It’s tough being a newbie at anything, right? Learning new lingo, how things are done and how you’ll do them is a little confusing at first. Once you get the hang of it, though, everything becomes clear and you can relax into whatever it is you’re learning.
The same holds true for the home-buying process; when you’ve never bought a home before it can be challenging to know where to start and tempting (but not wise) to jump into the process by looking at homes for sale.
So, let’s get you off to a good start – one that will lead to success when buying your first home.
The money stuff
Waiting for loan preapproval is brutal for those who have no idea where they stand on the credit scale. Those in the know, however, are far more confident, understand the loan process better and still have fingernails when the preapproval decision comes in.
Be a member of the latter group by ordering your credit from the “Big 3” credit reporting agencies, Trans Union, Experian and Equifax. By law, you are entitled to a free copy from each agency every year or if you’ve been turned down for credit.
Make sure you order your reports from AnnualCreditReport.com, the only company authorized by the government to provide these free reports.
When you get your reports, read over them carefully, keeping track of any problems you find. Each report will tell you how to file a dispute, so if you do find errors, even seemingly insignificant ones, file one. Even a small discrepancy can cause a big impact on your credit score.
Go over your finances, figuring out how much money comes in every month and how much goes out, paying close attention to recurring debt payments. The lender will do the same when it figures your debt-to-income ratio, or DTI.
If you want to calculate where you stand now, you’ll find information on how to determine your DTI on the Consumer Financial Protection Bureau’s website.
If your DTI is high, work on bringing it down by either bringing in more income or paying off some debt.
Stash some cash for your down payment, closing costs, home inspection fees and earnest money deposit. The National Association of Realtors recommends setting aside between 2 and 7 percent of the purchase price of a home just for closing costs, although I think 7 percent is rather high.
Shop for a mortgage
I’m happy to refer you to some of the lenders my clients commonly work with, or ask friends, family and colleagues for a referral to someone they enjoyed working with.
You’ll typically need the following documents when you meet with a lender to apply for a mortgage:
- If you are self-employed you’ll need tax returns otherwise, gather up your pay stubs and W2s.
- Copies of the bills you pay every month.
- Bank statements (including blank pages).
Document requirements vary depending on your personal situation and the lender, so ask for a complete list of what you’ll need to supply.
Make your wish list
Yay! The fun part. Now you can start thinking about that new home. What exactly do you want? Use these considerations when trying to figure it out:
- Nail down the location. Do you need to live near schools, downtown, public transportation? Do you want a neighborhood with lots of activity or something more serene? Kids nearby or few kids?
- What type of home do you want? Is there a particular architectural style? New or old?
- What are your must-haves when it comes to the interior of the home? Include things such as the number of bedrooms, bathrooms, square footage of the house.
- Describe your dream home. Once we know your budget, we can pare it down, but for now list everything you want in a home. Carpet or hardwood, gourmet kitchen, an office, a media room, gym, space to garden and views are something that might go on this list.
- Finally, name three features that you simply must have in your new home. These items are non-negotiable and they’ll be at the top of the list.
These are the basic steps in the home-buying process. Take steps 1 and 2 and then call us for help with your wish list.
Take the steps in order and you’ll be moving in no time!