Buying your first home is one of the most exciting steps you’ll ever take in your life and done right it can be a low stress process. However, if you try to start from the middle this can create a multitude of roadblocks and ultimately lead to failure and disappointment.
Here are 6 steps that can help you get yourself in a position to be handed the keys to your first home.
1. Basic initial research. If you have been renting for years or if you’ve been living at home and are about to set out on your own, chances are this is uncharted territory for you. Initially, you should determine basic locations or neighborhoods you would like to live in as well as other factors that might narrow your criteria. We refer to these as “must haves.” This can be anything from a garage, to a pool, or even a specific school zone. Knowing what you want and where you want will make the process of narrowing in on ‘the one’ home much easier.
2. Your credit. This is harshly straight forward. If your credit is poor, you won’t get approved for financing. There are a ton of factors that determine your credit score, and with numerous free resources available (such as Credit Karma) you probably already have a good idea what your credit score is. If you have recent late payments that have reported to your credit, it is imperative that you never have a payment for any account report late from the time you decide to begin the process of purchasing a home. A second factor that causes credit to suffer is carrying balances that are close to or ‘maxed’ out of the credit limit. As a general rule of thumb, a balance under 33% of the limit will increase your scores. Carrying a balance above 50% of the limit will negatively affect your credit, and balances above 66% of the limit are likely to have a severe negative impact to your credit score.
3. Your income. Most traditional lenders will require you to have 2 years of steady employment to accept this income in determining the amount of money they will lend you to purchase a home. In some cases, lenders will accept less then 2 years employment history (ex: if you were in school prior to your employment, if you had a significant & verifiable reason for being out of work for a period of time during the 2 years). You’ll be required to provide W2’s, paystubs, and possibly tax returns to verify your income and employment.
4. Choosing your real estate agent. Realtors are important partners who can assist you in the process of buying a home. Equally as important is that using the resources of a realtor are FREE to you when you buy a home. The sellers in almost all circumstances pay the buyers agent commission in a traditional real estate transaction. Not only will the realtor assist you in viewing homes, they will prepare all the paperwork and assist you in the process of negotiations, inspections, and ensuring that you are protected in every aspect of the process all the way through the final closing.
5. The home search. Now that you have a mortgage preapproval and have selected a realtor, it’s time to get out and look at homes. Your realtor should be able to provide you valuable resources through property search apps and by conducting searches of the MLS for homes that meet your criteria. Get out and look at homes and be prepared to make an offer once your find the right home because the best homes sell very quickly.
6. The process. Once you find the home you want to purchase and an offer is accepted, there are numerous steps to get you through to the finish line. The major milestones are i. the home inspection ii. the loan approval iii. The appraisal and iv. The closing. It is important to note that there are 3 out of pocket expenses you’ll need to plan for throughout the process a) the initial deposit, typically around 1% of the purchase price b) the home inspection: roughly $350 and c) the appraisal: approximately $400.
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