Finding and purchasing a home that will meet your needs is a significant time. Our goal is to make this transition as smooth as possible. We are experts in the area, and once we learn what it is that you’re looking for, finding your dream home is simple.
That’s why we partnered with our friends at Nerd Wallet to break down the homebuying process into 6 main steps: Call it a buying-a-house checklist. Each step includes choices to make and things to do. Some are stressful, some are pretty cool and some are, well, kinda annoying. But each gets you one step closer to your goal of homeownership.
1. Make Sure You’re Ready
Sure, there’s being financially ready to buy a house (see Step 2 for that). But are you emotionally ready? Even if it’s just going to be your starter home, you’re making a big financial commitment and putting down some roots.
You’ll want to think about your other goals for the next few years. Are you buying with a partner, and if yes, are you on the same page when it comes to money? Is there any chance you’d need to relocate for work? Are you thinking of starting a family? These big-picture questions can add to the pros (or cons) of whether this is the right time to buy a house.
2. Get Your Finances In Order
Buying a house may be the biggest financial decision you’ll ever make, so before you take the plunge you want to be sure your finances are solid.
Using a home affordability calculator can help you determine your budget by taking into account your income, debts, location, and down payment amount (more on down payments in a moment). You’ll be able to see how your monthly mortgage payments might add up and how your finances could look as a homeowner.
This can be important for keeping your ambitions down to earth. You might be able to qualify for a sizable mortgage, but that doesn’t mean you actually want to commit that much of your budget to the house.
Check your credit score, too. A higher credit score is the single most powerful way to earn a lower mortgage interest rate. Know the mortgage options for your credit score. If your credit score could use some work, it may be worthwhile to hold off on homeownership and see what you can do to build up your score.
3. Make a Down Payment Plan
When you’ve determined what you can afford, you can figure out how much you want to save for a down payment. Though 20% down payments used to be the norm, many homeowners opt to put down less. A smaller down payment requires less money upfront but means you’ll have to pay mortgage insurance. The type of home loan you use also impacts the minimum down payment required.
If this is your first home or if you haven’t owned a house in a while, you may also want to look into state first-time homebuyer programs. Many offer financial help, including down payment assistance.
4. Find the Right Mortgage for You
The type of mortgage you use to buy a house affects what you’ll need to qualify for the loan (including the required down payment amount) and how you’ll pay it back. Choosing the right home loan can boost your chances of approval and may save you thousands in the long run.
Before you decide which type of mortgage to pursue, it’s important to learn the advantages and drawbacks of each one. Here are some of the main types of mortgages:
- Conventional Loans are mortgages that are not guaranteed by the federal government. They offer low minimum down payments, but have more stringent qualifications.
- FHA Loans are mortgages backed by the Federal Housing Administration. These are generally easier to qualify for than conventional loans, but have stricter requirements for mortgage insurance.
- VA Loans from the Department of Veterans Affairs are for active or former service members and eligible spouses. VA purchase loans allow you to make no down payment.
- Jumbo Loans are mortgages for houses that are more expensive than standard lending limits. These usually require larger down payments and higher credit scores.
- Renovation Loans let you wrap the costs of home improvements into the total amount of the home loan. Especially when mortgage rates are low, this can be a way to borrow more money for repairs while paying less interest than you would with another type of home improvement loan, like a personal loan.
5. Get Pre-Approved for a Mortgage
You know your homebuying budget, and you’ve decided what type of home loan will work for you. Now it’s time to start shopping for a mortgage lender. There are lots of lenders out there, including big brick-and-mortar banks with familiar names, online-only nonbank lenders and smaller, local banks and credit unions that may offer more personalized service.
When you’re looking at lenders, determining that they offer the type of loan you want is the first step. (If you’ve decided on an FHA loan and they aren’t an FHA-approved lender, move on to the next one.) But beyond that basic hurdle, you’ll want to look at how their sample rates compare with today’s mortgage rates, find out what closing costs you’ll be responsible for and compare origination fees. You’ll likely find some of this info right on their websites; to get some numbers, you’ll have to speak with a loan officer.