If you follow my social media pages (Facebook & Twitter), then you may have seen me tweet about the ten steps to buying your home from Realtor.com. Below you can find each step that you will need when purchasing your first home.
You can bookmark this page and research each step as you make your transition through the housing process.
Step 1: Are You Ready to Buy a Home
It is best to do a mental and financial check to make sure that you are indeed truly ready to be a homeowner.
Step 2: Hire A Realtor
It is always best to hire someone who has your best interest put forth. A buyer’s agent will help you through the process. When I work with buyers, I make sure they understand how the process works, deliver them all options, and make them extra confident about purchasing their first home. You should always have someone to represent you in the home buying process even if you decide to build your home.
Step 3: Get A Mortgage Pre-Approval
Before any Realtor takes you to view homes, they will want to know that you are pre-approved. Without having a pre-approval you are basically dreaming on a wish. It is best to know what you can afford based on your finances. I would suggest you go a step forward and see how much you can afford based on your net income.
Ex: Gross Monthly Income – $3000
Net Income (Take Home Pay) – $2,550
Gross Annual Income – $36,000
Net Annual Income – $30,600
Home Price You Should Buy – $92,000
The lender will only take in account to the debt being reported on your credit report. If it isn’t reported on your credit report (electricity, cell phone, gas, car maintenance and insurance, etc), then it won’t be calculated in what your monthly bills. Take that into play when purchasing your home. A rule of thumb is that your mortgage shouldn’t be more than 30% of your income. Based on this scenario, that range would be between $765- $900.
Step 4: Look at Homes
Now that the financial piece has been squared away, you are ready to search for homes that meet your price range.
Step 5: Choose Your Home
Base your home search on 3-5 things that you must have. Please take into consideration that if you are looking for an open concept, that can easily be adjusted if the wall can be knocked out. Don’t let small cosmetic things like ugly carpet, wallpaper, or paint colors stop you from purchasing a home. Cosmetic things can be changed in as little time as a weekend and sweat equity.
Step 6: Make An Offer
This is why you hired a Realtor. Your Realtor will help you determine the price to set your offer at and what conditions to ask for.
Step 7: Stay Mortgage Approved
Once you have decided on your home to buy and your offer has been accepted, it is time to do due diligence. Just because you have a pre-approval, DOES NOT mean you have been approved on a home loan. The pre-approval is just to say that a lender has checked your information and you can purchase a home in the select price range. In order to stay mortgage approved, you have to keep your debt to income ratio in the same position as you did when getting pre-approved. During this time of the process, don’t go buy a new car, new appliances, new furniture, or default on a credit card (yes this list can go on because this has happened before). Wait to buy these items when you have signed the closing documents and have the keys to the home in your hand.
Step 8: Protect Yourself…Get Insurance
Just as you need car insurance as a requirement to own and operate a car, you will need homeowner’s insurance to own your home too. This is no getting out of this one. I would suggest you start with your insurance carrier that you have car insurance with or even renter’s insurance. Some insurance companies offer discounts when you setup a bundle with them. (TIP: If you are apart of any organizations, see if your insurance company offers discounts with them. I was able to use my sorority to get a discount with my insurance company).
Step 9: You’ve Made It to Closing Day
You have finally made it to the closing day. You have exhausted yourself to find the perfect home and now it is almost time to achieve that reality.
Step 10: I’m A Homeowner
You are officially a part of the homeowner club. You have to make sure that you maintain your home. If you see a neighbor whose yard is decreasing your home value, be neighborly and charge a fee to keep it cut for them. See I’ve helped you create a small hustle in the neighborhood. You can also volunteer to do it as well.
These ten steps will help you prepare for purchasing your first home. If you or someone you know is ready to get the train rolling on purchasing your home, contact me today.
- Accounts paid as agreed generally remain on your credit file for up to ten years from the date of last activity (DLA).
- Accounts not paid as agreed generally remain on your credit file for seven years from the date the account first became past due, leading to the current not-paid status.
