Buying a home can be an amazing experience.
For most, a home is their biggest investment, but aside from being the place where they’ll eat, sleep, and live, a home is where they’ll spend the majority of their time and where their family will unite and grow together.
Before setting off on your home-buying journey, it’s important to get a good understanding of the overall process so you know what to expect to prepare accordingly and to make your experience a pleasant one that you’ll always remember.
You can take pictures, write notes, and celebrate important events such as your pre-qualification with family members or friends that will be closer to you after having lived through it together.
It may sound silly, but buying a home can be a long and arduous process, and setting aside some time to have fun throughout the duration of your search will make it memorable and you’ll be much more likely to enjoy your new place after months (maybe even years) of anticipation.
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Preparing Yourself for the Journey
After putting it off for a long time, arguing that the economy isn’t good enough, or simply being afraid of a bigger commitment, you are now ready to take your home search to the next level.
For years, you’ve looked dreamingly at houses as you pass them by, hoping that one day, you could afford the house of your dreams. Now that you’ve made the huge decision to take yourself seriously, there are a number of things in the way that will impede you in your search.
The first step is to prepare yourself, both mentally and economically. Before even thinking of calling up your bank to ask for a pre-qualification, take a long, hard look at your credit score using one of the three available credit bureaus, or better yet, all three.
Your credit score will decide your mortgage rate and terms, so make sure to keep it in tip-top shape before setting out. Make plans to fix up your credit score if necessary by paying off outstanding credit card debt or student loans, and brace yourself for the lengthy and uphill process that’s just begun.
If you want to get a top-level estimate of how much your monthly mortgage payment will be, take a look at the Mortgage Calculator on Money.com.
Here are a few tips for the early stages of your home-buying journey (2 – 3 years before moving in):
- Pay off old credit card debt/loans
- Take a close look at your month-to-month expenses
- Start building a fund to cover your down payment and closing costs
- Build up your credit score by practicing safe credit practices and monitoring your credit score regularly
In the years leading up to your purchase, take some time to track your expenses and look for areas where you might be able to cut back on spending and put that money into a savings account to cover unexpected repairs, renovations, or closing costs.
As a general rule, closing costs can easily run you for up to 7% or your total purchase price. Another good rule of thumb is to use the 30/30/3 method when buying a home.
In a nutshell, this rule says you shouldn’t spend more than 30% of your gross income on a monthly mortgage payment, that you should have 30% of the home value saved up in cash, and that the price of your home should be no more than 3x your annual gross income.
Taking the next step
Now that you have settled any outstanding payments and figured out a strategy for fixing your credit, the next step is to get a pre-qualified mortgage plan from your preferred lender.
This document gives you an estimate of how much you’d be able to borrow from your bank, based on the financial information you provide, such as your credit score, assets, income, etc., and can be used to begin browsing for homes more accurately within your budget.
Find a neighborhood you’re comfortable with, create an expense fund, and start looking for properties.
The home stretch
In the last couple of months leading up to your purchase, you’ll also want to look at homeowner’s insurance, as many lenders require you to purchase a policy before closing so that your new home is protected against vandalism and other damages.
Shop around before the date of settlement so you can find the best offer for your mortgage, a little research can go a long way in saving you thousands of dollars in the long run.
Once your loan is pre-approved, you’re free to start shopping, make offers, and get ready to finalize your home-buying journey.
Pre-approvals are usually good for 90 days, so be sure to have a good grasp of what comes next before you request one. During this time, you’ll have to negotiate with sellers, coordinate a home appraisal and inspection, and purchase insurance.
Last but not least, you’ll need to set a date with your lender to close on your mortgage. You’ll receive a Closing Disclosure a few weeks prior so you know what to expect to pay out of pocket during this last step.
This day is bound to be a huge part of your life, and a concluding mark in your quest of buying a home. Take a deep breath in and enjoy it!
Guest post contribution from Wally de la Rosa of ConsumersAdvocate.org