Home buyers should work with Lauren McGinty to find a Chicago home.For most people, buying a house is the biggest financial decision they’ll make. But because the decision is bound up with the feelings around the meaning of “home”, it’s also a highly emotional decision. However, it’s vital that potential homeowners understand the nuts and bolts of the buying process so they can make an educated decision about how much house they can really afford and what will serve their long term financial health. Here are a few things I want every homebuyer to consider.

1. Take an honest look at your finances. You need to sit down, with your spouse or partner if you have one, and write down all your income and all your expenses, including student debt. Add up the two columns. Now you need to figure out your debt to income ratio. Most lenders suggest that your household expenses shouldn’t be more than 28 percent of your income. Your debt load, including credit cards, car loans, and student loans, should be less than 36 percent of your income. Before going house hunting, you might need to start paying down your debt or curbing your expenses.

While you’re examining your budget, get a credit report. Make sure there aren’t any mistakes on it, and check your credit score. The better your credit, the more likely you are to get favorable terms on your mortgage loan.

2. Shop around for a real estate agent with expertise in the area you want to buy in. You might feel pressure from family or friends to hire someone you know. However, for a decision as big as buying a house, you absolutely must be sure that you’re working with someone who understands the market and will give you rock solid advice. Check out the credentials and experience of several agents, then interview at least three before making a final decision. Also remember that the selling agent is legall bound to get the sellers the best deal possible, while your own agent will go to bat for you and you only.

Stay Realistic Throughout the Home Buying Process and Keep Your Sense of Humor

3. Get preapproval for a mortgage and shop around for the best rate. This is different from being prequalified. To get preapproval, you have to submit documents proving your income and expenses. This will give you and idea of the type and price of the home you should be shopping for. Be sure to look at several banks and credit unions before settling on one. What appear to be small differences in loan terms can really add up to a lot of money over the life of the loan.

4. Factor in your future plans. Are you married to your current partner? Are you planning to have kids in the next few years? Do you expect to keep your current job? If any major changes are on your horizon, it might make sense to shop for a house that costs less than you’re preapproved for.

5. Don’t skip a home inspection. This will reveal any significant issues with the house and should inform your negotiations with the seller over the final price. Or you might decide the issues are too big and that you need to walk away.

6. Finally, have a back up plan and stay flexible. If there’s anything I’ve learned over my decades of helping people buy and sell houses, it’s that things rarely go exactly according to plan. Try to keep your sense of humor handy and don’t get your heart set on anything until you’re holding the keys in your hand!