Welcome to my home buying guide! Christine and I just completed our journey to home ownership and I wanted to share our experiences. It all begins with a solid plan…
>2 Years Before Closing
Planning to buy a house starts long before the keys to the front door are yours. For me, I indirectly started planning to buy a house after graduating college because like most college graduates I had my fair share of debt and my first priority was to pay it off. Plan on having all of your other debts resolved before taking on a mortgage. This is also the time to develop good habits with money. The key for me was to aggressively pay off all my loans and then not change my lifestyle. After the loans were payed off, instead of making $200 student loan payments and $450 car payment every month, these instantly turned into monthly savings and it adds up quickly.
24 Months to Closing
This is the time to get really serious about saving a lot of money otherwise that down-payment is going to be out of reach. This is a marathon, not a sprint. Trying to save up (at least) 10% for a down-payment in 6 or 12 months is just not feasible for most people (it certainly was not for me). And do the math to see how much you need! For a house that costs $300,000 the 10% down-payment is $30,000. Set a goal and make sure you are on track every month. Going from $0 to $30k in 24 months means saving $1,250 a month… not an easy task.
12 – 6 Months to Closing
In this time period you should have a good estimate of how much you can realistically save up in total and it is the time to start scoping houses. Take a hard and honest look at the homes in your preferred area, their selling prices, and really narrow down what is the most important features in a home for you. One point to stress here is while the internet is great to benchmark potential homes, there is usually a catch when a really good deal pops up and it is important to assess the whole package. This is where google earth and street view help a lot and will shine a light on why the beautiful 1,900 sqft cape with a nice yard is only $230,000… Oh look! A major highway runs right behind it, they conveniently left that out of the staged pictures for the listing.
Chances are that everything on the wishlist is not also in the budget. Start creating a short list of must-haves. This list will change and morph over the process but always keep one and rate each house against it.
6 Months to Closing
Things are getting very real in this period and it is time to start assembling the pieces of your very important team. This team is going to make or break your process and will be paramount to your success. The first member you need to recruit is your mortgage lender and six months from the day you want to move into a new house, get pre-approved for a mortgage. This will tell you exactly how much money you can borrow based on your income, debt, and credit history. The bank has this down to a science and a bunch of numbers that determine how risky you are and how likely you are to repay your loan. With no debt, a steady job, and enough cash saved up for a down payment you should be in great condition! This is also a reality check on your budget and what you can afford.
Keep in mind that you often should not borrow the maximum the bank will allow you to. Do the math a figure out what the hit to your total take home pay will be and see if it makes sense. For us, borrowing the max would have been a big mistake and we would struggle with the payments and leave no wiggle room if a job crisis arose.
After pre-approval it is time to recruit the most important person to your team, the buyer’s agent realtor. There are plenty of tips and guides out there for choosing a realtor but here is my short version – find someone who works full time as a realtor, is truly motivated, eager, and reliable. Test them – do they answer your calls immediately? Or do you get a text a day later? The realtor is your guide, trusted confidant, and best friend in the process. You want to make sure you can rely on them.
Ideally you and your realtor have the same priorities. You both want a successful deal (how they make their living from commission) and a smooth, enjoyable experience (referrals and positive reviews to fuel their career). Interviewing your potential realtor is key! Ask to speak with them in person for 30 minutes and bring a list of tough questions. My top questions and the answers I wanted:
Is this your full time job? – Yes.
Why should I trust you during this process? – No one will work harder for your success than me, whatever it takes.
When can we get started? – Tomorrow.
My next piece of advice is to really start immediately after finding the realtor you like! This process (like just about everything else) takes longer than you think it will. We started looking for houses in February getting to know the area, understanding our real must-haves, and evaluating the true value of each home to us. We were not ready to buy a house in February, but you have to get a feel for what you actually like, what areas fit you best, and build up a comfort level so when you do see the property you want you have enough experience to know “YES! I want that one!”. Without starting early and building context then you run the risk of rushing a decision with incomplete data.
This guide is getting long so I am splitting it into two parts. The next part will go over the offer process, purchase & sale, hiring an attorney, closing, and recommendations on who to work with in the area!