- Late-payment history generally remains on your credit file for seven years. It’s important to note that accounts with current statuses, such as R1 (revolving debt) and I1 (installment debt), that reflect previously late payment history will remain on the credit file for up to ten years from the date of the last activity-only the late payment history is removed after seven years.
- Collection accounts generally remain on your credit file for seven years from the date the account first became past due, leading to the account’s placement with a collection agency.
- Judgments generally remain on your credit file for seven years from the date filed, whether satisfied (paid) or not.
- Paid tax liens generally remain on your credit file for seven years from the date released (paid).
- Unpaid tax liens generally remain on your credit file indefinitely.
- A bankruptcy under chapter 7 or 11 or a non-discharged or dismissed chapter 13 bankruptcy generally remains on your credit file for ten years from the date filed.
- A discharged chapter 13 bankruptcy generally remains on your credit file for seven years from the date filed.
- Inquiries are a record of companies and others who obtained a copy of your Equifax credit file. The Fair Credit Reporting Act (FCRA) requires that Equifax disclose to you who requested copies of your credit file. Depending on the reason your credit file was accessed, credit reporting agencies generally retain these for one to two years.
- Some types of inquiries you might see on your credit report are not reported to others or used in credit score calculations. Promotional inquiries, in which your name and address were provided to a person who made you a firm offer of credit or insurance, such as a pre-approved credit card offer, generally remains on your credit file for twelve months and does not affect your credit score. An account monitoring or account review inquiries happen when one of your creditors performs a periodic review of your credit file in connection with reviewing your account. These inquiries generally remain on your credit file for twelve months and do not affect your credit score.
One of the biggest challenges for potential homeowners is their credit score. I work as a part time Housing Counselor at a local nonprofit helping low to moderate income families become homeowners. A question that I am frequently asked is “what credit score do I need to purchase a home?” The answer would be whatever the lender thinks is beneficial. I say this because each lender is different and have their own underwriting criteria. I personally know lenders that will qualify you for a mortgage at 580, 620, or 640 by the least. Of course the higher the score, the lower the interest rate but as low as rates are today, you can still can a favorable rate at 580.
In order to rebuild your credit you will need the following things: a spending plan and your credit report. Notice how I did not say budget. In my counseling sessions budgeting is a forbidden word. It seems like someone is restricting you and makes you feel as if you don’t live. Let’s break away from the conservative word of budgeting and instead let’s develop a spending plan. A spending plan breaks down where you spend your money each month. Now in order to rebuild or build your credit you will have to know where you are financially. With your spending plan, you want to distinguish your housing expenses, debt expenses, savings, and any “play” money. Once you designate a place to put your money, then you will have a spending plan. Every dollar needs to a have place in order to determine a spending plan.
After you realize where you are financially, you want to see if you have any savings. Savings is going to be a key on whether you can pay down debt (if you have any). I recommend that before you pay anyone, you pay yourself. You should try to take at least 10% of your net income (the amount of your paycheck that you take home) and put it in your savings. I know you’re thinking, “Andrea, 10% is a lot for me to take out from each paycheck when I barely make any money.” If 10% is too much, lower to 5% or a dollar amount that you makes you comfortable. The key to this is develop a habit. Lenders like a habit like this. I say 10% because look at it like the example below:
Net Income: $2000
10% Savings: $200
Savings for a year: $2400
See how you could easily save thousands in one year with the 10% gesture. That doesn’t seem as bad when it is put like that huh? You can even suggest your payroll deduct your 10% so that you don’t see it anyway.
This may be another topic all by itself but for this blog post I wanted to make it short and simple. To be honest, in order to rebuild your credit, it is short and simple. Let’s start with some basic guidelines.
