Spring home-buying guide: 6 ways to do it right

It's peak home-buying season. Even though buyers have a greater advantage than they've had in awhile, it's still easy to take a wrong, frustrating and costly turn. Here are six ways to make sure you don't.

Home Affordability
See where you max out
Gross annual income:
Downpayment amount:
Monthly debt:
(eg. student loan, credit card payments)
Mortgage rate:  %
Annual property taxes:
Annual homeowner insurance:
CALCULATE  
Aim for pre-approval
What should come first: Affording a home goes beyond being able to pay the mortgage. You have to have enough money set aside for a down payment, closing costs, moving costs, and the initial costs of living in the home (e.g. new furniture and paint). So before you do anything, "take a hard look at your finances and figure out what you can afford," said John M. Robbins, chairman of the Mortgage Bankers Association.

As a general guideline, it's best not to spend more than 2-1/2 times your income on a home. Your total housing payments should not exceed 28% of your gross income. Total debt payments, meanwhile, should come in under 36%. That means payments on all loans, including your mortgage loan, school loans, auto loans and credit card debt.

Next, shop around for pre-approval: Approach at least four to five lenders (or have your mortgage broker do so) to see what kind of loan you can get pre-approved for, Robbins suggested. Generally, you want to go with the lender that offers the best rate and the lowest loan costs.

A pre-approval letter makes you more attractive to sellers, since it's an indication a mortgage lender has investigated your finances and is willing to lend you a stated amount. Approval typically takes several days.

Pre-approval letters are usually good for 60 to 90 days, Robbins said. If you do make an offer during that time, the loan will be made to you contingent upon a number of factors, including a satisfactory appraisal of the house and the lender's satisfaction with your financial situation at the time of purchase.

What if you don't qualify for pre-approval: If your financial situation raises a red flag with lenders and they're not willing to pre-approve you for a loan, find out what you'll need to do to qualify for one and how long it will take, Robbins said.

If your credit score is an issue, one way to boost your score is to avoid making any big purchases on your credit card for 60 days prior to applying for a loan.


Loan pre-approval

Buyer's agent

Real estate attorney

Written offer

House inspection

House appraisal
The good news: Rocky real estate markets mean home shoppers finally have the upper hand. (more)
National Association of Realtors cuts 2007 forecast; would mark first drop since it began tracking values in 1968. (more)
Wondering how home prices got so high - and why they now have to fall? Here’s the story of what hit you: an amorality play in four acts. Money Magazine reports. (more)
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.