Buying Your First Home: 5 Steps to Success

If you’re considering buying a home but you aren’t quite sure where to start, you’re not alone. Our step-by-step guide can walk you through the process with ease.

 

For those who are getting tired of renting and have decided it might very well be time to buy, it’s important to understand the buying process, what type of property is best for you and the type of financing you’ll need. Here is a step-by-step program for those who see a first home purchase in their future.

Step 1: Think it through

It’s important, early on, to understand the pros and cons of buying versus renting. It’s not always in one’s best interest to buy a home instead of renting. While there is certainly time to change one’s mind during the home buying process, it helps to understand the benefits and downfalls of owning a home before applying for a mortgage.

Pros of home ownership

  • Each month, as you make a mortgage payment, you’re contributing to your own financial stability in the form of increased equity in the property. Over time, your equity grows and it belongs to you, not to your landlord.
  • Mortgage interest is tax deductible, whereas rent payments are not. Property taxes may also be tax deductible for those who itemize.
  • The property belongs to you and you can have pets, paint the walls whatever color you like, and create your own kitchen.
  • When financing with a fixed-rate loan, your monthly payment will never change.
  • You won’t have a landlord who can increase your rent each year.

Cons of home ownership

  • You’re not as mobile as you once were. As a renter, you had the option to change your scenery and move across town, or to another city each time your lease was up for renewal.
  • When the heater broke down in your apartment, you called your landlord. When the heater breaks down in your own home, you’re the landlord.
  • You no longer have the free access to a fitness center, pool or other amenities offered by your apartment building.
  • If you make a poor decision when selecting an apartment, you can always move when your lease expires. If you make a poor decision when buying a home, the consequences will be much more severe – negatively impacting your finances significantly.

Step 2: Credit and lifestyle check

At the very beginning of this process, it’s important to check your credit report. When consumers pull their own credit report, they should be looking for errors or mistakes that might be incorrectly lowering credit scores.

Fortunately, it’s no secret that credit files can be rife with errors. Similar names can pop up on one another’s reports, and old accounts can show as open and in collection when they’ve actually been paid in full.

Consumers should regularly check their credit regardless of whether or not they’re looking to purchase a home, and free credit reports can be obtained annually at a website supported by the three main credit repositories: Experian, Equifax and TransUnion. The site is www.annualcreditreport.com.

Consider your lifestyle to help focus in on a neighborhood and property type that will best suit your needs. Do you want to live the high-rise condo life downtown, or does a neighborhood and your own lawn sound better? Are school districts a priority for you? What about your commute to work?

These and other questions should be settled before you seriously begin your home search.

Step 3: Understand your finances

How much are you comfortable paying each month? Remember that when you begin the mortgage process, how much you qualify for and what you’re comfortable paying can be two very different amounts. It pays to get prequalified early on, but stay in your comfort zone and don’t get carried away taking on a payment that is too high for your own good.

Use MortgageCS to get a feel for current mortgage rates and for the program that best matches your available down payment amount. By the time you close on a home, rates will more than likely be different than they are now, but you need to familiarize yourself with credit markets and monthly payments.

As always, keep your personal information safe during this early stage. Uninvited pressure from a loan officer or multiple credit pulls over time can create unnecessary issues and stress. Using MortgageCS to ensure your personal information remains protected is a great way to understand your options and find a trusted source for your financing without the hassle.

Don’t forget about homeowners insurance. Contact your insurance agent and get a quote on coverage for your new home. Your lender will require a minimum amount of coverage required, but speak with your agent about any additional coverage options you might want to add to your policy.

Step 4: Get organized

Begin gathering your financial documents. Once you’ve selected the loan officer you’re going to work with, they will provide a list of required items. This list will include bank and investment account statements, and income tax returns might be required along with W2 forms and paycheck stubs. You’ll need to update these items once you get closer to a loan approval, but gathering them early lets you know if there is anything missing that you’ll need to track down.

Step 5: Find the property!

Looking at many different properties can be exciting and frustrating at the same time. Once you have an accepted sales contract on a property, follow the requests of your real estate agent, loan officer and loan processor when additional information or action is required. Most sales contracts conclude in 45 days or less. Don’t assume anything during this critical time and be sure to keep the communications line up and working!

How fast?

