Buying your first home can be intimidating, and how to prepare for that purchase can be unclear as you begin your journey.
As a lender who specializes in assisting first-time home buyers, there are many questions I get asked often. Here are a few helpful tips to get you started with buying a first home:
1. Consider your financial comfort levels.
Buying the right home means buying something that fits well within your financial goals. Any easy way to address this is to ask yourself these three questions.
-How much am I comfortable spending on a monthly housing payment?
-What can I spend out-of-pocket on the transaction?
-What will it cost to get a property I like?
You don’t need to have rock-solid answers to these. But having an idea of what you’re comfortable with will give your loan officer and real estate agent a place to start.
2. Speak to a lender.
Far too often I see this step left until the last minute. This can put you at a severe disadvantage when trying to write an offer on a property. Even if you’re several months away from being ready to purchase it can’t hurt to have a conversation. This is about making sure your finances line up with your goals. An early conversation with a loan officer helps to alleviate the stress of homebuying. It addresses any potential loan pitfalls up front. Your lender can tell you what documents you need for the loan, what you qualify for, and what the payments and costs will look like. They’ll also guide you through the process of getting pre-approved.
3. Get pre-approved.
This is a continuation of the section above but is important enough to warrant its own blurb. You’ll often hear two different terms floating around – pre-qualification and pre-approval. They’re sometimes used interchangeably. But they are explicitly different. Simply put, a pre-qualification is based on unverified information. A pre-approval implies that a lender has reviewed documentation to back up your qualifying. Therefore, a pre-approval is preferred by realtors and sellers because it shows that your ability to obtain financing has been demonstrated. It is not a fully underwritten approval, but it’s the next best thing. Furthermore, a pre-approval shows the realtor that you’re in a position to purchase what you’re viewing. Quite often we receive calls from clients who have fallen in love with a home and want to write an offer. The only issue being that they don’t qualify for a loan adequate to purchase the home. Save yourself the heartache and get pre-approved!
4. Speak to a realtor.
This is often done prior to speaking to a lender. There’s nothing wrong with doing so. However, don’t be surprised if your realtor won’t take you to tour properties until you’ve gotten pre-approved with a lender. Realtors want to know that you’re serious about a home purchase before they schedule home viewings. A pre-approval is a good way to signal that. Once you tell your realtor what you want to purchase and what you qualify for, they can begin their search for a property that fits your needs. They will handle the scheduling of viewings for any properties you want to see and will guide you through the offer process if you choose to do so.
Do’s & Don’ts
To wrap up, here are a few simple Do’s and Don’ts as you prepare for your purchase:
–Do keep track of important financial documentation. Common items needed for the loan are tax returns, W2s, paystubs, and bank statements. If you’re self-employed it would be helpful to have a year-to-date profit-and-loss statement as well.
–Don’t move money around. While not the end of the world, moving funds between accounts can often trigger the need for additional documentation. This can be a headache for buyers. This is especially true if money is being gifted from family. Ask your lender before you make any abnormal moves.
–Do have an idea of your credit score and debts. A credit check will be part of the pre-approval process. But it can’t hurt to know where you stand prior to getting started.
–Don’t open any new credit accounts. New credit accounts can cause issues during the loan process and can negatively impact your qualifying. When you get pre-approved be sure to mention any accounts that you may have opened recently so that the lender can account for them.
Purchasing a home can be intimidating, but it doesn’t need to be. Finding the right lender and realtor can make the process enjoyable and stress free. Make sure you have the right team to guide you to success in all your home-buying endeavors.