Buying a home can be simultaneously the most exciting and the most stressful time in your life. You may think the first step is to start searching for homes online, but there are things you should do beforehand that will make the entire process much less stressful. Here they are:
Gather your personal and financial information.
You may be surprised how much information your lender will need. I recommend putting the following information in an electronic file so you’re ready to go. This information will arm you to have an intelligent conversation with a lender. You’ll also be ready to go if you find a house you want to buy right away. You should also know your approximate credit score.
Proof of income from the last 2 years: W-2’s, 1099’s, etc.
Tax returns from the last 2 years.
Picture of your driver’s license.
Picture of your social security card.
Last 2 pay stubs.
Most recent bank statement, from which you’ll be making your down payment.
Employment history, including contact information.
A list and values of your assets and liabilities.
Speak to a lender.
Most lenders look for your total house payment to be less than 28% of your gross income. This payment includes principal, interest, taxes, insurance, PMI, and HOA fees. For example, if you make $60,000 per year ($5,000 monthly), a lender would look for your payment to be $1,400 or less, or 28% of $5,000. The lender will be able to tell you what the maximum purchase price of the house can be to keep the payment lower than this amount, which depends on which loan you get and how much you put down. The lender will discuss different loan options (FHA, conventional, etc.) and help you decide which is best for you.
They will also furnish pre-approval letters for you to submit along with any offers, proving you have the financial ability to purchase the home.
Ask the lender how much time they need from contract date to close date, so you know which close date to suggest in your offers. This period is normally about 30 days. Also, ask what the lending fees and closing costs will approximately be.
Note that just because you are approved for a certain loan amount, it does not mean you need to buy a house for the maximum price. If you are or want to be an aggressive saver, consider buying one for half as much as you’re approved for (if you can).
Contact a real estate agent.
With the ease of internet searches, you may be tempted to forgo a real estate agent. As a buyer, there’s no reason not to have one. The seller pays the buyer’s agent’s commission out of the sales price. Furthermore, the agent will have experience and insights to aid in your search. Ask coworkers, friends, and family for referrals. Interview a few until you find one that fits your personality and has a passion for helping buyers like you. For example, if you are a first time home buyer, consider getting a realtor who loves working with first time home buyers. You agent will have access to the multiple listing service (MLS), where most listings are. We once saw a home on the MLS that was not listed online at all for the first 6 months it was on the market. It was listed only on the “income property” section of the MLS. We’re pretty certain potential buyers never even knew it was listed. Don’t leave all the searching to the agent, though! Search on your own as well.
Planning ahead just a little bit will save time and effort later. Getting your documents together, contacting a lender, and finding the right agent for you will lead to decreased stress throughout the buying process, so you can focus on the end goal: your home!