When gearing up to buy a home, there are lots of moving parts to think about. There are the closing costs, insurance, location, rates, and so many other aspects to consider that can add up and feel overwhelming.
Sure, these are factors to consider once you’ve found a home, but what happens before that? There are some key steps to follow if you’re thinking about buying a home in the near future.
If you’re not sure where to start, you’re not alone. Here is a 5-step sequence of everything that should be on a borrower’s checklist before they begin their home search.
1. Connect With A Reputable Mortgage Lender
Be prepared to provide the mortgage lender with financial documentation because this is how they determine how much you will qualify for.
Some documents you will want to have prepared to submit include:
- Federal income tax returns
- Additional Income Documentation such as W-2s, pay stubs, misc. financial statements, etc.
- Bank account statements
- Driver’s License
- Additional documents may be requested at this time
2. Determine How Much You Can Afford
- Fill out a loan application online – this usually takes about 10 minutes – and enter all of your information as prompted
- The mortgage lender will set up a time to consult with you, and if necessary run a credit report to determine if there are any factors that might affect your eligibility. For a full rundown of credit score components, visit our blog here
- If there are any credit issues that are determined in the credit report, this is a good time to identify and address them
3. Plan For The Necessary Down Payment
- At this point, your mortgage lender will take a look at your income, assets, and expenses to determine how much of a down payment will be necessary
- Based on the combined state of your income and credit history, your lender will determine how much of a down payment you need to make. A common misconception is that you must pay a minimum of 20% down, but that is not always the case
- Some loan programs provide down payments as small as 3% (FHA requires 3.5% and some conventional programs require 3%)
- For more information on down payments, please visit our blog here
4. Find A Real Estate Agent To Start Your Property Search
- It’s important to find a local real estate agent that knows the area well. We are happy to provide referrals to qualified realtors if necessary
- Your real estate agent and lender will be working together, so it’s important to find an agent that is reliable and trustworthy so that you can close quickly and efficiently
5. Keep Finances Stable
- Do not take on any new lines of credit during this time. This includes new credit cards, car loans, cosigning on another loan, etc. Making large purchases or changes to your credit will directly affect your credit score as well as the amount available to you once approved for a loan.
- Notify your lender immediately of any employment changes. This includes any increases or decreases in income, or change in job position/title.
There is no standard amount of time one must devote to preparing for home-ownership. Every individual’s personal financial situation is different and each loan comes with its own unique constraints. It is never too early to get your finances in order or start saving for a down payment – it can even be beneficial to do so before you reach out to a lender. However, a good rule of thumb is to start planning at least six months prior to house hunting.
If you have any hesitations about how to get started or what to expect when getting prepared for a pre-approval, please give us a call at (760) 930-0569 and one of our loan officers will be happy to answer your questions!