are you ready to open the door to your first home? Home ownership is an attainable goal for most people so make your move today!
The Sioux Empire Housing Partnership is a non-profit organization that provides free home buyer education and counseling programs to make your first home buying experience a great one. Knowing what to expect, what questions to ask and what costs are involved will make the process less stressful and will make you a more successful homeowner. We encourage you to take advantage of the free education opportunities by visiting our website at www.siouxempirehousing.org or calling (605) 339-0942.
- Sioux Empire Housing Partnership, Sioux Falls, SD
This article was also featured in the 2009 VOW Wedding Planner. To view a PDF of this article, go to the HOME, FINANCE & AUTO section of VOW.