First Time Home Buyer Order of Operations (Part 2)
So, you've decided that you can afford a home and want to buy.
We've compiled an order of operations for your home buying process.
1. Gather Your Finances
No matter who you decide to borrow from or what area you are buying, you still need to show all of your financial information. And yes, we mean ALL. At the very minimum your lender needs your:
previous year's W-2
most recent pay stubs
tax returns from the previous year
a list of all your debts
a list of all your assets
A site that makes this easy is Personal Capital - and no, not an endorsement we just really love their platform.
2. Mortgage Payment
The rule of thumb is that 50% of your income should go to fixed expenses and in this bucket includes your mortgage. Do not overextend yourself. Do not go to a lender first and see what you can get approved for because you can typically get approved for more than you can afford. Why? Banks make money by lending you money. Do you remember the financial crisis from 2008? That was because banks allowed people without enough funds to buy homes that they could not afford. Don't let this happen to you! Check out Zillow's calculator to see what your current rent would equate to regarding a mortgage:
3. Meeting with Lender
Meeting with a lender should come before checking out houses. You don't want to fall in love with a house you can't afford. If you are unsure where to go to find lenders, start with your bank. Most commercial banks have a mortgage department. Also, there are online lenders like Rocket Mortgage and Quicken Loans you can use to. The approval process is quick however you still need 30-60 days to get approved on the home after you put in an offer. Why? The banks don't check the accuracy of your finances until you have put in a substantial offer. This is the time the lender pulls your credit and financials. Bear in mind that your financing could still fall through even though you are approved. Keep that in mind when you place an offer on a home.
Now that you know what you can afford, it is time to check out neighborhoods. You should check out school districts and city plans to ensure the property will be a good investment for the future. Remember you aren't looking for right now only, you want to make sure you can sell your home if you need to leave the area or that it will be a good home if you're going to have children. If the neighborhood and location are a good fit for your family, start looking at houses. Here are the sites to start:
5. Find an Agent
For a first time home buyer, it is great to use an agent. They can help point you in the right direction, help you find neighborhoods you may not know about, and help you negotiate. The seller typically pays the commission for your agent which you may not know. Of course, it all depends on your contract. However, this way you get expertise, and it won't come out of your pocket!
6. Make an offer
Make an offer on a house you love! As previously stated, just because you get approved doesn't mean something won't come up in the due diligence process. Remember, buyers should expect to pay 2-5% of closing costs and transfer costs. It all depends on where you're buying. However, if you come prepared, know what you can afford, and start your search - everything should be smooth sailing!