5 Steps to Start Buying a Home

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Buying a house can seem like a daunting process especially if it is your first time and you are not quite sure what to do. But not to fear, we have listed out 5 simple steps to help get you started and we also included a helpful glossary of terms associated with buying a house at the bottom of this post.


1.Figure out what you can afford for a monthly payment

Figure out what you can afford based on your own situation. There are online calculators like NerdWallet that can be a great resource to help you determine this. A simple rule of thumb is three times your gross salary for the total cost of the house. We suggest no more than 25% of your net income per month to go towards the monthly payment and other related expenses.The lender is going to look more at gross income, credit score and the house you are buying to see if they will finance. Remember that Escrow (taxes and insurance) will need to be figured into your monthly payment and this Is required by most lenders. Also, don’t forget about the costs for monthly home maintenance, landscaping and appliances.


2. Check your credit/credit score

You can access your credit report for free at annualcreditreport.com , you won’t receive the score though. You can always register an account with Credit Karma and they can give you a pretty good idea of what your credit score is, but keep in mind that this is not 100% accurate. Review the accounts on your credit report for accuracy and dispute an item if you do not agree with it, especially on collection accounts. Do no open any new accounts before you want to purchase a home. The higher the score, the better interest rates given, a higher chance of getting the loan and a lower down payment.


3. Start saving for a down payment

Determine the amount you will need for the down payment based on the dollar amount of the house and how much you want to put down at closing. For example, a $100,000 house and you want to put down 5% then you will need $5,000 PLUS closing costs. Put down the most amount you can to get a better interest rate and for a better chance at getting approved

Here are some tips to help you save the money:

  • Figure out your time frame – when do you want to buy.
  • Look at your monthly spending plan – can you come up with the money.
  • Set up an automatic savings plan and put money aside every month like your retirement plan.
  • Make sure you have an emergency fund so you don’t have to dip into your down payment savings.
  • Don’t borrow from family

4. Get pre-approved for the mortgage

This is when the lender has checked the following items and has agreed to lend a certain dollar amount on the house:

  • Verified income of borrowers with employer
  • Checked the credit report/score
  • Reviewed tax returns
  • Verified the assets are there for a down payment
  • Proof of identity

The pre-approval gives you an advantage over other buyers of a house in getting your offer accepted.


5. Start the shopping process

You can look online with websites such as Zillow, Trulia and Realtor and find a Real Estate Agent to help.

Some things to keep in mind while you are looking at houses:

  • Make sure they are within your price range
  • Research school districts if you have kids
  • Look to see if they have an HOA
  • Get a home inspection
  • Take into account travel time to work
  • If you don’t like the color, flooring, bathrooms then figure that into the budget.
  • Always negotiate, negotiate, negotiate

We hope you found these steps simple to be to your benefit and if you have any questions we would love to hear from you.


Glossary

Mortgage – A loan that is borrowed to buy a property typically a home that is paid back to the lender over time. Typically 30 years or 15 years.

Escrow – Money from a monthly mortgage payment that is set aside to pay the borrowers taxes and insurance by a lender

Homeowners Insurance Insurance that covers losses and damage to a home

Appraisal – An experts opinion of the value of the property. Required before a loan can be approved

Closing Costs  These are costs required at the time the loan is “closed” that are above the purchase price.  They can include a title search, prepaid interest, appraisal fees, documentation fees, and credit report fees.

Amortization A payment schedule that shows how much of a mortgage payment goes towards the principle of a loan and how much towards the interest.

PMI Insurance  Required insurance that is paid by a homeowner to protect the lender if a homeowner defaults on their mortgage. If you get an FHA loan

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