Are you looking to buy your very first home? Congratulations! You’re about to take a giant step into a complicated and fulfilling life achievement.
As you prepare to jump into the housing market, we recommend arming yourself with all of the tools and resources available. There are many steps ahead—here’s a simplified guide and timeline to the homebuying process.
Step one: answer the most important question
Are you ready for this?
It’s important to keep in mind that homeownership is a long-term financial commitment. To truly answer this question, consider the following questions:
- Do you have a stable job (and is it pandemic-proof)?
- Do you think you’ll want to live in this area for at least the next five to ten years?
- Are you ready for the extra expenses and effort that come with a home, including regular maintenance and emergency costs?
If you answer yes to the following questions, keep going! Any no answers should pause the process for further planning and re-assessment.
Step two: figure out what you want (and don’t)
The next step is an important one—you need to assess your needs, wants, and priorities. It’s also kind of fun. Create a list, starting with your three must-haves, followed by a list of things you’d like but aren’t deal-breakers if they can’t happen.
Think about your non-negotiables. What’s most important: location? Commute-time? The number of bedrooms and bathrooms? Yard? Garage?
After you’ve made your list, check out listings and homes in your area. Keep track of what you like and what you don’t love about each home. Not only is this helpful to gauge your preferences, but this is also handy to have for your future real estate agent to help them guide your search.
Step three: price out your budget
This is another critical step. It’s time to figure out what price range you can afford or what you need to save up for before going any further. This also helps to narrow down your search when the time comes.
First, find out your credit score. Credit plays an important role in the financing process and a better score can produce better financing options (though there are options available for lower credit, too). You can get your report from each of the three credit bureaus—Transunion, Equifax, and Experian.
Next, decide what your down payment amount will be. Many buyers aim for 20% down on the total cost of their home, which eliminates the private mortgage insurance fees. However, if that number isn’t feasible for the home prices in your area, don’t worry—you’ll still have options available to you. Figure out a realistic amount, which still allows you to make monthly mortgage payments and save for an emergency fund.
Step four: gather all the documents
When you start applying for your mortgage, they will require a lot of paperwork. Start gathering your required documents now to save a lot of time and headache for later. Keep these items close:
- Scan of your driver’s license
- Proof of employment
- Contact information for employers
- Pay stubs from the past several months
- Tax returns from the past few years
- Bank and investment statements from the past several months
- Former addresses and landlord contact information
Step five: look into lenders
Now’s the time to take the next step and start the financing process. First, look into lending offices. Check out websites, local awards, and read reviews. From there, request mortgage quotes from several different lenders, including private companies, banks, and credit unions. Compare and contrast their loan and rate options (the lower rate, the better!).
Be sure to ask potential lenders about the advantages and programs available to first-time homebuyers, and what you can qualify for. For example, some programs require less money down.
After you’ve decided on a lender, get pre-qualified; many sellers require this to accept an offer.
From there, get pre-approved for your loan. This process will involve a credit and background check and a thorough review of your finances. (Here’s where the paperwork comes in handy.) With a pre-approval letter, you’re a stronger candidate when competing for a home.
Step six: connect with an agent and start looking
This is the best part! Find a real estate agent that suits your needs and can help you find your dream home. The best part: agents are free to you since their commission is dispersed by the seller. They’re the best resource—be sure to use them!