Like shopping for anything that’s a sizable investment of your hard earned dollars, shopping for a home requires time, research, and a good game plan. This weekend for example I took a couple out who had developed not only their checklist of wants and must have’s, but they took that Ben Franklin “pro and con” list to a whole new level. They figured out their own point value for different attributes each house had and then deducted points for major repairs or issues on each listing we saw. Now, most of us aren’t scientists – micro-biologists – like this couple, but please know that when you have a list of steps to take, the process will be far less mind numbing and far more enjoyable. You’ll also be more successful if you develop a strategy, so let’s take a look at some initial steps to take to get you into that new home.
Get prepared to buy a home – checking your finances
We haven’t got to the fun part of the home buying process yet. No, working on finances won’t be the first thing most people want to do when beginning this process, but it is the first step to homeownership. Make no mistake! Just as you wouldn’t shop for a new car without knowing exactly how much you can afford to spend on that purchase, neither should you start house hunting and visiting open houses without understanding where you stand financially.
What’s the best place to start? If you haven’t checked your credit score in a while, order your credit reports. Did you know that you are entitled to one free credit report (from each of the three reporting agencies) every 12 months? The only company authorized by the Federal Trade Commission to supply consumers with free reports is annualcreditreport.com.
Go through the reports and make sure you take the time to dispute any errors you find. Fixing even one error may greatly enhance your credit rating. What’s better than doing this on your own though is working with a lender who has experience helping potential home buyers with fixing credit. My preferred lender, Russ Tanner of PrimeLending, has worked with many of my clients over the years to do rapid rescores where he puts their credit into a model that tells you exactly where and how much to pay off various debts to maximize your credit score. I’ve seen buyers whose credit increased by 40-70 points in 2-4 weeks with Russ’ help and it cost them nothing!
After you check your credit score, go over your budget (if you don’t have a budget, you may create one using the template here). Total up all of your reoccurring debt and figure out how much money you have coming in each month.
And finally, determine where you can make cuts on monthly expenditures or how you can bring in more money to set aside for your down payment and/or closing costs. Down payment requirements will depend on which loan program you choose and closing costs, although variable, typically run between 2 and 4 percent of the loan amount. My goal is to help my buyers negotiate those closing costs into the sale of the property – getting the seller to pay them at closing for you – so that this limits your out of pocket cash to close to just your down payment.
Regarding down payments, there are some options out there. Feel free to ask someone like Russ if questions on how to meet down payment needs depending on the various types of loan programs offered today.
Work on that mortgage pre-qualification
This can be easier than you might think. You can certainly meet with a lender, which is the next important step in the game plan, but today I see more people talking and getting a feel for lender’s by phone. They can typically from a phone call and 10 minutes of your time on their website provide you with a preapproval letter, which will validate your offer in the eyes of that home seller!
Typically for self-employed buyers/borrowers and those pursuing jumbo loans, lenders may ask for additional documentation in getting your preapproved, but normally the stacks of paperwork you hear about are not needed until after you go under contract.
At the point of going “binding” on a contract on a home, plan on supplying your lender everything they need on a timely basis and this will aid in getting your loan formally approved by the underwriter and then you’ll get to closing on time without any delays!
Plan on providing you lender with at least the following:
- Tax returns, including Schedule C if you are self-employed
- Pay stubs,
- Bank statements (all pages, including the blank ones)
- Identification, including your Social Security card and driver’s license
Making a list of wants and must-haves
Now that you know how much you can afford to spend on a home, it’s time to make a shopping list, which should include items such as:
- Location – commute time to work, schools, shopping, parks or area amenities
- Neighborhood must haves – pool, gated, trails tennis, greenspace, clubhouse, etc.
- Architectural – Do you have a particular style of home in mind, such as Colonial, craftsman, or modern farmhouse? If so, then list that, as well as the number of bedrooms and bathrooms needed.
- Interior – Anything absolutely necessary you must have, such as a basement, office, updated kitchen, etc… make note of it.
- Exterior – Are you looking for a large lot or just a small yard? Is a carport doable for you or do you need a garage? If a garage, 2 or 3 car capacity? Don’t forget to list that in-ground pool, fencing and any other exterior feature you want in your home.
Finally, would always encourage home buyers to organize the list, placing the three most important items at the top. These are our priorities, and you should share them early and often with your real estate agent.
Tip: To determine your priorities, think about what you find intolerable about your current living situation. For instance, if barking dogs drive you crazy, vow to find a quiet neighborhood. If you’re sick and tired of mowing the lawn when you’d rather be relaxing, seek a home with low-maintenance landscaping.
Finding your real estate agent
Since you’re now ready to look at everything on the market listed for sale, you’ll need a real estate agent’s help from here. Remember, the services of a buyer’s agent won’t cost you anything – the seller pays all real estate commissions as that is their closing cost – so there really is no reason not to have your own representation and many, many reasons you should. Rely on reviews and look at past sales to get an idea how experienced an agent is to see what they can do for you.
While all of the steps are important, and should be taken in the order listed, securing the services of an “experienced” professional to help in the purchase of a home is critical. Having a professional represent your interests, negotiate on your behalf, and walk you through through the process — at no cost to you – will give you peace of mind during the process.