Buying a house is something most of us do only a handful of times in our lives -- if we're lucky! So it's not surprising that so many buyers use a real estate agent to help them through the process; agents understand negotiation and home transactions, and they've usually experienced multiple home sales, so they can act as a trusted advisor to guide you.That said, oftentimes, contacting a real estate agent shouldn't be your very first step when it comes to buying a house. You'll be in a better position to pick the best agent for your needs and find a perfect match if you do a little bit of research and work beforehand. What does that involve? Make sure you've at least thought about the following tasks before you sign an agreement to work with a real estate agent.
Figure out how much you can afford to spend on a house
You don't need to have an exact amount, but when you have at least a ballpark range for the amount of money you can afford to spend on a house, you'll know more about what you need to do to get ready to take the plunge, from saving up your down payment to getting yourself financially ready in other ways. Most experts suggest that you spend no more than 25% to 33% of your take-home pay on housing, and don't forget: Your mortgage payment will include more than just your mortgage loan. You'll also be paying the mortgage interest in the loan, in addition to other responsibilities -- homeowners' insurance and taxes, plus mortgage interest if you have less than 20% to put down on your mortgage loan.
There are online calculators you can use to figure out what your ideal monthly mortgage payment (and therefore what you can spend on a house in terms of total sales price); feel free to use them, but make sure the tool can factor in taxes, your down payment, your insurance, and mortgage loan interest before you decide to trust what the calculator spits out.
Take a serious look at your current debt
There are a couple of ways that your current debt can influence your mortgage loan. First, the lenders are going to look at your debt-to-income ratio to make sure you aren't over-extending yourself with a home loan. And second, by paying down your debt, you'll be increasing your credit rating, which will have an effect on the interest rate your lender is able to offer.
What kind of debt should you be considering? Student loans and auto loans are two big ones, but your credit score can also move up or down according to how many credit cards you have and how much debt you've got racked up on each one. If you can, try to pay down your high-interest debt (probably the credit cards), and do your best to pay your cards off in full every month. This will show lenders you take your debt responsibilities seriously and can really benefit you when it comes to buying a house down the road.
Polish up your credit
To get the widest range of mortgage loan options, you'll have to make sure your credit is as good as it can be -- some lenders won't offer you a loan at all if your credit score is below a certain number. You can increase your credit score by paying off old debt, especially if that debt has been sent to a debt collector and is less than seven years old. And it might seem counterintuitive, but if you don't have any credit cards at all, then opening an account or two can benefit your credit score, especially if you're diligent about paying those cards off every month.
You can get a free copy of your credit report from major credit agencies once every year, so the first step is to ask for one. If you have access to a credit counselor, you might want to ask a counselor about the things you can do to increase your credit score. They can tell you which debts to pay off first (usually the ones that are in collection and the highest-interest debts), and it's typically a good idea to automate as many payments as you can -- student loans, for example -- if you have a history of late payments. Just make sure the money is in the bank when the payment date rolls around!
Talk to a mortgage broker
Most mortgage brokers can also help you with the first two steps if you're struggling there -- they usually have credit counseling resources you can tap, and a mortgage broker can give you a solid idea of how much money you can spend on a house. There's some debate about whether you should talk to a mortgage broker or a real estate agent first; the argument for talking to an agent first is essentially that an agent can help you pick a mortgage broker who can get a deal done quickly. That's not a minor thing, as you'll learn -- most of the time it takes to close a home sale is because of all the hoops you need to jump through to get the mortgage loan finalized -- but you can oftentimes find a high-quality mortgage broker on your own by asking your friends and family members who own homes. Your own bank or credit union may even have some free resources you can tap, too.
The advantage to finding a mortgage broker first and getting your loan secured is that once you are ready to talk to a real estate agent, you can hit the ground running, which means shopping for homes as soon as possible. The order of operations is up to you; many buyers feel more comfortable working out the finances before they start shopping.
Get pre-approved for a mortgage loan
A pre-approval is different (and more robust) than a pre-qualification, so don't make the common mistake of thinking that because you downloaded an app and entered in some financial information (which nobody bothered to check) that you are pre-approved for a mortgage loan. To get a pre-approval, you'll have to submit proof of income, bank statements, and possibly even tax return information to a mortgage broker, who can then provide you with a letter that says you're pre-approved to buy a home for a certain amount of money.
This is a big advantage when it comes to making an offer on a home. Sellers and their agents are more likely to consider buyers who are pre-approved than buyers who are pre-qualified because they are farther along in the loan process and have done more due diligence on the front end to ensure there are fewer snags in the transaction itself.
Think about where you want to live
You might already know what neighborhood or school district will fit your needs best, but if not, now is the time to figure it out. Sometimes a home's environment can vary drastically depending on the neighborhood or even the block where it's located, so you'll want to do some research and talk to as many people as you can about where they live. Social media can be especially useful when you're researching an area; many neighborhoods have Facebook groups where people can ask questions and share information, so find as many of those as you can and join up. Ask the questions that concern you most -- whether it's about where people walk their dogs or what the schools are really like.
