So you’re done with renting and planning to purchase a home. But how can you prepare for making one of the biggest, if not the biggest purchase of your life. Frankly, it can be exciting, emotional, and stressful, all at the same time. And between closing and moving, it’s a lot to deal with in a fairly short amount of time. It will help if you stay organized, proactive, and approach most everything based on facts. Here’s a list of things you can expect during the process.
Save money…and then save more money. You’re going to need a large amount of cash.
1. Down payment – First, you will need a down payment. Typically the down payment is at least 20 percent of the purchase price. And clearly the more money you can put down the better as a larger down payment can eliminate the need for Private Mortgage Insurance that can add significantly to your monthly payment and more.
But the down payment can be a hurdle, especially for many first time home buyers, and there are some programs that require considerably less cash than the traditional 20 percent down. Some programs for first-time home buyers require as little as 3 percent as a down payment.
2. Furnishings – Second, chances are the house or apartment you’re renting probably has less space than the home you will be buying, so you’ll need some funds for furnishings. Keep in mind you can furnish a house over time, but you will need a few new things at minimum, such as window treatments, appliances (if they aren’t included with the purchase of the home), etc. Keep in mind you don't have to furnish the whole house at one time. Consider it a work in progress.
3. Maintenance – When you rent a house, generally it’s the landlord who is responsible for the maintenance on the home. After all, they own the place. But when you buy your own home, you become the owner and now you’re responsible for any maintenance. Think about how you will pay for a new roof or a new HVAC system, not to mention the smaller routine maintenance tasks such as painting, changing filters, etc. While you can do most of the smaller tasks yourself, some of the bigger tasks require a professional, and either way your wallet will take the hit.
4. Emergencies – You still need money saved in case of an emergency. Most suggest at least three months of expenses in a savings account.
Know your financial picture. One of the first things you’ll want to do is pull your credit report and review it to make sure it’s correct. If there are any errors, you’ll want to get those corrected before you start your search. Also, check your credit score. Your score will affect whether or not you qualify for a mortgage loan, and if so, at what interest rate you’ll qualify for. You’ll want to make sure it’s a good score or better. You may need to spend some time working on your score. Read our story on “How to improve your credit score.” Your financial picture will also dictate how much house you can afford and your down payment.
Find and create a good team. You’ll want the best team members possible. This includes a realtor and mortgage loan officer. The realtor will help you find the house and the mortgage loan officer will help you get the best possible financing. They should be good listeners and offer good solid advice. You will work very closely with these professionals for the next few weeks, so it’s important that you find a Realtor and mortgage loan officer that you feel completely comfortable with.
Get Prequalified. You will want to get prequalified. Once you’re prequalified, you will have a better idea of how much house you can afford.
Make a wish list. Once you’re prequalified and you know how much house you can afford, you’ll want to make your wish list. This is a list of things you’re looking for in your new home. This can include location, size of home, number of bedrooms, number of baths, etc., and share this list with your realtor. But remember, there is no perfect house. Be flexible and willing to compromise on some things.
Ask about a warranty. Purchasing a warranty can be a godsend should something big and costly need repair. There are several home warranties, so just make sure the warranty that’s being offered is a good one.
Signing the contract. Once you find your home and the purchase price and terms are negotiated and agreed upon, your Realtor will draw up a contract.
Get an inspection. Don’t confuse an inspection with an appraisal. An appraisal is done to make sure the value of the home is aligned with the purchase price. Once the contract is signed, you’ll want to have an inspection on the home. The inspection is performed to find any areas of possible issues and concerns, and it should be done by a licensed and experienced inspection company. They will check most everything including the foundation, electrical wiring, the HVAC system, the appliances in the home, and more. Any potential problems are written up on a punch list. If the contract is contingent on the results of an inspection (and it should be), then any items on the punch list can be negotiated between the buyer and the seller.
Generally, once these steps are taken, it’s a waiting game between now and closing. During this time, you can start thinking about the move. A little planning and organizing can go a long way.
While loan is being processed, here are some things that you can do to help the process go smoothly.
Work with your lender. You’ll want to be available to your lender for any questions and to provide any additional information they might need to gather during the process.
Don’t make any large purchases. In fact, it’s best to keep any purchases to a minimum during this time, because you don’t to make any changes that could affect your credit or your credit score.
Don’t make any changes in employment. Any changes to any piece of your unique financial picture could affect your loan and whether it’s approved or not approved. So if you’re thinking about looking for a new job, wait until after you’ve closed on your home.
Review the Closing Disclosure ahead of time. If you’re planning to attend your closing in person, you can get a copy of the Closing Disclosure 3 days before you’re scheduled to close. This way you won’t have to take time during closing to read the fine print.
Once you’re at closing with so many documents to sign, you may feel as if you’re signing your life away. Just breathe and know that the process will soon be over. Congratulations! Once you’ve signed on the dotted line, you’re ready to take the keys and move into your new home.
If CDC Federal Credit Union can help you through the process, please don’t hesitate to contact us. We’re here to help.