Homebuying Prep 101

by Courtney Christensen

Buying your first home is a big deal. Not only is it going to be the biggest financial decision of your life so far, but it’s also kind of permanent—no refunds or exchanges--at least for a while. So, just like studying for a big test, you need to research and prepare for buying a home.

You’ll be getting advice from all directions on when to buy a house, where to live, how much money to save, and where to get a mortgage. Advice is great but remember: the housing market is always changing. The market is vastly different now than it was even a few years ago. Do your own research and learn as much as you can before jumping into buying your first home. 

Consider the Costs

Your biggest concern is likely the cost of a new house. Homes come with huge price tags, and depending on your current financial situation, your monthly fees could be astronomical. It’s important to get your budget in order before you begin looking at homes. This way, you won’t give yourself the chance to fall in love with a home you can’t afford to buy. 

  1. How much money can you afford to put aside for monthly mortgage and maintenance fees? Put together a budget to get all the details on paper.
  2. How much money do you have available for a down payment? Where do you plan on getting more money if you need it? There are plenty of ways to put together a down payment, and possibly even avoiding one altogether.
  3. Can you afford closing costs? These can be several thousand dollars and may be required upfront. 

Boost Your Credit Score

Once you’ve got a plan for your monthly and upfront costs, you should look at your credit score. Your credit score is made up of five categories that give your financial health a score that banks, lenders, and even car dealerships use to measure the risk involved with loaning you money. The higher your credit score, the better deal you will get on your home loan. 

  1. What is your current credit score? Use an app on your phone to do a “soft pull” of your credit score. Your score will range between 300 - 850. 
  2. Is your credit score good enough for a home loan? While many loans require a credit score of 620 or higher, you could get a loan with a score as low as 580. 
  3. Do you need to improve your credit score? There are plenty of ways to raise your credit score quickly, but patience is key to getting a better score.

Shop for a Mortgage

Before you begin looking at homes, you should get a pre-approval. A pre-approval letter from a qualified lender like a bank, credit union, or private mortgage company will go far in helping you find your dream home. Getting more than one pre-approval isn’t a bad idea, but remember that when you are pre-approved for a loan, your credit score can take a hit. This is because pre-approval letters require a “hard pull” which counts towards your credit inquiries. 

  1. Do you want to work with a bank, credit union, or private mortgage company? You will get more personal attention from the latter two. A bank is less likely to offer as many loan options, but it can sometimes offer lower interest rates. 
  2. What’s your preferred interest rate? Shop around at different places for the best interest rate. This is continually changing, so be sure to check and recheck at least once a month before making your final decision. 

Interview Real Estate Agents

After you begin casually shopping for homes online and have gotten a pre-approval from a qualified lender, the next step is to find a real estate agent. Real estate agents are absolutely critical for finding your dream home. Not only are they experienced in finding the right house for their clients, but they are also privy to homes that may not appear in online searches. Plus, they’ve got your back throughout the process and will help you negotiate with sellers. 

  1. Who do you know that’s bought a house recently? Real estate agents get new clients primarily through referrals. If you know someone that’s just recently bought or sold a house, find out who their agent was. It’s always a good idea to trust your friends’ and family’s opinions. 
  2. Do you like the agent you’ve spoken to? You aren’t stuck with a real estate agent, particularly if they haven’t shown you any houses yet. Meet with potential agents ahead of time to discuss what you’re looking for in a new home. It’s not a bad idea to interview two or three until you find someone you like and trust.

Choose a Neighborhood

Swiping through homes online is a great place to start. Still, once you become serious about your home search, you should absolutely consider neighborhoods—your daily commute and access to transportation are major concerns. Plus, you need to find out whether you’ll even like living in a certain area and whether the costs of living there are doable. 

  1. Are school districts a concern? How close to your favorite restaurants and entertainment sources? How far away is your grocery store? Remember, these trips will be made frequently, if not every day. 
  2. Can you afford the association dues? What are the nearby home values? You shouldn’t buy the most expensive home in the neighborhood as your home’s value could drop over time. 
  3. What are your potential neighbors like? Do all the houses look the same? Does the neighborhood have sidewalks and tree cover? Are there parks nearby? Some of these may matter more to you than others, but it’s good to find out whether you’d be happy living in the area.

Tour Open Houses

Once you’ve chosen a neighborhood or two, it’s time to narrow down your list of favorite houses. For the most part, you can eliminate houses by flipping through photos online, but after you find a couple of contenders, take a tour! Tours can be done in person or online - many sellers are utilizing virtual video tours or Facebook Live tours. 

  1. Do you like the layout of the house now that you’ve walked through it? Are the bedrooms too small? Photos can be deceiving. 
  2. How does the structure look? While you will ultimately have an inspection done on your potential new home, take a look around you now. Visit when it’s raining to see any possible leaks. Look for large cracks in the walls or foundation. 
  3. How’s the privacy? When you’re looking at photos, you can’t always tell how close neighbors are to your home. Neighborhood sounds can also play a factor - is there a train or highway nearby? 

Research Down Payment Assistance Programs

Down payment assistance programs are state or city-backed loan assistance that help homebuyers purchase their homes by offering some or all of their down payment. These are especially helpful for first-time homebuyers! 

  1. What kind of DPA would you apply for? There are four kinds: loans that are paid in addition to your mortgage, loans with a deferred payment plan, forgivable loans (for eligible borrowers), and grants which don’t have to be paid back at all.  
  2. Are you qualified for a DPA? Each program has its own requirements, but you will need to meet standards for your credit score, debt to income ratio, and income. All of this information can be found out through your lender! 

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Preparing to buy a home can be a difficult process, but you’ll be much happier in the end. First-time buyers are often overwhelmed with excitement, but as long as you’ve prepared and researched your options, you can’t go wrong!

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