12 Steps to Home Buying

12 Steps to Home Buying | Blog | InvestingTE.com
12 Steps to Home Buying | Blog | InvestingTE.com

How do you know you’re ready to buy a home?

Outside of having the desire to own your own home, there are several steps you need to complete before you know you are ready.

The steps can take a while, so its best you begin preparing as soon as possible.

This way, when you find the property you want, you are prepared to take action.

Use this article as a guide to keep you on track.

Let’s get started…

1. Job Stability

Without the finances and the stability of reliable employment, you are not ready.

A lender will require you have at least 1-2 years of employment for you to be considered eligible for financing.

If you plan to change jobs, be careful. If you are starting a new role in an entirely new industry, the lender may require you gain 1-2 years of employment with the new employer.

Thinking that you can just combine employment history among various employers could be a mistake.

2. Credit Preparation

12 Steps to Home Buying | Blog | InvestingTE.com
12 Steps to Home Buying | Blog | InvestingTE.com

Next on the list, you will want to begin preparing your credit.

Learn the dates your creditors report to the credit bureaus and when your payments are due.

If you credit requires corrections to your personal information or any credit line detail, you will need time to complete this.

Creditors only report to the credit bureaus once a month, so it could take several months to complete any corrections.

This also doesn’t account for you paying down specific accounts in order to decrease your utilization so your score improves.

  • Annualcreditreport.com is a website you should use to complete this task. They provide a free credit report annually. However, if you want your score, there is a fee.

3. Eligibility Requirements

In step one, we briefly mentioned length of employment as a requirement from the lender.

This is one of many requirements you will need to learn.

  • Minimum credit score
  • Length of employment
  • Down payment requirement
  • Closing costs and bank fees
    • Be sure to learn fees that are negotiable like origination fees.
  • Out-of-pocket costs like your inspection and appraisal.
    • Note: You will have an attorney fee and an earnest money deposit, but these are not required by the lender.
  • Time to close or settle. Usually its 30 to 45 days.
  • Property address
  • Proof of employemnt and pay history
  • Tax returns

There could be more, so be sure to check with your lender.

4. Hire an Attorney

Before you begin hiring anyone or signing anything, you will need an attorney to review any agreements.

You will also need an attorney to keep all parties accountable during the home buying process.

You need legal consul on all agreements before you sign anything so you know what you can negotiate and what is customary.

  • Realtor fees are negotiable.
  • Realtor time of representation varies and should be known by the buyer.
  • Terms and conditions of any agreement are negotiable.

If the seller has an attorney, their attorney will look to correspond with the buyer’s attorney. When you don’t have an attorney on your behalf, you could be giving the seller an unfair advantage.

5. Pre-Approval

First you can get your prequalification if you don’t have a specific property in mind yet. The prequalification, allows the lender to screen you to determine what your affordability is according to their terms.

Understand that the lender will only use liabilities that are on your credit report.

However, expenses that exist that are not on your credit report, will not be accounted for.

Only you can plan for the expenses you are aware of outside of the expenses on your credit report.

Once, you have a property address, you can submit it to the lender for an official pre-approval.

The prequalification shows you have funding support generally up to a certain amount.

However, the pre-approval shows support based upon current market interest rates and the cost of the specific home.

The pre-approval is official proof that the subject property you wish to buy is supported by the lender.

6. Affordability

12 Steps to Home Buying | Blog | InvestingTE.com
12 Steps to Home Buying | Blog | InvestingTE.com

As mentioned, the lender will qualify you based upon the liabilities on your credit report.

The lender will have a threshold that limits the total amount you are eligible to borrow based upon your debt-to-income level.

This is referred to as your debt-to-income ratio.

  • Example – If a lender allows a maximum debt-to-income ratio of 45%, then they will take 45% of your gross income, deduct your expenses from your credit report, and that final number is what you are eligible to afford monthly.

Knowing your true debt-to-income ratio, considering expenses not on your credit report is important.

This way you know what your true affordability is.

7. Reference Guide

Being that there are so many steps to the home buying process and we just met the half-way point.

It may be helpful if you had a guide to not only show you the process, but to also prepare you for obtaining down payment assistance grants.

This could be very helpful so you understand what the entire process looks like, if you are a first time home buyer.

Having a reference guide to all processes can be very helpful.

8. Certificate of Eligibility

If you do happen to qualify, and pursue a down payment assistance grant, you will need your certificate.

Once you complete a home buyer’s education class in the county you intend to purchase a home in, you will receive a certificate that provides your eligibility for the sponsoring lender of those grant programs, to assist you.

Be sure to check with the county where you intend to purchase to get information on when and where the home buyer education classes are held.

  • Naco.org is a website that provides access to all county websites in the USA.
    • Connect with the county clerk for direction on finding home buyer education classes or locate them on their websites directly.

9. Best Location

When buying real estate , you always want to buy in the best location that your money can afford.

This means you need to do your homework.

Knowing what “location, location, location…”, truly means, is vital.

Real estate is a common investment strategy to build wealth and you don’t want to be the one that isn’t educated.

  • Review this article Understanding Location, Location, Location for education on this topic, so you are prepared.
  • Understand how to find an area that may be a better opportunity based upon your down payment assistance eligibility and the median income of that area.
    • Most programs require you be at or below 80% of the median income of the location you are interested in purchasing in.

10. Rentability or House Hacking

As a part of your investment strategy you will want to know if the property will cash flow if you were to move and rent the property.

Sometimes, unexpected things happen and you want to be prepared.

Or perhaps, you may know that you want to rent the property or house hack the property after meeting your commitment to the lender, as applicable.

Regardless, this is an important step to evaluate for any property you are considering buying.

  • Cash flow is the amount of money that you will have after all expenses are paid including the mortgage.
  • You want cash flow to be positive and not negative. You must evaluate this.

11. Find a Realtor

I bet you didn’t think finding a realtor would be so late in the process, but it should be.

All of your education and preparation is something you need.

It’s your investment, own it.

By the time you look at hiring a realtor, there won’t be any delays with beginning your home shopping experience.

Inform the realtor on your progress and how you expect them to help you.

Since you are a consumer of InvestingTE.com, you may be able to teach them a thing or two!

  • Homelight is a great resource for finding a realtor.

12. Start Shopping

Congratulations! You are ready to begin shopping!

Be sure to consider, how much you can increase your buying power if you were to house hack.

When the property is a multi-unit of 4 units or less, it is an eligible purchase and the income of the occupied units will increase your buying power.

Learn how to apply this technique to create more buying opportunities.

With the inventory issues we are having today, this can be a great way to increase your opportunities of finding a home.

Thanks for joining us today faithful readers โ€“ future leaders!

Love ya and continue to strive for growth.

Please comment if you found this article helpful.

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