I remember when my husband and I decided to finally buy a house. It was the second our best friend bought a gorgeous four-bedroom home in a beautiful neighborhood and school rankings that made your jaw drop(even without kids at the time!).
The thing is, I had no idea where to start. Fast-forward 6 months later, and we too, were our own amazing 4BR, 2.5BA house WITH A POOL, no less! Okay so, Krissy, you ask-how do you pull that off?
Well, my friends, this is why I’ve decided to write up a series call, as you may have already guessed:
“How The Heck Do I Buy A House? PART I-Prepare”
The check list I’ve put together seems daunting, but I promise you, I’ll break it down piece by piece so it doesn’t seem so scary that you’ll throw your hands up and pay rent forever. The best thing you can do for yourself is to get prepared. Houses in the Austin area market are moving ridiculously fast lately-so you want to be sure that when you’ve found YOUR home, your ready to move on it (aka put an offer in) ASAP. A real world example: my in-laws were looking at homes in Round Rock and Georgetown-and fell in love with a number of houses-even WITH being financially prepared-they were still missing out on houses after listing were out for less than a week!
1) Check your credit, know your score and where you stand.
Everyone is entitled to a free credit report every year at www.annualcreditreport.com These reports cover the BIG 3 credit companies, however will not give you an exact score. If there are dings on your credit-they should show up here, regardless. For a hard number FICO score, I’ve found that Credit Karma doesn’t require a lot of hassle or a credit card to sign up-Nice. (Note: I don’t receive anything from Credit Karma for this-I just have personally used it and found it helpful).
Credit card balances, students loans, car loans, other mortgages you may have will be listed on a credit report, and whether they are in good status, delinquent, in collections, or charge-offs. If you are unsure of the validity of anything on your report, you can contact the agency associated with the account to find out what the deal is, and dispute it.
The point here-try to get your report looking as good as it can. Pay down some credit cards, and make sure accounts are listed accurately. Once you do have it in order, DON’T OPEN ANY NEW ACCOUNTS OR TAKE OUT ANY LOANS UNTIL AFTER CLOSING. I can’t stress that enough. We’ll get more into this later-but during closing your credit is checked-often times more the once, and more certainly before closing. If you roll up in your new convertible to take up space in that new spacious garage prior to your closing, don’t be surprised if you can’t close. No matter how big or small–just don’t flippin’ do it!
2) Determine how much you might need for a down-payment and save, save, save.
It’s hard to know EXACTLY what you’ll get pre-approved for–but try one of the million mortgage or affordability calculators on the web. It won’t be exact-but you’ll get a ball park estimate. So, let’s say your looking to save for a home that will cost about $200,000.
Now, everyone and their grandmother is going to tell you you’ll need 20% down on a home–and it’s NOT a terrible idea. It’ll make the amount of money you need to finance lower, and it looks far better to any lender when weighing risk. However, nowadays the 20% down is not the end all, be all. There are now FHA (Federal Housing Administration) insured loans that only require 3.5-5% down payments. On a $200,000 priced home, that’s about $7k-10k for a down payment. Still a lot of dough-but something a lot of first-time home buyers are more likely to save. VA (Veteran’s Administration) guaranteed loans are also out there for our veteran’s and their families-sometimes even for 0% down. Seriously–but I can’t recommend the mindset that you’ll need nothing down-it’s just not common sense.
Point here-Save. My husband and I were saving a little bit when we were renting, but once we were motivated by our friend’s home and a few open houses–we saved everything we could and racked up over $10k in a few short months. It can be done!
3) Get all your financial paperwork organized and ready, early.
Okay, get this done now, because when it comes to pre-qualification and the much lengthier process of closing-you’re going to need a lot of your financial paperwork from about the past two years.
-W-2s or 1099 Tax statements from the past 2 years —You know that document you get so you can file your taxes every year? Those. If you didn’t keep them, contact your current or former employer–They can get you a copy-in my experience through snail mail…so again, get this done ahead of time.
-Federal Tax Returns from the past 2 years–That stack of paper you get back from your CPA/H&R Block/Person you know that does taxes every year. Again, you can always request a copy of these from those folks if you don’t have them already. I almost always use TurboTax–and luckily, as long as you can remember your log-on from year to year, you can sign on and just download those puppies. Beautiful!
-Bank Statements from the past few months-year–Usually, if you’ve got your bank accounts set up online-you can go through and print the monthly statements straight from there. If you have any problem, you can always go to your nearest branch and ask an associate to mass print these for you.
-Payroll/Check Stubs for the past few months–Again, some bigger companies have online access to payroll summaries-which is great. If not, contact HR and they can get you hooked up.
-Proof of any other income–This can range from investment income, if you’ve been taking money from your 401k, ect.
-Student Loan documents-This is something a lot of people don’t mention, but if you’ve got student loans-having documents about these loans, how much, their interest rates-whether or not you’ve consolidated is super important. This is where our mortgage kept getting hung up and I had to keep producing more and more proof of the loans and that I could indeed pay them based on our income. This is one I wish someone would have mentioned to me ahead of time, because the stress behind trying to get these documents in the weeks preceding closing was ridiculous. I think it’s safe to say I cried a few times thinking we’d lose the house over my loans.
4) Get pre-approved for a loan
Getting pre-approved is pretty simple, generally. You can do it online or over the phone, usually in one sitting. Keep in mind, though, it’s not a guaranteed loan. Your credit will be held until a much closer microscope once you’re under contract for a home. For now though, you’ll get a better idea of what you can afford and what you should be looking at when you’re going out with your Realtor. Having this pre-approval will allow you to make an offer on a home, as well. It’s important to keep in mind that pre-approvals are typically good for 90 days.
Some solid places to check out for pre-approval:
Coldwell Banker Mortgage I know, I know–I am biased here-but honestly, these are the folks I used for my own mortgage before I was a Realtor-and they were so quick about everything. Lots of personalized service when we ended up picking them as our mortgage company in closing. Can’t say enough good things there.
USAA If you’re a vet–check out USAA for pre-approval. Our best friends and my in-laws used them and found them helpful for their pre-approvals and mortgages.
University Federal Credit Union-A local credit union who I’ve had a lot of great luck with–again, lots of personal service here. Lot of Austin locations.
Alright, folks-that’s a lot of information for one night–so be like the sponge and soak it in 😉 Questions, leave it below or give me a shout at firstname.lastname@example.org