A step-by-step guide for going from dreaming of homeownership to making an offer.
It’s an understatement to say that there are a mountain of details involved in buying a house. If you’re feeling paralyzed by the thought of finding the money for a down payment or applying for a loan, you’re not alone. But it doesn’t have to be as daunting as you think.
Buying a home doesn’t take nerves of steel, it takes organization. Let’s turn your dream into a reality and take the process step by step.
Step 1: Tackle the down payment
For most of us, coming up with a huge sum of money is, well, a huge hurdle. Student loans and the all-too-common reality of living paycheck to paycheck can make down payment requirements of up to 20 percent feel unachievable. But stay with us!
There are different ways to get the amount,” Hunter Fendley, Bungalo’s Managing Broker explains. “If you qualify for an HFA Preferred mortgage, the down payment reduces to 3.5 percent. You can also have money gifted to you from a family member [in 2018, family members can gift up to $15,000 tax-free] or set aside a percentage of your paycheck every pay period for the time it will take to get the total.”
Another way to better understand what kind of home you can afford, is to plug some basic numbers into an online mortgage calculator, which will ask you about your income as well as your debts, and the costs associated with the home you’re interested in (like property taxes or homeowner’s insurance). Paired with the pre-qualification amount, it’s another tool to help you set your budget.
Step 2: Find a loan officer
A loan who? A loan officer works for the bank or lending institution and will help you apply for a mortgage. They’ll go over your credit and finances, as well as get you pre-qualified (an estimate of how much you can afford) or pre-approved (a tentative commitment from a lender based on an application) for a mortgage. Fendley suggests asking the real estate agent you are working with if they have officers whom they would recommend. Also, ask about loan officers at the bank where you have your personal account, since you already have a relationship with that institution. With Bungalo’s Mortgage process, it’s possible to get an underwritten pre-approval within 48 hours!
Feeling nervous or unsure that you’ll qualify?
Some [loan officers] can work around credit issues or income ratios and get the job done,” he says.
Step 3: Get tough with your credit score
If you’ve never downloaded your credit report before, now’s the time. There are three major credit reporting agencies—Equifax, Experian or TransUnion (you are entitled to review your credit report from each of the three agencies once a year for free). Depending how your credit looks—you want your score to be at least 580—you may need to press pause on your plans for buying, and focus your efforts on straightening up your financial profile.
Deep breath! First make sure there aren’t any mistakes on your report that need to be fixed (like an incorrect late payment on a credit card, which can significantly impact your credit health). Then, if you are behind on any credit card balances, set yourself payment reminders to get on track. Also, apps like Mint or Acorn can help you set and stick to a budget if that’s something you struggle with.
If your credit problems are more complicated (think student loan default), go through a credit counseling service, which can help you resolve past issues and set you up for future success. These programs vary in cost and services, so it’s worth reviewing a few before making any decisions.
Unfortunately, a low credit score is a speed bump along the way to buying a home, but it’s not the end of the road. It just means being patient and motivated.
Be prepared to set aside six to eight months if you have a high balance or low credit score,” Fendley says.
Step 4: Envision your dream home
Set some guidelines for yourself and start a wishlist, determining details like the number of bedrooms and bathrooms, size of the outdoor space, ideal neighborhood and school district, plus any other feature—from a multi-car garage to a swimming pool. And then divide that list into two columns: must-haves and nice-to-haves (for example, minimum of two full-size baths might be a requirement, but a yard big enough for a vegetable garden might be negotiable). It’s a helpful list to share with your broker and to use as you begin to scour real estate listings.
Step 5: Start house hunting
Reviewing online listings is a good start, but it’s important to get out there and visit neighborhoods—it can be a lot of fun to go on tours with your agent or drop by open houses. You may find yourself considering areas you may not have thought of before, but that offer more space for your money. And don’t be shy about asking questions! It’s helpful to know how many times the house has been sold before, the condition of the bones of the house (think roof, septic, pipes, water heater, etc.), and what the neighbors are like—can you look forward to summer block parties?
Step 6: Make an offer
That feeling you get when you find the house of your dreams is equal parts exhilarating and terrifying—because making an offer is tricky, right? It doesn’t have to be. Remember, the sellers might have sentimental feelings about the home. A very low bid might be a nonstarter (and potentially insulting to the seller), so have in mind the most you are willing to pay for the house. Submit your offer in writing, and if it’s rejected, either move on or make another offer. If the offer is accepted, it’s cause for (cautious) celebration—you’re one step closer to owning your own home, but you still have a few more hurdles to clear!
Step 7: After your offer is accepted, sit tight
Sitting tight means be patient…and do not go shopping for big-ticket items that could impact your credit rating.
“Don’t buy a car, don’t open a new line of credit. Each time you do that, your credit gets pulled again and the mortgage lender will be notified,” says Fendley. “Many people go into contract and are so excited they head to a furniture store to decorate their new home—and take out a store credit card while there.”
There are a few more steps to take before you get the keys and moving into your new home—soon, we promise!
Read our Guide to Closing on Your Dream Home to finalize your checklist and minimize stress.