By Haley Tolitsky, CFP®
Buying your first home is an exciting time, but it also can be an overwhelming process, especially in today’s crazy housing market. It is crucial to proactively plan for this big purchase, and it is helpful to understand the details of the homebuying process ahead of time. I recently purchased my first home and put this list together with tips and tricks to make the journey easier for you!
Do Your Research
I cannot stress how important it is for you to do you own discovery process BEFORE you start looking at homes for sale. I started this process about a year before I ever met with a relator.
· What area do I want to live in and what do I need to have in my community?
· Think of convenience (close to work, family, stores, gyms), safety, noise-level (downtown vs. rural areas), entertainment, etc.
· What type of home do I want?
There are many options that each have their own pros and cons, including a house, townhome, condo, or apartment. HOAs (homeowner's associations) can provide great benefits, such as landscaping, security, a pool, internet, etc., but come with a monthly fee.
What are my must-haves in a home?
What is your desired square footage, number of bedrooms/bathrooms, and style? Do you mind handling renovations? Do you want a yard?
What can I afford?
Make a net worth statement listing your assets (savings, investments, and property) and liabilities (debt) and review your budget (income vs. expenses). How much can you comfortably put toward a down payment without draining your emergency fund? What dollar amount can you allocate toward your house payment each month, including property taxes, homeowner’s insurance, and possible PMI insurance and/or HOA fees? After gathering this information, use an affordability calculator to get a rough estimate of your price range.
Once you have a good idea of where you would like to live and the type of home you’re interested in, you can start researching homes for sale within your budget. I found it extremely helpful to use the Relator and Zillow apps to research my area and turned on notifications for homes that were listed with my specific criteria. Monitoring these apps for a few months allowed me to understand the current housing market by seeing current inventory and how often homes went up for sale in my location. This is actually how I found my current home’s open house!
Strengthen Your Finances
You will need to prepare for financing your home long before you place an offer. This starts with building your credit. Your credit score plays a significant role in determining your mortgage interest rate and loan approval. Be sure to pay your bills on time, pay off debt, and monitor your score, which you can do for free via Credit Karma, to check for fraudulent activity or errors.
You also will need to start or continue saving for your down payment and closing costs. This is easy to do by setting up an automatic paycheck deferral to a specific savings account just for your down-payment. Remember to keep 3-6 months of living expenses saved in a different account as your emergency fund.
Depending on your type of loan, you could be required to put down 0-15% of the purchase price. If you put less than 20% down, you will be required to pay PMI insurance. Keep in mind, this does not include closing costs, such as the credit report, appraisal, inspection, closing attorney, moving expenses, and furniture.
Always keep your budget in mind throughout this process. Just because you are approved for a specific loan amount, doesn’t mean you should max out your budget to buy a home at that price point. Imagine the stress of living in a home you cannot comfortably afford because you didn’t evaluate your expenses!
Connect with a Trusted Realtor and Mortgage Broker
Now that your finances are in order, you can begin to search for your realtor and mortgage broker. Do not be afraid to interview different agents and brokers before making a decision, and ask your local family and friends for recommendations!
Your real estate agent can help you narrow down your “must-haves” in a home based on your budget and will serve as your guide throughout the process. Your mortgage broker will determine the price range you can afford and the right type of mortgage for you, most likely an FHA or conventional loan. An FHA loan is backed by the federal government and has less-restrictive qualifications if you have a lower credit score and/or limited down payment funds. If you have a high credit score and savings for the down payment, a conventional loan may be a better fit, since FHA loans typically require the payment of mortgage insurance upfront and every year that you have your loan.
Once you are serious about searching for a home, make sure you receive your preapproval letter from your lender, which typically lasts 60-90 days. The preapproval letter not only clarifies your budget, but also informs the seller of your qualifications when you are ready to make an offer. In tight housing markets, like ours currently, sellers may be less likely to consider offers without a preapproval letter. You do not want to attend a showing for the house of your dreams to be beaten out by another offer because you did not have your preapproval letter ready!
The Buying Process
Buying a home typically begins with attending a showing or open house for the home you are interested in. Showings can be an exciting, but also stressful experience. Research the home and write down questions ahead of time, so you do not miss anything important that you need to know.
Once you are ready to make an offer, your agent will work with you to make a fair offer. Keep in mind, we are in a sellers’ market, so try not to get too disappointed if you first offer(s) are rejected. Once your offer is accepted, you will sign the contract. Your agent and mortgage lender will be working closely together over this period to ensure everything is completed correctly and timely.
There are numerous steps once under-contract that your agent will lead you through, including putting down due diligence and earnest money, the home inspection, appraisal, due diligence repairs, and closing.
Once you are approaching your closing date, don’t forget to set up your utilities to be transferred over, forward your mail, and make moving arrangements. I used Updater, a moving app, to keep me on track and make sure I didn’t forget anything before and on my moving date.
Congratulations! If you have made it to this step, you have officially closed on your house. Take a deep breath and enjoy your new space. Turn OFF any Relator or Zillow notifications you have had set. It is not beneficial to keep tracking the market once you’ve landed your home. Remember, this is your first home, and you likely will purchase another in the future.
In the meantime, continue to save for emergencies, retirement, and your financial goals. Keep your house maintained for future value, and make lots of great memories that you will cherish throughout the years!
About the author: Haley Tolitsky, CFP®
Haley Tolitsky, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Cooke Capital, a wealth management firm providing highly personalized financial planning and investment management services. Cooke Capital works to help clients achieve their financial and life goals, helping them find confidence in their financial direction and freedom to focus on the rest of their lives. To learn more, please visit https://cookecapital.com/
Financial advisory services offered through Acorn Financial Services, Inc. (AFAS), a Registered Investment Adviser. Securities offered through The Strategic Financial Alliance, Inc. (SFA), a registered Broker/Dealer. Charles Cooke and Haley Tolitsky are Registered Representatives of SFA and Investment Advisor Representatives with AFAS. Cooke Capital is otherwise unaffiliated with AFAS and SFA. Supervising office (703) 293-3100.