- Financial Checkup: Check your credit score. Your credit score will be reported on what is called the FICO model. This model allows for a number score between 300 and 850. Scores over 760 earn the best rates and terms, while scores under 500 are almost always too low unless you’re applying for a VA loan.
- Set a Budget: It makes no sense to look at a $750,000 when all you can comfortably afford in $500,ooo. In order to narrow your home search, you will need a realistic price range and budget. One simple way to set a budget is to look at your monthly income and allocate between 25-30% towards your monthly mortgage payment.
- Consult with a Mortgage Broker: While you may not be ready to “sign your life away,” consulting with a mortgage broker early in the process will give you a better idea of the various loan types and the loan that is right for you. Likewise, acquiring a pre-approval letter before you find your dream home will give you a competitive edge come offer time.
- Gather the Necessary Documentation: Your mortgage broker (lender) will need several important documents in order to begin the loan process:
- The last two years of tax returns
- Pay stubs for the last two months
- All bank statements, plus brokerage and investment account statements for the last two years
- Proof of funds for your down payment & closing cost
- ID (driver’s license or passport)
- If you currently rent, a letter of recommendation from your landlord.
- Begin Your Search Online: There are a number of online search engines. Most prospective homeowners will begin their house hunting efforts online; doing so offers the new homeowner the chance to survey the market and get a sense of home values. Your Realtor will be your best guide, but starting online can speed along the process.
- Find a Qualified Realtor: There is little justification for buying a home without a qualified real estate professional, especially since the seller usually pays the fee. Your Realtor will provide valuable information about the local real estate market, as well as a comprehensive plan of the home purchase process.
- Spend Some Time in the Car: Begin the active search by visiting available properties, and get familiar with various neighborhoods and drive times to work and shopping. There is an old adage in real estate: location, location, location.
- Make the Offer/Negotiate the Terms: Once you find your dream home, your Realtor will structure and negotiate the terms of your offer. Be prepared for the seller to counter your first offer; this is not uncommon.
- Structural Inspection and the Home Appraisal: Once your offer has been accepted by the seller, your Realtor will assist you in getting the home inspected by a professional home inspector. The buyer pays for this inspection and the cost will vary based on the size of the home and the time it takes to fully examine the property. The cost is generally runs between $600-800. Next comes the home appraisal. This is ordered by the mortgage broker (lender) to ensure the home’s value and overall condition.
- Final Loan Approval and Escrow: The final two steps are solidifying the home loan with the mortgage broker and setting up escrow with a qualified closing agent (escrow company). Your Realtor will likely have a good recommendation for which escrow company he/she prefers to use.