You can follow these 5 steps in 5 months, or in almost any time frame, but giving yourself enough time to complete each step will help create a stress-free experience.

Ask anyone who has been through the home buying process before and they’ll tell you that spending more time shopping for homes with a preapproval letter is far better than chasing down loan documentation at the last minute. So plan ahead and make the process as easy as it can be!

3 must do’s after a weekend of house hunting

It’s Monday…and you’ve just had an exhilarating weekend of house hunting. You’ve seen the good, the bad, and just about everything else while driving all around town. Some of the properties you just walked through may already be under contract – so you can cross them off your list!

A weekend of house hunting can be quite discouraging in a seller’s market. So how can you keep your head up when you feel like you are fighting a losing battle? Do these three things each Monday – and you’ll be ready to act when the time is right.

Catalogue the properties you viewed

Document the property address, style of home, list price, best attributes & other important details. Ask yourself this question: What kept you from being interested in the property or what made you want it?

By doing this, you’ll find that certain property features will come to the surface as most important. This will help guide your future searching and make you more confident (so you can act more quickly next time).

Check in with your Realtor

Contact your trusted Realtor to talk through the properties that were most attractive to you.  After learning of a small price change or other information, a “maybe” on your list could turn into a “yes!”

If you do find yourself interested in a property, the time to act is now. You can request a second showing or cut to the chase and get a purchase contract written up! Remember, you aren’t the only one eyeing that property in this seller’s market – so act quickly.

Stay current on mortgage rates

Interest rates change at least every day, and can swing drastically over the course of a week. A small change in interest rate can make a BIG difference in monthly payment – so staying up to date on available mortgage rates and programs is a must!

For example, the monthly payment on a $350,000 mortgage will drop by $26 if rates are just 0.125% lower! That’s a savings of $312 a year – or about one free car payment!

Just as it is important to shop lenders early in the process, it is also important to keep your knowledge level up as you hunt for that perfect home. After all, a dip in mortgage rates will make all homes more affordable.

Related posts:

What is a seller’s market? Look here.

Concerned about increasing interest rates?  Look here.

3 ways to keep your payment the same when rates are on the rise

When it comes to mortgages and the home buying process, interest rates are almost always front and center. This is not a surprising thing, as nothing else impacts the housing market quite like a quick rise (or drop) in mortgage interest rates.  Additionally, mortgage interest rates are one of the most commonly compared terms when consumers shop lenders and loan officers.

For most first time buyers, sticking to a budget is essential. So what is one to do when rates suddenly increase?  Well, there are a few options – some a bit easier to consider than the others.

Look for smaller homes in the same area

If your heart is set on purchasing a home in a particular area, interest rates have recently increased AND you are on a fixed budget, there is little you can do but search for a lower priced home. If you were looking for a townhouse, this may mean you need to reduce the bedroom and bathroom count or perhaps even switch to consider condominium units. You may no longer be able to afford a home with the upgrades you hoped to include or perhaps you can no longer afford the unit with a basement or garage.  In either case, some level of sacrifice will need to be made as the macro-environment of interest rates increases.

Look for homes in a less expensive area

Maybe your heart isn’t set on buying a home in a particular area – but rather the home’s amenities are front and center. If this sounds like you, then it may be easy to consider a home in a different school district, township or even over state lines (if applicable). Keep in mind that the school district can be a very important factor in reselling a property – so a bargain price today may be more difficult to sell in the future (and may appreciate at a slower rate overall).

Delay buying until next year

No real estate professional wants to see you delay the purchase of a home – and perhaps you don’t want to either. However, if you are set on a certain property type and location for your new home, this may be the most viable option provided that you can save money at a rate that will outpace the appreciation on the home and any subsequent increases in interest rates. Note: This may be a HUGE amount and ultimately be unknown until a time in the future. 

Keep in mind there are some significant risks with delaying the purchase of a home. First, the interest rate environment is largely unpredictable and rates could increase further – actually making the home less affordable next year.  Second, home prices could increase which translates to you spending more over the life of your loan, and missing out on a year’s worth of home value appreciation. Third, there is no way to know what the home inventory may look like.  If there are homes you would consider purchasing today, there is no way to guarantee the inventory will be available next year (Just ask anyone that wanted to buy a house in 2016 and waited until 2017 when inventories were down 40%!).