How To Prepare To Buy A Home? 10 Step Checklist

1. Review Your Credit Scores

If you are looking for how to prepare to buy a home, the first step is your credit score. Your credit scores play an integral part in whether a loan officer approves you for a mortgage loan and what kind of interest rate they offer for it.

Many banks and financial companies provide free credit scores based on information in your credit reports, from each major bureau. You can obtain these reports free at AnnualCreditReport.com. If your scores need a boost, make all your payments on time each month, use no more than 30% of available credit, and don’t apply for new lines that you don’t require. Furthermore, asking credit agencies to correct any discrepancies could further raise them.

2. Choose Your Loan Officer

In the process of how to prepare to buy a home, this is the second step. As soon as you start to consider buying a home, the sooner it’s best to engage a mortgage loan officer the earlier conversations can begin. Your initial discussion doesn’t need to include divulging financial details such as current debt levels, authorizing credit checks, or being pre-qualified or pre-approved for financing. They simply serve to establish rapport.

An experienced loan officer can: 

• Bring you up-to-speed on the application and approval processes.
• Remind you about down payment requirements across loan programs 
• Provide updates on interest rate trends that could alter payments (by noting how they affect you directly).
• Help you calculate how much of a home purchase budget you have available to spend.
• Estimate closing costs accordingly. 

Furthermore, if this is your first home-buying experience or has been several years since previous ownership has occurred, be sure to ask about special loan programs specifically targeted toward first-time home buyers in your region.

3. Conduct An In-Depth Discussion About Debt And Income With Your Loan Officer

Debt shouldn’t hinder you from purchasing a home if your income can cover payments; otherwise, paying down some debt might help get approved for a loan you want more easily.

Starting a new job, getting irregular paychecks, or quitting to launch your own business can make it harder for lenders to understand, track,k and verify your income sources. Maintaining consistent sources before purchasing a home may make getting approval more attainable.

4. Secure Funds for Your Down Payment

The next step in how to prepare to buy a home is securing funds for your down payment. Contrary to conventional wisdom, home buyers don’t require a 20% down payment when financing their purchase of real estate a Zillow survey revealed that 58% of those planning financing their purchase intended on making less than 20% down payments!

Some loan programs allow buyers to secure a home with as little as 3.5% down, or sometimes no down payment at all. Those selecting these options typically pay some form of mortgage insurance to protect the lender in case the buyer defaults. These mortgage insurance plans serve as protection for lenders should buyers default and fail to meet loan payments on time.

Some buyers can save enough of their income or proceeds from selling other assets they own to cover a down payment on a home, while others use gifts from family or gifts from financial services firms as a source of funds for down payments.

5. Get Prequalified for a Loan

Loan prequalification, commonly referred to as prequel, provides you with insight into what home you might be able to afford in terms of payment terms and interest costs.

Juan Rodriguez of Zillow Mortgage Loan Officer in Irvine California outlines that prequalification requires providing your income and assets, estimated down payment amount, and desired loan amount as well as possibly performing a credit check to assess eligibility for prequalification.

Prequalifying with lenders doesn’t constitute a commitment on their part to grant you a loan of any specific amount at a specific interest rate; rather, it serves as an initial estimate or rough estimation of the loan amount and rate you may qualify for given your financial information.

6. Establish Your Price Range

An important step in how to prepare to buy a home is establishing your price range. Before embarking on your home-hunting quest, you must establish both an acceptable budget and a desired spending limit for yourself. This figure forms your home price range and should consider three factors:

• The dollar amount of your down payment
• The loan amount you’re prequalified for
• The monthly payment you feel you can afford

Once you know how much monthly payment is comfortably within reach for you, start shopping. However, keep an open mind as to the possibilities; your price range might need to change as soon as you consult an agent (see more on that below).

Do you fear interest rates might go up before signing a home contract? Speak with both your loan officer and real estate agent about using seller-paid interest rate buy-down as an effective strategy; with it you may be able to reduce both rate and payment with mortgage discount points provided by them.

7. Create Your House-Hunting Wish List

Finding your ideal home may prove much simpler after knowing how to prepare to buy a home. When you conduct extensive research in advance make a wish list that details both must-haves and nice-to-haves.

Researchers who search online can learn a great deal from researching homes online, from learning about local housing markets to discovering characteristics common among houses within your budget range and creating wish lists to narrow their focus down to homes that will meet all their criteria and be suitable.

8. Select an Agent to Purchase 

Now after exploring how to prepare to buy a home, hire an agent. A wise buyer knows to shop around when selecting their real estate agent as well as home. A general guideline suggests speaking to at least three agents before making your selection.

A good agent should: 

• Keep you updated about homes available in neighborhoods you might consider living,
• Assist with making offers on them.
• Assist in closing them out successfully.

Mercy Lugo-Struthers of Casals Realtors in Woodbridge Virginia recommends buyers pose plenty of questions when speaking with realty agents. Some suggested questions include:

• What are your top skills in representing buyers?
• Why should I hire you?
• How would you define excellent customer service?
• What technology are you utilizing to facilitate the showing process? 

Finding an agent you feel confident communicating with is vitally important when house-hunting; an experienced agent will be able to assess if your wish list for house-hunting fits with your price range, or assist in reframing needs and wants. For example, identifying homes in different locations that fulfill them at lower costs.

9. Save for Closing Costs and Moving Expenses

It is wise to set aside additional savings for closing costs when purchasing a home; such costs could include an inspection, appraisal, title search/insurance fees as well as loan origination or attorney’s fees. In addition, funds may also be needed to:

• prepaying property taxes and homeowner insurance premiums, 
• making repairs to the new house, 
• setting up utility services,
• moving household goods from their previous residence into it.

Closing costs should generally be paid with cash as part of your down payment; however, there may be options available to reduce them such as negotiating with sellers and taking advantage of first-time buyer assistance programs.

10. Get Pre-Approved For a Loan 

After understanding how to prepare to buy a home. Looking forward to buying within 90 days, take steps toward becoming pre-approved by getting approved with your lender as early as possible! A pre-qualification will not suffice – get pre-approved today to secure financing before starting house hunting!

An initial loan pre-approval typically involves your lender verifying your income and assets through documentation. Usually two recent W-2s, two recent pay stubs, two months’ bank statements as well as any requested income tax returns from self-employed borrowers. Pre-approval from lenders should provide you with a letter showing exactly how much of an advance they’ve approved you to borrow.

“Most agents want a pre-qualification letter before showing properties,” according to Rodriguez, and some seller’s agents won’t accept offers without such paperwork attached.

Lugo-Struthers notes that in her market, buyers can start house hunting as soon as they obtain a pre-qualification letter; however, sellers and buyers are becoming savvy regarding pre-approval letters.

“Having a pre-approval letter shows your income and assets are sound; further, that you are committed to purchasing a home; moreover, funding has progressed sufficiently,” states Wilson.

Smart buyers know to plan.

Rodriguez advises buyers to get pre-approved at least 30 days in advance of starting to search for homes. In doing so, he notes, a buyer will know their price point and payment amount or whether or not further work needs to be done to qualify for their desired property.

Most prequels and pre-approvals last 90 days; you can renew them to reset this clock; but be mindful that interest rate fluctuations or any alterations to employment or financial circumstances could alter the loan amount significantly. Once pre-approved and completed with the necessary action items, your home-buying journey should get off to an excellent start.