Life is full of milestones. Your first words. Your first day of school. Your first kiss. Your first love. Your first job. Your first car. Your first home. Life is full of firsts.
Like all milestones, buying a home is a big step that will be remembered for the rest of you life. Whether its a good experience or a bad one, you will remember it. Maybe you have been living with the parents for too long and its time for your own space. Perhaps you have been renting for a while and realize how quickly rent prices have increased over the years. Possibly you are looking to start the next chapter with the love of your life. Whatever the case may be, it never hurts to be prepared for one of the biggest decisions in your lifetime. Use this guide to help prepare you before you start your search.
- Check your emotions
Are you truly emotionally ready for a home purchase? What is the root reason for this purchase? Many times in life we can be quick to “jump the gun” and pull the trigger on a decision when in reality it does not make sense. The home purchase process can be emotionally draining. Everything from offers being turned down, competing with other buyers, finding problems during inspections to funding issues during escrow can really take a toll on a buyer. If you aren’t emotionally & mentally ready for everything, it can really take the fun out of one the best & biggest decisions in life.
- Consider your future plans Where will you be in 5 years? How about in 10? Is your current employment situation secure? These are important questions to ask before starting your home search. A good rule of thumb is to consider a purchase if you plan to stay in the area/ city for 5+ years. If you are unsure, you may want to rent until you have a good handle on your future outlook. Also, you will really want to be honest with yourself and your current employment. If you feel secure, have been working for a company for 2 + years and feel like you wont have any issues with employment or income for the next 5-10 years, then you are probably ready to consider a home purchase. If you just started a career or are unsure of your job security, you may want to hold off for a while until you are ready. There is more to home ownership than just a mortgage payment every month and you will want to be sure to have a steady income to help with your financial obligations.
- Build a healthy bank accountSound like a no-brainer? Of course it does. However, it may be more complicated than you may think. How is your financial record? Have you been employed on a regular basis for 2-3 years? Are you 1099 / self-employed? If so, are you showing solid tax returns in the last 2-3 years? These are all important questions to ask. However, there is more to owning a home then most people realize. There is a mortgage, insurance, home maintenance, repairs, emergencies, moving expenses, landscaping, exterminating, painting, and more! Now if you are more of Do-It-Yourself type, than you may be able to tackle some of the expenses yourself. Just keep in mind that life can happen at any moment, including a massive plumbing leak the week you are out of town on vacation. Ouch!
- Strengthen your credit scoreThis is important. The difference between being qualified or approved for a loan can be a matter of just a few numbers called your FICO score. It can also determine the rate and the amount of interest you can expect to pay. Starting this earlier can really help when it comes time. You can do this by keeping balances low on credit cards or other revolving credit, paying off debt rather than moving it around, keeping credit cards open (even if they are unused), increasing available credit on existing card instead of opening new credit cards and paying bills on time. Just these few simple steps can do wonders to strength your credit score.
- Find a lender & get pre-qualified or a pre-approvalNothing like finding the home of your dreams only to find out you cant afford it. Connecting with a lender before your start your search can save you a lot of time and headache, both for you and your Real Estate professional. Are you looking for a VA loan? A FHA loan? Conventional? Is the property in litigation? These are questions you will want to have answers to when identifying a lender to work with. Doing this simple step will also allow you to move quickly once you find a home you would like to purchase. Once you find a lender that you are confident can answer the “call to action” when needed, you will want to move forward with getting your pre-qualification or pre-approval letter. When you make an offer, it won’t be contingent on getting qualified which can make all the difference since time is of the essence. It is also a “Hot” market. When a seller reviews offers, sometimes multiple offers, this can show the seller that you are a serious buyer compared to other buyers who may not have performed this step. Also, keep in mind there is a difference between being pre-qualified and being pre-approved. Pre-qualified is the very first step in the mortgage process and is also fairly simple. The lender will evaluate the information you supply (debt, income, assets, etc.) and supply you with a price range/ mortgage amount for which you qualify. This process does not include analysis of your credit report or a in-depth abilty to purchase a home and is based primarily off of the items you supply the lender. Therefore it is not a sure thing. Pre-Approval on the other hand tends to be more involved. You would actually complete an official mortgage application (and pay a fee for it) that would supply the lender with enough information to perform their reports. These reports include financial background, credit scores and any other reports a lender feels necessary to make an accurate decision. You will also have a better idea of your mortgage amount, purchase ability, interest rates and more. Essentially it carries more weight for the buyer showing they are more committed in the process of getting the loan.
