We’ve heard the news about the failing housing market, how prices are plummeting and sales are stagnant. Now is the time if you’re looking to buy, but be careful. Even in this buyers market you can still trip up. Here are a few tips and things to consider before signing on the dotted line.

More Than Just Rent

Looking to move beyond renting? This is without a doubt an excellent time to buy. With interest rates so low and home prices finally coming back down to earth, the time is now. Before you go diving in headfirst however, sit down with your local lending officer or financial advisor and really plan out your next step.

Always remember that you’re going to be paying a lot more than just your mortgage when you buy a home, and those payments can fluctuate. Depending on your financial situation, a steady rent might be better than an adjustable loan with taxes, utilities, maintenance costs, insurance, etc. In order to see if your income can support a mortgage, calculate your Debt to Income Ratio.

Debt to Income (D/I), is calculated (to a point) by your lender, but you can do a more accurate one yourself. Obviously you take your monthly income (I suggest the net amount, after taxes), then subtract the bills you have to pay each month. These include your car payments, any credit cards, utilities, etc. What is left is how much you are able to put towards your mortgage payment, and hopefully your own savings and use. By doing this you can work backwards to see what price range you can afford.

While your credit score and report are important parts of getting a home loan, your D/I is just as important. When the bank looks at your credit score, they are looking to see if you have a history of paying back your loans. If your history is good, they are more likely to approve you. But however good your credit is, if your income can’t support the monthly payments (which, if you’re a first time homebuyer are probably adjustable) you still won’t be approved. By paying down your credit cards and other debt you not only increase your credit score, but you also lower your D/I. The lower your D/I, the more cash you have on hand to put towards the mortgage, and therefore the banks feel better about writing you a check for several hundred thousand dollars.

While this all sounds a little scary for first timers, sitting down and getting your expenses on paper will help take a lot of the guesswork out of buying a home. Many don’t realize exactly how in debt they are until they list every expense they have during a month. If you calculate your D/I, you’ll know whether you need to get a higher paying job, pay down credit cards, or simply skip the mocha latte every morning in order to achieve your goal of buying a home.

Hunting for a house — the right house — can be beyond stressful. You may have a whole list of criteria, from schools for your children to commuting options to get to work. And if you don’t get it right, you can be stuck. Once you’ve bought a house and moved in, you’ll be looking at a painful financial situation if you want to move right out again.

While you are looking at houses, you need to focus on the pros and cons of each individual property, rather than focusing on more general issues. To remove some of the worry of house hunting — and save money in the long run — complete these four steps before you even look at a single ‘for sale’ sign.

1. Get preapproved. Preapproval for a mortgage means that you know exactly the amount of money you can spend on your new home. You won’t waste time  and effort on homes out of your price range if you know just what sort of mortgage you can get. Furthermore, many people don’t know their credit score off the top of their heads, let alone the amount a lender will give them for a mortgage. That includes me, by the way. Rather than guessing, you should know.
2. Make a wish list. Before you start looking, it’s worthwhile to make a list of exactly what you’re looking for. Dream big: list all the qualities you want in a home, and then prioritize. You might also want to note which items on your list are things you can change in a house that meets most of your other needs. I, for instance, have a preference for energy efficient homes — but I can make the average house more energy efficient with a little time and money.
3. Know the market. There is an amazing amount of real estate information online for every zip code in the country. Do some research: recent sales prices, neighborhood statistics, market trends — even where the local landmarks are in relationship to your preferred area. Even if — especially if — you are unfamiliar with the area in which you’re looking for a home, you should research your potential neighborhood thoroughly. You might even go to the effort of contacting people living in the area to get their impressions of specific locations.
4. Discuss your expectations with your agent. If you are working with an agent to find your new home, you should do your best to tell your agent exactly what you are looking for in a home. Agents want the process to move as smoothly as you do, and if they know your spending limit and what you are looking for in a home, they’ll avoid showing you houses that don’t meet your needs. Both you and your agent can save time with a little communication.