Checklist:
Review the below checklist of things to keep in mind before you buy a home.
- Strengthen your credit score
- Figure out what you can afford
- Save for down payment, closing costs
- Build a healthy savings account
- Get pre-approved for a mortgage
- Buy a home you like
One Year Before You Buy a Home
1. Check your credit report.
Obtain your free credit report from each of the 3 credit bureaus and review them for errors and goals. Dispute incorrect information, and set goals to remove any negative marks through payment and/or negotiation.
(Use This article – Credit Report Issues )
2. Work on improving your FICO credit score.
Some credit cards and other services will provide you an updated FICO score monthly for free. Some you will have to pay for. In either case, it is important that you watch it monthly to see progress, or watch for dips.
(Use This Article – Credit Report Issues )
3. Save as much money as possible.
The misconception that you must have 20% as a down payment is just that – a misconception. However, saving money is still extremely important. Unless you or your spouse is currently or has been in the military and can take advantage of the VA Loan option, you will very likely need 3.5% as a down payment. With the average home selling for just under $200,000, you should plan to save $7,000 for a down payment. However, there are also expenses during the purchase of the home (home inspections, etc) and the loan itself (closing costs). If you qualify for first-time home buyer programs, you can potentially ask for closing cost assistance, although without that, you should plan to save another $10,000 for these additional costs. You may not need to pay it out, but it does not hurt to have it in the bank, This also makes obtaining the loan easier, when the lender sees that you have a couple of months of mortgage payments saved.
4. Pay your bills on time!
This one item has the single greatest effect on your credit score. Pay those bills on time at all costs.
Six Months Before You Buy a Home
1. Explore mortgage options.
Speak with a minimum of 3 lenders – preferably 5 or more. Ask them if they have the programs you may need (first time home buyer programs, cash to close assistance, down payment assistance programs, mortgage credit certificate programs, etc.) Then, chose the one that provides you the best terms, and makes you feel the most comfortable.
(Use This Article – Preparation For Buying a House )
2. Understand the cost of owning a home.
As mentioned above, there are costs to purchasing and owning a home other than your mortgage. Make sure you understand them, and do not hesitate to ask if you need clarification!
(Use This Article – Preparation For Buying a House )
3. Add more to your savings.
Saving money is much easier if done over time and in small increments. If you need to save $20,000 over the course of a year, that is nearly $400 per week. But if you wait until 6 months, that it goes up to almost $800. Start early, set a budget and stick to it.
4. Visit New Home Construction and Open Houses for ideas.
These weekend trips can be fun for the whole family, and you can get a really good idea of what you want in a home. Closets and storage space were a big thing I did not know to look for when I bought my first home. The more you see the more you may want. But, you will also walk away with a better idea of what you and your family needs and/or wants.
5. No More Big Loans.
This is the cutoff point for larger loans – personal or auto. You should probably avoid loans prior to this stage, but consult your financial adviser and/or lender if something comes up that cannot be avoided.
Three Months Before You Buy a Home
1. Add to your savings.
2. Visit New Home Construction and Open Houses for ideas.
3. No More Big Loans, or new credit accounts.
And try to pay down all credit card balances to under half, or lower if you can manage it. But do not sacrifice the savings account to do so.
4. Create Your New Home “Wishlist”.
This is to be completed with your significant other. I recommend coming up with 15 items you both want in the new home (school/work proximity, No HOA, Water View/Access, Pet Friendly, etc) and then prioritize them together. You both must agree on the order of the top three items at the very least.
Two Months Before You Buy a Home
1. How good were you?
Get pre-qualified. Choose the mortgage lender/broker you feel most comfortable with, finalize what your buying power is, and do absolutely nothing to change your credit report (no new loans, credit lines, etc) and watch the flow of cash into and out of your accounts. Lenders do not like large influxes of cash they cannot track to a source. Borrowing money from family is ok, but talk to your lender on how to do so. They may want a letter from the family member you borrow money from to “source” the money, or they will not be able to loan you the money to buy your new home!
2. Go home shopping!
Narrow down the neighborhoods you would like to live in, and find a good real estate agent!
Time to Buy Your Home!
