In March of 2017, we bought our first home. I was actually surprised when I first started researching the possibility of buying a home. I, like many others, thought that I needed 20% down and that I wouldn’t qualify for a loan. One day I was getting claustrophobic in our small one bedroom apartment and decided to test the waters to see if we would qualify to get a loan. The process was easier than I expected.
I went online and found a lender to get pre-qualified. Within an hour of filling out the online application, I was on the phone with the lender and was pre-qualified after only a few follow up questions.
There are many different programs that allow first time home buyers to put minimal money down and still qualify for a loan. But keep in mind just because you qualify to get a large loan, doesn’t mean your budget can handle a large loan.
Looking back at the process, there are several important steps to follow in the home buying process.
1. Save, save, save
When it comes to preparing for a mortgage, savings is one of the most important factors in starting the home buying process. Some mortgages allow you to put as little as 1% down, but just having the 1% to put down won’t cover closing costs, other expenses of moving and a safety net. It is recommended that you have about 6 months’ worth of expenses saved. I also found that having money set aside for unexpected expenses or for buying things for your new larger space to be helpful.
Setting up a budget will allow you to start this process. Each paycheck set an amount that you want to put into savings. Make sure that it is a comfortable amount for your current budget. The more you are able to set aside now, the sooner you can get into that dream home.
2. Check your credit score
There are many tools to check your credit online, but make sure the source is credible. Sometimes credit cards will provide this information on a regular basis to you as part of an incentive to use their card. By having a credit card that allows you to see your credit score, not only are you keeping an eye on your score but if you are paying your balance on the card regularly, you are also helping your credit score.
Having a good or excellent credit score can help you get pre-qualified for a loan. It also can help with a better rate on your mortgage. Keeping an eye on your score is not only important for buying a house but is a good habit to get into, as your credit score can affect many different aspects of your life.
3. Set a budget that is realistic and comfortable
Before you start the process to get pre-qualified, it is important to set a budget. Although you might be able to qualify for a higher loan amount, it is important to be realistic about how much you can spend. Try this calculator to see how much home you can afford. Make sure your budget includes expenses such as water and sewer charges, electricity, heat and any other expenses, such as association fees. Keep in mind this budget shouldn’t be your whole monthly pay. You will have other expenses and most lenders will want your mortgage to be 40% or below your monthly income.
By setting a budget, this will allow you to get a more realistic idea of what you can afford. Make sure when setting your budget you are leaving yourself some money to pay yourself so that you can keep growing your savings safety net.
4. Get pre-qualified
This is a process that can seem overwhelming at first. The thought of being ready to start looking and not sure if your budget is set at a comfortable level can be stressful. Once you have selected a comfortable budget you can now see what that budget will buy. It is important to get pre-qualified before you begin searching, so that you don’t fall in love with a house outside of your price range.
5. Make a list of what you are looking for
Now that you are pre-qualified what are you looking for? How many bedrooms? How many baths? Do you want a condo or a house? Are you looking for land to build? Do you want a fixer upper or something in ready to move in condition? Keep in mind, as you start looking you may need to give and take on that list. This is the reality check point. Is your budget high enough for what you are looking for? If not, what are you willing to compromise on to find something that fits in your budget? Also this is a good time to reevaluate if you have the budget to get what you want or if you want to wait longer to get what you are looking for.
6. Work with a Realtor
Most importantly work with a Realtor, specifically a buyer’s agent. The seller will pay this Realtor’s fee and will give valuable advice as well as filling out the paperwork that is necessary. A Realtor is a professional that understands the industry and also knows information that can help make a decision about concerns or clue you into things that you might not have thought about when it comes to buying a house.
7. Set your search parameters
When setting your parameters, I found that it helps to allow for a $25,000 increase in the amount you are willing to spend. We looked for several months and found a condo association we knew we wanted to be in. We then decided to expand our search which allowed us to see the townhouse that we bought. If we had left our parameters lower, we wouldn’t have seen the house.
8. Submitting an offer
Depending on the environment you are looking in, timing can be everything. When we bought our house, it was a seller’s market and houses were only on the market for a few days and then were gone. So we made sure to get our offer in right away. If you are in a buyer’s market, it allows for more negotiation room.
9. Navigating finding an attorney
Finding an attorney is a simple process. The Realtor you are working with should have a list of attorneys that they have worked with in the past. I also recommend asking someone who has recently bought a house if they used an attorney, and if they had a good experience. I personally went based on a recommendation from family and the attorney was also on my Realtor’s list, so I felt it was safe.
10. Buy life insurance and set up a will
This is one step most people forget. Once you become a home owner, make sure you get the life insurance coverage you need. Life insurance can be one step to planning for the unexpected, but it is also important to make sure you have a will in place. Setting up a will can help your loved ones have a plan in the event of a misfortune.
The home buying process can be stressful. After you’ve made it through the process, and you have your new keys in hand, take a deep breath and congratulate yourself. You deserve it.