1. You are allowed one free credit report a year. Click this link to receive your credit report from the three major credit bureaus: Annual Credit Report. I’ve been faithfully doing this since I was a freshman in college. There was a seminar that was given about checking your credit report. I don’t recall if they talked about credit because this is all I remembered from the seminar. Please keep in mind that I was 17 and a freshman at LSU. I had partying and football games on my brain (nevermind that this was the summer either…I was fresh off the sand’s of mama’s given curfew)
2. If you have collectors calling you now, answer. When you don’t answer, you are only diffusing the problem. Some collectors can and will sue you for unpaid debt but you must know your state’s statute of limitations. We will discuss this later (just by stating this I know the credit report will be another post).Tell them your situation and see what options the may have for you. ONLY commit to a payment plan with a collector if the collection is still with the original creditor. If not, ask them to cease phone calls and to contact you through mail only. You will always want things in writing. This is the proof you will need for any disputes.
3. I always get potential housing counseling clients or real estate clients saying that my credit score is this and when the lender pulls it is lower than originally expected. This is because the free scores that you find online are built on a Vantage score. In easier terms, the big boys (TransUnion, Equifax, and Experian) decided they didn’t want to pay FICO the big bucks for numbers so they created their own scoring system.Mortgage lenders look for your FICO score. Credit scoring varies based on who the lender is. Mortgage lenders have different scoring than car lenders. So the score given to you at the car lot is probably much different than what is given for a mortgage. For mortgage purposes, you will need your FICO score.
Now to the meat of the report. Most people are concerned with the credit score. As of right now, if you are focused on a score, please STOP. I repeat STOP. When you are rebuilding your credit, the score does not matter. You’re probably thinking “Andrea, you just told me that I need a certain score to get my house.” My answer to that is you do need a certain score but when you are rebuilding your credit it isn’t your score that is important but what’s in your credit report. Your credit report determines your score. Once you start working on rebuilding your credit, your score will rise. It is kind of like the saying, “if you build, they will come.” Remember that in your course of working on your credit. “If you build your credit, that 700 or 800 will come.”
A sample credit report looks similar to this:
As discovered in my article, “Millenials and Real Estate” I briefly mentioned the numbers or resources to become a homeowner. Most millenials or people in general don’t know how much they need to prepare to be a homeowner. My first initial thought would be to SAVE. We’ve all heard of that word. It may be hard to do because we think of all the debt that we have. I can’t save because of this, that, and the other. Let’s rephrase that and think of why you SHOULD be saving. You may want to purchase a home soon, you need emergency funds, you may need/want to purchase a car soon. Saving is a big key to life and now is the time to start saving. I have two ways to save for a big purchase such as a home.
The first start to saving is the 10% rule. This 10% rule is to save 10% of your net income each paycheck. Let’s do the math scenario here. Let’s say you just signed a new lease but you know this will be the last year that you rent. That means you have a year to save. In this scenario, you have a $45,000 salary and after taxes your salary is $38,250. You will then have a net income of $3187. In simplest terms, you should save at least $318 a month. In a year’s time you would have $3,825 saved towards the purchase of a new home. For a $100,000 house, a down payment could be as small as $3,500. You have easily saved your down payment.
The second option could be to save your mortgage payment. For instance we could say that your rent is $900 but you could afford a $1200 in a mortgage payment. You set aside the extra $300 a month in the difference. The difference in savings is $3,600 and you have saved yourself a down payment and have gotten used to paying $1200 in a mortgage in the process.
Some people believe that just because you have purchased a home that the need to save is now out the window. WRONG. Remember as a homeowner, you are now in charge of maintaining your home therefore you should continue to save. By developing a savings habit now, you will continue to have that habit when you are a homeowner. It is important to develop the habit of savings as you may the leap into homeownership.
Did you know there are other savings with homeownership?
As a homeowner, you get extra benefits that help you in your savings venture and it is called EQUITY!!!! By purchasing a home, you are creating a nest egg Let’s display the difference of savings while renting and saving while buying?
There are numerous benefits to homeownership that you may be missing out. Wouldn’t you like to see that you are saving money as you maintain your home as well? Imagine how much you could save in five years if you had a forced savings in a mortgage and the savings you commit to in your bank account. Contact me today and together, let’s figure out your savings options with homeownership!