Imagine having a real yard, a huge walk-in closet, and the freedom to decorate however you please! Making the switch from renting to owning is exhilarating, but many first-time home buyers find the process trickier to navigate than they anticipated. This is why Michele Harmon Team has provided you with a 12-month timeline that will help you avoid common mistakes, like paying too much interest, or getting stuck with the wrong house. It can take time to get ready to choose and apply for a mortgage, let alone find a house that you want and can afford. However, if you have an understanding of the process and perform the necessary due diligence, it is definitely possible for you to buy your first home!
Check Your Credit Score
You can obtain a copy of your credit report at www.annualcreditreport.com. The three credit bureaus (Equifax, Experian, and TransUnion) are required to give you a free credit report once a year. A Federal Trade Commission study found one in four Americans identified errors on their credit report, and 5% had errors that could lead to higher rates on loans. Avoid distressing surprises by checking your score long before you are ready to apply for a mortgage, and work diligently to correct any mistakes.
Determine How Much You Can Afford
Figure out how much house you can afford and want to afford. Lenders typically look for a total debt load of no more than 43% of your gross monthly income. This is often referred to as your debt-to-income ratio. This ratio includes your future mortgage and any other debts, such as a car loan, student loan, or any revolving credit cards.
Click here to access an online debt-to-income ratio calculator to help you determine what you can afford. If you find that your debt-to-income ratio is pushing the limit, try to start reducing the ratio now.
Make a Down Payment Plan
In order to avoid having to pay a monthly mortgage insurance premium, you will most likely need a 20 percent down payment. However, if you are unable to swing a 20 percent down payment, have no fear! You can still buy a home. Just keep in mind that your lender may require a mortgage insurance premium, which will drive up your monthly mortgage payments. Most conventional loans require a 5% down payment. FHA offers loans with only a 3.5 percent down payment. There are also many programs available that may offer down payment assistance. Click here to view the U.S. Department of Housing and Urban Development’s (HUD) list of homeownership assistance programs in Texas.
9 Months Out
Prioritize what you most want in your new home. Are you looking for proximity to work? A big backyard? An open floor plan? A highly rated school district? Focusing on your priorities will allow you to make the best decision on what home to buy. If you need to make a joint decision, now is the time to work out potential differences. One of the most important things to consider is what trade-offs you are willing to make.
Budget for Home-Buying Expenses
Your home purchase will come with a few miscellaneous upfront costs such as, a home inspection, title search, property survey, home appraisal, and home insurance.
Start Saving for Maintenance
It would be smart to start practicing putting a little money aside each month to fund home maintenance, repairs, and home emergencies. You probably don’t want to be stuck paying credit card interest on a plumbing bill!
6 Months Out
Lenders require a lot of paperwork to complete your mortgage loan. Paperwork they will need from you includes:
- W-2 forms, or business tax return forms if you are self-employed (for the last 2-3 years)
- Personal tax returns for the past 2-3 years
- Your most recent pay stubs
- Credit card statements
- Loan statements
- Bank statements
- A list of residences for the past 5-7 years
- Most recent retirement account statements, such as your 401(k)
If you begin collecting these documents now, it can lessen your stress when it is time to obtain your loan. In addition, looking closely at your loan documents each month can help you stay focused on saving for your down payment and keeping your debt-to-income ratio low!
3 Months Out
Reach Out to Michele Harmon Team
Michele Harmon Team will work in your best interest to find you the perfect property, negotiate with the Seller’s Agent, and navigate you through every step of the home buying process.
Get Pre-Approved for Your Loan
If you have been following this timeline, your credit score, paperwork, and down payment should be on track by now. Before you start your home search, you will need to get pre-approved for a mortgage. You can click here to connect with one of Michele Harmon Team’s preferred lenders. We get nothing except peace of mind if you use them as we know they will take great care of you and they will help ensure a smooth transaction. Once you are pre-approved, you will be aware of exactly how much loan you will be approved for. It often makes sense to borrow less than the maximum the lender allows in order to live most comfortably. Keep your monthly budget in mind and make sure to account for mortgage payments, insurance, and home maintenance.
Begin Your Home Search
Once you are pre-approved, Michele Harmon Team can effectively target homes that meet your priorities in your price range. This way, your time will not be wasted looking at homes you currently cannot afford.
The Finish Line
When you began wondering how you would achieve buying a house in a year, it may have felt like an impossible task, but once you finally find your dream home, you are ready to make a deal!
Make an Offer – or a Few
Once you find your dream home, Michele Harmon Team will go to work to quickly submit a competitive offer on your behalf. The offer will outline how much you are offering to pay for the property, and sets contingencies or conditions for the sale.
Keep in mind that in a competitive market, you may not get the first home you make an offer on. According to the National Association of Realtors, the average home sold in 2021 received four offers. So, expect to compete with other buyers.
Seal the Deal
After the sales agreement is signed, the closing process begins. Your lender will begin underwriting, which is the process where they verify your financial documentation and approve the final terms of your loan. Then, your lender will most likely order an appraisal, to get an independent opinion on the home’s value, and a title search to ensure there are no other claims on the property. Once this is all completed, the loan has been approved, and the title has been cleared, you can sign the paperwork that finalizes your status as a new homeowner! Click here to learn what to expect on closing day.
The Bottom Line
Preparing to buy a home can be a lengthy process, from building a strong credit history to saving for a down payment. However, once you have set your sights on purchasing a home within the next year, there are tons of ways you can ensure the home buying process is as smooth and successful as possible. Call Michele Harmon Team at 713-818-1330 for questions or to get started on your journey to homeownership TODAY!
Click here to access our list of lending and financial help partners we have worked with and recommend.