There are two main ways to search for your new home. First, you can calculate how much you can afford, then shop for homes in that price range. Your income, size of down payment, and any equity you have in your current home are the major determinants of how much home you can afford.
You may want to limit your search to home prices that, together with your down payment, allow you to obtain a conforming loan. A conforming loan means that the loan amount is within the annual limits set by Fannie Mae and Freddie Mac, two government-sponsored enterprises that focus on investing in residential mortgages.
For 2023, the conforming loan amount for Fannie Mae- and Freddie Mac-sponsored loans is generally $726,200. For Alaska, Hawaii, and other high-cost areas of the United States, the limit is as high as $1,089,300. A conforming loan allows you to avoid private mortgage insurance if you make a down payment of at least 20% on the home purchase price.
If your mortgage loan is conforming, you will likely have an easier time finding a lender than if the loan is non-conforming. (A loan that is too high to be a conforming loan is called a ‘jumbo’ loan.) Generally, the interest rate on a conforming-loan mortgage is lower than on a non-conforming mortgage.
Once you’ve prequalified yourself for a home within a certain affordable price range, you then limit your search to homes in that range.
A second approach is to search desirable neighborhoods or streets, find a home that is advertised for sale, and then calculate its affordability. You may be able to negotiate a lower sale price.
A checklist of a home’s desirable or essential attributes helps you to shop. Some of these attributes can be clearly measured, such as the size of the living area and number of bedrooms. However, many attributes are qualitative, which require you to interpret what is important for that attribute. Here’s a sample home checklist:
|Quality of structure and foundation|
|Size of living area|
|Size of lot and yard areas|
|Quality and type of flooring|
|Grading of lot and soil quality|
|Number of bedrooms/bathrooms|
|Quality and age of fixtures|
|Garage and storage area size|
|Ventilation and lighting|
|Quality and age of insulation|
A checklist of important neighborhood attributes is also helpful:
|Property values (average sale price)|
|Crime rate and crime-reduction efforts|
|Proximity and quality of schools|
|Proximity and quality of services|
|Commute distance and time|
If you can’t find a home yourself, alternative resources include:
- Home-listing or relocation services. These can easily be found using a Web search engine like Yahoo! or Google. Home-listing services are also called multiple-listing services (MLS).
- Real estate agents or brokers. The Web or your local phone directory can help you find an agent or broker, who will help you access a multiple-listing service. Real estate agents licensed with the National Association of Realtors are called Realtors.
- Personal references. Your co-workers, friends, or acquaintances are a potential source of leads to home listings in neighborhoods that you aren’t able to visit easily.
- Newspapers. Homeowners selling on their own use the local newspaper to advertise. Buyers often place an ad for a desired home if their search is fruitless.