Sometimes local news outlets can also be useful, and the Chamber of Commerce websites for different areas and neighborhoods can hold a wealth of information, especially about local businesses. You can also visit the city and county departments in the areas you're considering and ask them how you can find information about ongoing or upcoming developments; this way you won't be taken by surprise if and when a construction outlet breaks ground on the same block where you're hoping to buy.
Research home values
One of the best ways to research home values is to look for homes that are for sale or under contract in the areas where you're thinking about buying. Keep in mind that the listing price -- the price that the seller has placed on the house -- and the sales price can often be pretty different, depending on the market; maybe the sales price is higher or lower than the listing price, and maybe the seller will have to drop the price before the house sells. For that reason, homes that have recently sold or are under contract are a more reliable barometer for home values in a certain area.
Spend some time on real estate websites, whether it's a brokerage website, a portal like Zillow or realtor.com, or even look at county sales records (though these might be a month or two out of date). Sometimes you can find information about recent sales through a flier or mailer that a brokerage sends out, or booklets that they make available at their offices. Look at the houses that are the closest in price range to what you think you can afford and start setting your expectations accordingly -- or look at different neighborhoods if you think you'd rather get a little bit more for less.
Start shedding possessions
Moving is never fun, and it's even less fun when you haven't purged yourself of any unnecessary belongings beforehand. We've all done that thing where we move a bunch of junk into a new place, only to get rid of it later on -- so do yourself a favor and avoid that trap altogether by going through your stuff and getting serious about what you want to take with you and what you don't.
Even if you're moving into a bigger house with more space, don't be tempted to bring a bunch of excessive items with you that you'll never touch or use until the next time you move. Think about the furniture you'll want to replace and, if you can, go ahead and get rid of the furniture you know you aren't going to need immediately and want to upgrade, anyway. That'll save you from having to get it out of your house when you order your new stuff. Clothes, books, games, and other media are probably also good opportunities to get rid of stuff -- can you digitize your CDs (if you still happen to have any) or videos and save yourself some room? Do it! As a bonus, you may be able to sell some of your things and make a little bit of extra money.
Visit some open houses
Pictures may replace a thousand words, but nothing replaces a thousand pictures like walking through a house yourself to see, smell, hear, and experience it. Even if you're not ready to buy just yet, it's not a bad idea to spend a weekend or two visiting open houses in the neighborhoods and areas where you are hoping to buy -- you'll get an idea of at least some of the layouts and size, and can walk around the yard to assess the property. Pay extra attention to the noise levels and any smells (especially outside) that seem unusual; these are good things to understand about the area where you want to move, particularly if you forgot or never knew how close it was to the airport or that you can smell cattle farms when the wind blows a certain direction.
One thing to keep in mind is that many real estate agents use open houses to find buyer clients. Of course, there's nothing wrong with that -- you might find the perfect agent by visiting an open house -- but make sure that agents aren't asking you to sign a representation agreement with them before or immediately after you walk through the house. You can tell them you'll add them to the list of people you're considering for your agent, and mean it, without binding yourself to them for the immediate future.
Ask for referrals
If you have friends or family members who have bought homes, especially recently, it's time to start asking them about who they used and what they thought of their agent. One current trend in real estate is all about a real estate team, where one person specializes in writing contracts while another shows you homes, another negotiates offers, and so on. This might be a great setup for you, but if you were hoping for a single expert to walk you through the entire process, then you need to think about whether a team is the right fit for your experience. If you do get a referral to a team, some questions to ask might include "Will there be a point of contact who will answer my questions when I have them during the process?" and "How do you keep buyers and sellers updated about where we are in the transaction and what comes next?" The answers might be illuminating for you and could help you decide whether a team structure is right for you or not.
Get a list of potential agents from your network and make sure you ask your contacts if they'd use the agent again and what their experience was like. If you're still in those neighborhood groups from your research phase earlier, they can be another great place to ask for recommended agents. Sometimes a conversation or social media thread will tell you everything you need to know about whom to hire.
Research possible agents
One of the beautiful things about living in the internet age is that you can look up just about anybody online. Many agents will have profiles on Facebook, Zillow, and other web outlets that allow past clients to leave reviews. Take the list that you collected from your friends and family members and start looking up agents. Write down notes from some of the top reviews, and don't neglect poor or middle-of-the-road reviews, either -- sometimes they can tell you a lot. A bad review doesn't mean the agent is bad; you can usually read between the lines and determine whether the person who left the review is a reasonable human ... or not so much.
When you have a short list of three to five agents, start calling them and asking them questions. Talk about their typical process, how they help buyers find homes, what terms are usually negotiable and what aren't, and how many homes they've sold in the area where you're looking. You should also ask about commission rates -- like any other business, good agents should probably be charging more for their services, so you don't necessarily want to go with the agent who offers you a discount rate, but if a rate seems high, you definitely have the right to ask what the agent does that sets them apart from their peers.
After you've talked to the agents, it's time to make a decision: Who do you trust to take you from start to finish? Once you've got an agent, it's only a matter of time before you're walking through the front door of your new house; this really is the beginning of a beautiful relationship.
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