There’s nothing quite like the excitement of buying your very first house. But as you complete the fun stuff — like house hunting and pretending like you’re filming your own personal episode of House Hunters — you’ll also have to pay close attention to some important financial details and tasks. Here are five steps first-time homebuyers should complete as they begin the search for their perfect abode.
Five first-time buyer steps
1. Check your credit
If you don’t have a handle on your credit score and health, your first step as a first-time buyer is to pull a credit report and dive in. Many national banks now include credit scores within their customer dashboards, or you can sign up for a free tracking service from Credit Karma or Credit Sesame.
Once you have your report, you’ll want to:
- Check our overall score. The higher the better, but you’ll need a score of ~580 or higher to get approved for a loan.
- Review any derogatory marks, including late payments or payments that were sent to a collection agency. If any of them were reported in error, you may be able to work to get them removed from your report.
If you don’t know much about how a credit score is determined, I recommend reading this article. Overall, the easiest way to boost your credit score is to make on-time payments over the long-term.
2. Review your finances and save for a down payment
The next first-time buyer step is to take a good hard look at your incoming salary or earnings and your outgoing spending. What are your must-pay items and how much do they cost per month? These would include:
- Student loan payments
- Car payments
- Outstanding credit card payments
- Child support payments
- Phone, wifi and other “must-have” technology bills
What about the money you spend on not-so-necessary items? Do you tend to eat out most nights… and could you cook at home for less? Do you regularly spend $50/month on a gym membership that you never use? The time before a home purchase can help you achieve clarity on typical budget line-items that would be easy to give up. Take the opportunity to do so.
And last, you’ll want to begin saving for a down payment, if you haven’t already. The National Association of REALTORS® reports that among first-time homebuyers, 56% are delayed in saving due to student loan debt and 36% report delays due to credit card debt. So the earlier you can begin putting money away, the better.
3. Talk with me about your goals
I think it’s important for us to chat early on. I love to hear about your overall goals, whether they are to live in a certain school district, to buy a condo in walking distance to the train, or something else entirely.
And by discussing your plans in the early stage, we can all be on the same page and I can begin to look out for houses or areas that may suit your needs. It’s a win-win… and I promise, I’ll never pressure you to move faster than you’d like.
4. Get pre-qualified or pre-approved for a mortgage
Pre-qualification is a fast, automated process online where a calculator can offer the estimated loan amount that you could qualify for once you enter the homebuying market. It can help you get a very general idea of your budget, but it doesn’t “count” for anything once you start the homebuying process in earnest.
Pre-approval is a more involved process, where a lender will review your finances, salary or employment history and taxes to assert that you will (likely) be approved for a loan of a certain amount. When your lender issues a pre-approval letter, we can use that to show sellers (and their agents) that you are a high-quality buyer candidate. If there are multiple offers, pre-approved buyers may be looked at more favorably because they present less risk to the seller.
Overall, it’s important to begin the process of pre-approval earlier than later, as it can help you to set clear, realistic parameters for your search.
5. Start narrowing down your must-have criteria and preferred neighborhoods
Okay, now we are getting to the fun part! The last early stage step is for us to discuss your parameters for the search, including:
- Preferred neighborhoods
- Beds, baths and square footage
- Must-have features, like a master suite or updated kitchen
- Nice-to-have features, like a back patio or larger closets
- A responsible budget range
From there, we can create saved searches that will alert you when homes in your budget and area come on the market. And of course… we can move on to seeing these homes in person!
P.S. Not sure how to read your credit report, or have questions on how much you really need for a down payment? I can help answer your questions, no judgment or pressure.