Making the big move of owning your own home rather than renting can be both extremely exciting and extremely daunting. Having your own yard, enough space to actually feel comfortable, being able to decorate however you please, no shared walls, this list goes on. However, many first time home buyers quickly realize that the process is less navigable than they imagined. That is why we have crafted this guide — to help people not just get through the process, but to do so confidently!
A year before moving
Check your credit score: Get a copy of your credit report. There are a multitude of ways to do this, some of which are even free! Many people find errors in their credit report upon review, and some of these errors can result in higher loan rates. This is something that is easily avoidable and should be taken care of in beginning of the process.
Determine how much you can afford: The first step to buying a property is determining what you can afford to buy. It’s a good idea to meet with a qualified lender to determine what you can afford. Lenders look for a debt-to-income ratio of 43% or less or your total income. This includes your future mortgage, car loans, student loans, credit cards, etc. If you’re not quite able to afford the type of property you want to buy, you can start to make a plan. Create a budget to see what you’re spending your money on every month and start to tailor it towards what your future lifestyle as a homeowner will look like.
Make a downpayment plan: There are various types of mortgages. Typically the more money you can put down for your downpayment, the less you pay in loan costs, including insurance, and you’ll have a lower interest rate. However, with an FHA loan (exclusive to first-time homebuyers) you can put down as little as 3.5% in some cases. As you save, you should note that banks prefer it if you season your money before getting a loan. This means that they like to see stable funds in your accounts for 60-90 days or so before applying for your loan. However you can still use financial gifts or bonuses closer to when you buy.
9 months before moving
Prioritize what you want most in your new home: Unfortunately when buying a home, you usually don’t get every single thing you want. That is why it is very important to pick the things you’d most like to get out of your new home. Maybe you want to be close to work. Or maybe you want a large backyard, a luxurious master bedroom, or even a quiet street. If you’re making this decision with someone else, it is recommended that you figure this stuff out beforehand, to get it out of the way and avoid any surprises down the line. Make sure to know which trade-offs you’re most willing to make.
Research neighborhoods and start visiting open houses: There are many websites you can utilize, such as Trulia and Zillow, to find houses for sale and to see what different areas are like.
Also make sure to go and visit open houses. As useful as online tools may be, they are not a substitute for seeing the real thing. You actually have to go to different areas and look at different houses to get a better idea of what you want and what is in your range. If you see some things that you really like, this may help motivate you even more to reduce debt and save for your down payment!
Budget for miscellaneous homebuying expenses: Buying a new home entails paying for more than just the house itself. A home inspection, title search, property survey, and home insurance are a few examples, and they can really add up. So start saving now.
Start a home maintenance account: Get in the habit of setting aside a little bit of money each month for things like maintenance, repairs, and emergencies. Problems happen, so it’s best if you’re ready for them rather than scrambling at the last moment.
6 months before moving
Collect your loan paperwork: Banks are very particular when it comes to mortgage loans and they demand a lot of paperwork. Some of the things they’ll want include:
- W-2 forms – usually for the last two to three years
- Personal tax returns for the past two to three years
- Your most recent pay stubs
- Credit card and all loan statements
- Your bank statements
- Every place you’ve lived for the past five to seven years
- Brokerage account statements for the most recent two to four months
- Most recent retirement account statements, i.e. 401(k)
If you begin to collect these documents early, it’ll ease the stress when it’s finally time to get your loan. Reminder: check your loan documents and keep remembering to save and budget accordingly.
3 months before moving
Find the Right Agent: Now is the time to sit down with agents you are interested in working with. Your agent will work in your best interest to assist in finding you the right property, negotiating with the seller’s agent, and guide you through the closing process. It is important to keep interviewing Realtors until you find someone you are happy with. This person will be helping you negotiate what could be your biggest financial decision. Chose someone who you not only trust, but is knowledgeable, responsive, and you know will be looking out for you at the closing table. Read agent reviews online and ask for a reference list of their past clients. No one knows an agent better than the people who have worked with them!
At Coastal Premier Properties, we have over one hundred agents and we will match you with an agent that is your perfect fit!
Research Lenders: Your agent can also help you greatly in finding the right lender. Just like agents, talk to a few lenders until you find one you like. You will want to make sure your lender has experience representing people just like you! You can also look for a mortgage broker, who will help you find compare loan rates from multiple lenders, whereas a bank can only offer you their own in-house products.
2 months before moving
Get pre-approved for your loan: If you’ve been following this guide for the past 9 months, then your credit score, paperwork, and down payment should all be on track. You’ve done all your research on lenders and buyers’ agents. Now it’s finally time to start working with them. First of all, you’ll need to get pre-approved for a mortgage.
Make an appointment with your lender or mortgage broker and make sure to bring all of your paperwork. They will run a credit check on you and tell you the amount of the loan you are approved for. Usually people borrow less than the maximum allowed for standard of living purposes. Create a new budget that accounts for your projected mortgage payments, insurance, maintenance, and whatever else you currently have going on in your life.
Start shopping for your new home: When you get pre-approved, the buyer’s agent you’ve been working with will be able to better target homes that meet your goals and that are in your price range. This way you can narrow down your options to what is most realistic.
Get a home inspection: Once the offer is accepted, one of the first things you need to do is have a home inspector go and look at the property. The home inspector ensures that everything is good with the home and that nothing requires repair, which is something that can delay closing.
In the last month
Check to make sure that all of your financial documents are in order and review all lending documents before closing (AGAIN!): You’re almost there! If you’ve been following all of these steps, then the final stretch should be very easy compared to the rest of the process. Make sure your agent helps guide you through the mortgage documents, as that can be one of the most confusing aspects of the process.
Get insurance for your new home: Make sure to get insurance before closing. You must have proof of insurance before closing time.
Do a final walk-through: Do one last walk-through of your soon to be new home, usually a couple days before closing, just to make sure that everything is in the order that you and the seller have agreed upon in the deal.
Get a cashier’s check or bank wire for cash needed at closing: Make sure that you get the exact amount of cash needed for closing. You’ll receive that number a few days before closing. Regular checks are not accepted.
That’s it! You’re finally done, enjoy your new home!