Somehow, in the midst of all that fun, we have all grown up. Instead of 21st birthdays, you are now attending 30th birthday parties, weddings, and baby showers. And now, to further emphasize the responsibility of it all, you are looking to purchase your first home!
Of course, being true to your Gen Y roots, you are researching for more information on how to best go about purchasing that perfect first home. There have been many first time buyers before you who have lived, and learned through their mistakes. I’ve compiled a chronological list of 11 tips that will help you avoid costly mistakes, and give you the advantage of preparation!
1. Check and fix your credit report.
It’s best to start preparing yourself at least 6 months before you would ideally like to purchase a home. The first step you will want to take is getting a complete copy of your credit report. Generally, a minimum of a 620 is required to get financed for a loan, and it is vital to know exactly what your credit score is. Once you have a copy of your credit report, you will have an idea of what areas you can improve on. Remember to allow at least 30 days for any improvements you’ve made to actually reflect on your score. Your credit score will be a huge factor when the bank determines whether or not to approve you for a loan, and will also affect the rate you are given. For more on how to improve your credit score, go to my other article called Credit Score 101.
2. Learn real estate and mortgage basics.
As you are in the process of purchasing a home, you will be hearing a bunch of acronyms being thrown around, and crazy terminology. At times, it’s going to feel like your agent and loan officer are speaking a different language. It will benefit you greatly if you familiarized yourself beforehand with all the new lingo. I recommend first going over information you can find off the internet, and then calling a professional to fill in the gaps, and answer any questions you might have. Once you have a basic understanding of the terms and process, you will not only be better prepared to make more informed decisions, but more confident to ask important questions as you go. For an explanation of a few key mortgage terms, refer to my other article called Understanding Key Terms.
3. Get your paperwork in order.
In order to expedite the loan process, collect and organize all of your financial information. When you apply for the loan, you will be asked for the following items:
– Last two years of tax returns, and W-2 forms
– Last two months of bank statements for the accounts you plan on using to finance the purchase
– Most recent pay stubs covering a complete months period
– Legible copy of your Driver’s License and Social Security card
You might be asked for a few other items, but generally this is all you will initially need for the preapproval. If you are an eager beaver, and really want to be ahead of the game, put all that information in PDF format. This way, when your loan officer asks you for your documentation, you can email immediately. Not only will this get you an answer faster, but it will also be much appreciated by your loan officer!
4. Get preapproved for a loan.
Before you even look at a house, whether in person or on the internet, get preapproved for a loan. Also, make sure you get a preapproval, not a prequalification. Get an explanation of the different kinds of loan products that are available, and if certain strategies such as buying down your loan is beneficial. I would also recommend that you write down any questions, or concerns you might have ahead of time so that you don’t forget to ask. For more information on the benefits of getting preapproved for a loan, check out my article called The Advantages of a Loan Preapproval.
5. Shop around.
More than likely you won’t pick the first house you see, so why would you pick the first agent or loan officer you see. Purchasing a home is a huge investment, and you want to make sure you hire the right agent and loan officer that will meet your needs. Every agent and loan officer is different. We all have our strengths, weaknesses, personalities, and different styles of doing business. Interview different people, and get a feel for those you think you would work best with. Remember, you will be working closely with these people regularly, and not to mention trusting them with one of the most important investments you will ever make. Also, be sure to get multiple quotes from different lenders to see who will give you the best rates, and fees.
6. Understand closing cost.
Once you have picked your lender, be sure to go over the closing costs with your loan officer. Both buyers, and sellers have separate closing cost that they are responsible for. Besides lender fees, a buyer should be prepared for costs such as insurance, home inspections, escrow, notary and recording fees, etc. Be sure you understand which you will be responsible for, and an estimate of how much they will run you. It is best to know how much this purchase will really cost you ahead of time, rather than right before you close escrow!
7. Differentiate your “must haves,” from “would be nice to haves.”
Now that you have been preapproved for a loan, and you understand the financial responsibility, you are now almost prepared to start looking at houses! Make a list of all the things your first home MUST have. Is it mandatory that you are close to work? Do you need at least two bedrooms? If you are looking in a city like Long Beach where parking is scarce, is it necessary that the home comes with a parking space? Once you have made this list of “must haves,” you now have a clear and established idea of what homes you will NOT look at. Give your list to your agent, and explain that you don’t want to see any homes that don’t meet your “must have” criteria. By staying focused on what you absolutely NEED in a first home, you will streamline the process and avoid wasting time.
8. Don’t be afraid to put your back into it!
Keep in mind that this is your first home, not your dream home. A first home is merely the initial stepping stone that will ultimately lead you to that dream home. So if you come across a home that meets all your “must have” criteria, has a great location, but might need a little work, try not to dismiss it right away. Not only can you find a great deal with an open mind. It’s amazing what paint, new flooring, and a few personal touches can do to make a house into a home.
9. Scope out the neighborhood.
When you’ve narrowed down your search to a few choices, be sure to check out the neighborhood. Drive by the house at different times of the day to get a feel for the atmosphere. You might even want to try driving to and from work from the house to get a feel for the traffic conditions. Also, don’t be afraid to talk to the neighbors as they will be good sources on what the area is like.
10. Pay for your own home inspection.
I cannot stress the importance of a home inspection enough. Furthermore, make sure you order your own inspection. You might be told by the seller’s that they just had one done, and that the house is fine. Or, there might be a home inspection report from a previous buyer whose escrow may have fallen through. Either way, do not rely on an old report, or one that was not ordered by you. The last thing you want to happen is to move into a first home you absolutely are in love with, only to get stuck with an expensive repair bill that breaks your bank.
11. Have fun and stay positive!
The last tip I can give you, and perhaps this belongs at the top, is to always remember to have fun, and stay positive. Buying a first home, and any home for that matter, can be stressful and frustrating at times. It’s not uncommon to see 15, 20, 25 homes before you find the right one. More than likely, you will come across some roadblocks, and might even feel like giving up at times. Purchasing a home can turn into an adventure sometimes, but like most adventures, totally worth the reward in the end. Stay focused, optimistic, and the rest will work itself out.
If this is finding you at the beginning of your search, hopefully, you have a clearer idea of where to go from here. If you have any questions regarding a home loan, or would like to get pre-approved, visit my website at www.AlissaAlvarez.com Happy hunting, and good luck!
With the busy summer months coming, prospective homebuyers are deciding whether to buy now, or wait in hopes of prices dropping even further. So how do you decide which option to take? This video addresses both sides of the issue. For more information about the mortgage market, or for any other mortgage questions, visit my website at www.AlissaAlvarez.com
Whether you are a homeowner, or would like to become a homeowner, this blog is your place to find a collection of helpful tips, strategies, and tools that will keep you informed, and in control of your financial future. I’ve created this blog to be used in conjuntion my weekly YouTube videos. Every Wednesday, the videos will introduce a general topic, and this blog will continue the dialogue by providing supplemental details on that week’s topic.
The market is constantly changing, and it’s our job as the industry professionals to keep you in the loop.