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 their first 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 first 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!
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!