The time has finally arrived: You’ve decided to buy your first home. 

It’s a huge step and one that can be the biggest and best financial decision you will ever make. Investing in a home can be an exciting and fulfilling event that can change your life forever. 

However, before you call your realtor and tell them you are ready to buy the new home of your dreams, we recommend that you do some important research that may save you time and money. 

1. Assess your debts: Your mortgage underwriter will look at all of your debt to see if you have the funds available to pay your monthly mortgage. Mortgage companies typically use a “DTI” or “Debt to Mortgage Indicator”. The “36% Rule” applies. This means that your monthly debt doesn’t surpass 36% of your income. Most home loan funders want no more than 43% of an applicant’s income going to pay debts. So, examine how much debt you are carrying on your credit cards, student loans, and installment loans (typically auto loans). Which can you pay down and eliminate before you apply for a mortgage? The less you owe, the better your credit score will be which means you will get a lower percentage rate on your loan. 

2. Look at your budget: Before you buy a home, it is essential to see what you are spending and where you are spending it. Itemize every expense, including credit cards and loans. Can you afford a monthly mortgage payment based on your budget? Also, find out how much the property tax will be for the home and if any HOAs or neighborhood fees are involved. Look up the monthly utility bills for the home(s) that you are interested in. Lastly, contact your insurance agent to get the cost of a homeowners insurance policy. Now, you will know how much you will be spending and if you can afford to buy a home at this time. 

3. Determine your loan down payment: If you’re able to make a down payment, and not all home loans require them now, determine how much you can make. Usually, mortgagees want a minimum of 3.5% up to 20%. The larger the payment, the lower the monthly mortgage and also the lower the risk to the mortgage company. So, if you are purchasing a home in Frederick, Maryland, the median home cost is $379,400. *** So, if you are doing the minimum, you would need to make a down payment of $13,279, not including closing costs. 

4. Get pre-approved: Once you have paid off credit cards and brought your debt load down, you will need to get pre-approved. Find out how much you can get approved. This will make your home search realistic. Also, most realtors will not take anyone who hasn’t been preapproved. 

5. Home type and location: Now that you have been preapproved and can begin looking, figure out where you want to live and what type of home you want. Consider the drive to work, schools (if you have children), townhouse, single-family, condominium, country, city, suburbs, grocery stores, gas stations, hospital, houses of worship, service stations, and other pertinent factors. How much space do you need? Do you need special accommodations? 

6. Compare mortgage rates: Don’t accept the first offer that comes along. The lending market is quite competitive. Get the costs and rates of several companies before contacting one. Look at closing costs, mortgage rates, lenders’ fees, and points before making your choice.

Purchasing your first home can be both exciting and stressful. But nothing worthwhile is ever easy. We wish you much success as you begin the search!

Lindquist Insurance can advise you on the coverage and cost of the homeowners’ insurance on your new home. Call (301) 694-0008 to speak to our experienced and licensed insurance agents for a consultation. We serve the Annapolis, MD, and Frederick, MD areas.

*** For more information on the cost of living in the Frederick, MD area visit the Best Places website .