- Save for a down payment This can go hand-in-hand with building a healthy bank account. However, you will want to keep in mind that both are equally important. A down payment is more short-term, a healthy bank account is more long-term. When saving for your down payment, you will want to have a larger amount than the percentage you plan to put down. There are a number of other expenses that will come up that can be unexpected if your not prepared. Everything from home inspections, closing costs, loan applications, transaction coordinator fees, title fees, recording fees, etc. Also, if the home doesn’t appraise, you may need to come up with the difference out of pocket in order to move forward with the transaction and get the loan. Talk about a real “Dream Killer” if your not prepared.
- Start your research early Where should you be looking? Are schools, walk-ability, commute to work, location or other factors important to you? What should you be looking for in a home? Its a great idea to write down your 5 must-haves. A few must-have examples to get you started can be number of bedrooms, appliances, yard, low HOA’s or parking spaces. Also, one of the best ways to start your research is word of mouth! Ask around! Ask your friends, your family, your co-workers. Where do they live? What do they like about where they live? What don’t they like about where they live? Whether or not they are in the same city or neighborhood as you won’t matter. Many of the reasons they give you can be applied to your own home search.
- Find a real estate agentNow that you have a general idea of your must-haves, a better sense of what type of home and what area you are looking for, you will want to connect with a professional real estate agent. Keep in mind there are different types of agents that specialize in different areas, like a commercial agent vs a residential agent. Also, are you interested in working with a single agent or with an agent that has a group or team support as well? It is a personal preference on what type of agent you would like to represent you, however, it is always smart to do a little research and get a good sense of who you will be working with. A great way to find an agent is also asking a friend, co-worker or family member. Did they have a good experience with their agent? Why or why not? Once you have identified your agent (Congrats!) you will provide them with your search criteria so that they can start sending you listings that fit what you are looking for.
- Have realistic expectationsYou are all set. You have done your homework, you have finances in place and have identified your agent. Now you just need to find your home! Sounds easy right? Sometimes…yes. Just keep in mind buying a home is rarely the “HGTV” type reality show where you see three homes, pick one and it all works out smoothly. There are a number of issues that may come up during your search. A listing may have multiple competing offers. You may miss out on a home you loved. You might submit an offer on a short sale property that a 1st or 2nd lien holder might not approve. Maybe you lock up the property of your dreams but find out there are some serious issues in the foundation after an inspection and the seller doesn’t want to pay for repairs? Maybe the lender requires a few more pieces of information before they can approving funding, delaying the Close of Escrow. It is important to keep realistic expectations, both during your home search and during the escrow period. It is also important to be flexible with your timeline. Be able and ready to buy, but also be able to wait. It has been a hot market, so buyers can’t afford to be hesitant. Also, are you currently renting? Can you get out of your lease?Are there any penalties? What will you do if you don’t close in time when your lease expires? Can you go month to month with the current landlord or do you have the ability to do a lease back from the seller until escrow closes? Anything can happen and typically there will be bumps in the road, but keep in mind the end result is to find and get a home you love.
- Shop for your home & make an offerYou are ready! You have everything in order and your mind is in a great place, now go find your next home!
By using these 10 steps you will be able to tackle one of the biggest milestones of your life with a informed and prepared mindset, setting you apart from the other potential buyers you may be competing with. Good luck!