When my husband and I walked the path of buying our first home, we had no idea what we were doing.
We were very young, and very dumb.
We had just gotten married and moved to Denver about 6 months prior. We were living in a tiny 600 sq ft. apartment. The rent at the time was a little over $1300.
We knew we could get more for our money which is why we started house shopping.
Within 45 days, we were moved out of our apartment and into our first home.
SO HOW DID WE DO IT?
What is the process? Fast-forward 6 years and we have been through the buying process seven times now. Here is what I’ve learned to make the process go as smooth as possible:
GET YOUR FINANCES IN ORDER
You are probably wondering what you need to have in order to buy a home.
WHAT LENDERS WILL LOOK FOR
- Good credit history
- Minimum credit score of 620 for conventional loans (think 5% down with the best interest rate); 580 credit score for FHA loan (3.5% down payment with a slightly higher interest rate).
- Debt-to-income Ratio below 50%
DETERMINE WHAT YOU CAN AFFORD
The smartest way to go about figuring this out, is to reach out to a lender and have a quick 5-10 minute call with them to get a pre-approval. They will ask a few questions about your income, liquid cash, debts, and employment history to give you a ballpark number on what you should be able to afford when buying.
This will help you budget better and encourage you to be more realistic when house shopping.
Almost every time we started dream shopping (that’s what I call it before we were fully committed), I had my head in the clouds in regards to what was affordable for our family.
Once we got pre-approval and had a better picture of what things would actually cost us, our search parameters usually changed.
After the third house we bought, I created a mortgage calculator that I could pop in a couple numbers and see what kind of payment I was looking at without reaching out to a lender.
Since you’re reading this, consider it my gift to you! I saved it on my desktop and was constantly reviewing it when we were considering a house.
See below for the link for my mortgage calculator spreadsheet! I had it honed in enough that my calculations were within a few dollars of our actually mortgage amount:
FREE MORTGAGE CALCULATOR
DOWN PAYMENT
Back in the day, it was nearly expected that if someone wasn’t paying cash for their house, they would need to put at least 20% down. That’s actually what deterred me from buying a house on my own at 19!
Little did I know, there are some places that qualify for $0 down! VA loans and USDA (rural properties) are known for 0% down.
Other common loans are FHA loans that require 3.5% down, conventional loans that require 5% down, and even investment loans (we have 2 of these) that require 15-25% down depending on the lender.
During the approval process, your lender will require 2 months worth of bank statements and paystubs (along with a slew of other items) to prove you have had the funds and are not borrowing them from anyone.
DON’T LET THAT SCARE YOU AWAY
On two different occasions, we went under contract on a house we were still collecting the funds for. It results in sending the lender more paperwork but it is not a problem if you are close to having the money but not quite there when you go under contract.
You will at a minimum need your earnest money in order to go under contract. Earnest money is essentially a deposit on the purchase. It gets applied towards your cash to close but it is needed usually within 3 days of going under contract. The MLS sometimes displays the earnest money amount, but as a good rule of thumb, it’s typically 1% of the total sale price.
As long as you have all of the necessary funds by the time you close, you should be just fine.
SPEAKING OF CLOSING…
The biggest thing no one told us on our first home purchase in regards to closing. Closing costs happen on EVERY purchase. There isn’t really a way to get rid of them. I like to call it money that gets flushed down the toilet but in reality, the closing costs are charged by the title company who deed your property, taxes, insurance, and lender fees.
Side note: As a buyer, you do not pay a Realtor commission. Sellers pay the commissions to the Realtors.
You never really know the total closing costs until about a week before you close. For me, being someone who likes to have her ducks in a row weeks in advance, this drives me crazy. You can always ask your lender to give you a rough idea of what it will be, but from my experience it’s been between $4000 and $6000.
I know, a $2000 variance isn’t reassuring. But…
I HAVE A TRICK FOR ROLLING SOME OF YOUR CLOSING COSTS INTO YOUR LOAN
All you need to do when you are making an offer on the house you want to buy, speak to your Realtor and let them know you’d like to roll in some of your closing costs into your loan. It would be done in a way that the seller is essentially providing seller concessions.
We have purchased a house before, at asking price, and then went under contract for $4000 MORE than the amount we agreed on, and essentially had that $4000 put towards our closing costs. Ex: House under contract for $310k. We want $4000 in concessions (which is applied at closing). Our new loan is $314k.
We have also had sellers pay closing altogether. It really just depends on each seller and what they’re willing to do.
Here is a good article on how it’s done with some thorough examples.
LENDERS
These are my personal opinions based on my experience buying homes. I am not affiliated with any lender, nor have I partnered with any lender.
We have used many different lenders. I will say hands down, the easiest to work with has been Rocket Mortgage. They work quickly, offer good rates, and their system is easy to use when uploading documents for them to approve. They have also kept all of our loans. I have worked specifically with Shane Kelly.
I have also enjoyed working with Fairway Independent Mortgage. They are extremely fast and will work with the buyers to ensure their credit is as high as possible while in the buying process. We had two 3-week closes with them. Meaning from the time we went under contract on a house to the time we owned it… it was 3 weeks. Also, they offer the absolute BEST rates I have seen.
We have also used a couple local banks. They are more laid back usually but not quite as fast in my experience. Their rates are comparable and they usually keep their loans too.
THAT’S A LOT OF INFORMATION IN ONE POST – I KNOW IT.
But this is all information that you will need in order to have a smooth home buying process.
In my next post, I’ll go into the nitty gritty details of how you should go about your house shopping to ensure you are getting a good home for a good price.
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Tremendous information Aften! Thank you for sharing!
Thank you, Caroline! More to come in the next few weeks!