Home Owner

I’ve compiled a list of things you need to know before you buy a home. These are things I wish I had known. My husband and I recently bought our first home and there were so many unknowns. Neither of us work in real estate or any other profession that would have prepared us for the whirlwind that is buying a home.

We were so unprepared. My goal with this list is to help you be more prepared. Some of these things have been mentioned in a previous posts but I think they’re worth repeating. I’m sure I can come up with another list in the future but for now these are things you definitely need to know before you buy a home.

If you are married, only the lower of the 2 credit scores will be used

This shocked my husband and I. We had no idea that they only use the lowest of the 2 credit scores on the loan application. I’ve given this example before but I’ll give it again just in case you didn’t the last post. For example, Mr. Smith has a credit score of 680 and Mrs. Smith has a credit score of 775. For the loan application 680 will be used because it is the lower of the 2 scores. This was not something my husband and I knew going into this process. This is something that can dramatically alter the home buying process if you are unaware.

The inspection

Before you buy a home you will need to get an inspection. You don’t have to be there when your home is inspected but I HIGHLY recommend that you are. After our inspection the inspector walked us around the entire property. He pointed out everything that he was going to put on his report and why. He also gave us tips for how to properly maintain the property. Because he took the time to explain everything we were not confused when we received the inspection report. If we had not been at the inspection there is a good chance that we would not have understood most of the inspection report.

Another thing to know is that the inspector may not find every single problem. Hopefully they will find most of the issues, especially the major ones. But there could be underlying issues that are not found. I recommend keeping money in your savings account just in case there is an issue that the inspector did not catch.

You can’t use credit while in escrow

Technically you can use credit while in escrow but you shouldn’t! One of the requirements is that your debt-to-income ratio (DTIR) stay under a certain amount. I believe it’s under 40% but I don’t remember the exact percentage. When you are in escrow the lender will review your DTIR throughout the escrow process. If you are using credit and your DTIR rises your loan can be denied. Don’t go out and buy appliances, furniture or any big ticket items on credit until you’ve closed and you have the house keys in your hand. I will link a DTIR calculator here for you to use as a resource.

There are a lot of people involved

You will have calls, emails & texts from your realtor, realtor’s assistant, your mortgage broker, etc. There are so many people you will need to contact and communicate with. Just make sure that you are answering emails and calls promptly so you don’t delay the process.

You need to be available

You may get calls, emails & texts throughout the day and into the night. There are certain time-sensitive parts of the escrow process that will need to be handled immediately. In order to keep things running smoothly I recommend making yourself available as much as possible while in escrow.

Other things you need to know if you before you buy a home…

You need money readily available

When your offer is accepted you will be asked to put down earnest money. Earnest money lets the seller know that you are serious and you intend to go through with the sale. Earnest money, in our case, had to be deposited within 48 hours. We had to wire money from our checking account to the escrow account in order for it to be received in time. If you intend to use your 401k for a down payment you may not have access to that money quickly enough to use it for earnest money.

If you are using your 401k for a down payment I suggest that you also have at least $10,000 in a bank account that is easily accessible. When you borrow from your 401k it takes time to process the request and you may not have access to those funds for 3-5 days. So, 401k may not be an option for earnest money.

Be sure to read your 401k’s rules

Speaking of 401k’s, these are a great way to help you make a down payment if you need it. Some retirement accounts will allow you to pull money out for a down payment but make sure you read the fine print. Some plans will charge you a flat fee and others will require you to pay back the money within a specific time. Each plan will have specific requirements so just be sure to read the requirements for your plan.

Read every single form

Mistakes happen. I found several mistakes on different forms throughout our escrow process. Some were minor mistakes like spelling or a wrong phone number. Other mistakes were huge like a misplaced decimal point or forms stating that we got an FHA loan when we actually got a conventional loan. I highly advise you to read every single form. I know it’s time consuming. Some forms are 20 pages long but it’s important to read every page. I caught at least 5 mistakes on our forms. Luckily I caught these errors before I signed but I wasn’t joking about the decimal error or the loan type error. I found both of those errors and a few others which is why I recommend reading everything before you sign.

Your actual mortgage amount

You will not find out your actual mortgage amount until right before you close. This was a shock to us. We found out our exact mortgage amount 2 days before we closed. Throughout the process we were given estimates but you have to wait until you sign the final paperwork to know the exact amount.

You might get a refund

A couple weeks after closing you might get a refund from escrow. After you close escrow and all the calculations are done you may have overpaid and escrow will send you a refund check. There is no way to know if you’re getting a refund or how much you will be getting until after you close. If you do get a refund it is fun surprise. We were able to make some major improvements to our house with our refund and increase the value of our home.

I hope this list of things you need to know before you buy a home was helpful.

I may make another list like this in the future because there were so many things that my husband and I did not know. Please feel free to reach out with any questions or comments. If you like this post or found it helpful please share it on Facebook or Pinterest!

Are you ready to buy a home? Are you trying to decide if now is the time? I have compiled a list to help you determine whether or not you’re ready to buy.

My husband and I just bought our first home. It was a crazy experience and there is so much we didn’t know going into the process. Now, having gone through the home-buying process, I feel like I can give some advice. I recommend going through all of these steps to determine if you are ready to buy a home. I think once you’ve completed these steps you’ll be more prepared and you’ll know if you are ready to move forward and start the home-buying process.

Get on the same page

If you are buying a home by yourself then you would skip this step. This step applies to anyone who is buying a home with a co-buyer. It doesn’t have to be your spouse. If you’re buying a home with a parent, friend, sibling or anyone for that matter you will need to make sure you’re on the same page. Make sure that you both understand that all financial information is shared during the home-buying process. Your credit score, debt and income will all be revealed during this process. If you are not willing to share this information or if you have debt that the other person does not know about, now is the time to share it.

Sit down with your co-buyer and make sure that you’re both willing to share all financial information with each other. Once that is out of the way, you can start to discuss the areas you might like to live in and the type of home you’re looking for. This does not need to be exact at this point. Sometimes the type of home you want can change depending on your budget but it is nice to start having these conversations with your co-buyer early on in the process.

Review your budget

If you don’t have a monthly budget, make one! I highly recommend doing this even if you’re not buying a home but especially if you are planning on buying one. This might sound crazy but I recommend going through your bank statements for the last 3 months line by line. It’s amazing how many extra charges you’ll find and how many monthly potentially unused subscriptions you may have. Get the bank statements out, get the credit card statements out and make a budget. Going through 3 months of statements will help give an average of what you actually spend in a month.

Remember!!! Owning a home comes with a lot of costs, not just mortgage. You have to pay for mortgage, property taxes, insurance, utilities, maintenance & repairs. You may also have HOA fees and/or Mello Roos.

Review your credit score

This is so important. You have to have a good credit score to buy a house. It doesn’t have to be great but the higher the score the better your interest rate will be and that makes a huge difference overall. I was told by my mortgage broker that it is much harder to finance a mortgage if your score is under 680 but he has seen scores as low as 640 get approved.

Make sure that your co-buyer also knows your score. When you buy a home with someone else the lender will take the lowest credit score and use that for the loan application; at least that’s how it was for my husband and I here in southern CA. So, for example, Mr. Smith has a credit score of 685 and Mrs. Smith has a credit score of 775. For the loan application they will only use Mr. Smith’s score of 685. To review your credit score for free check out Credit Karma.

Review your debt

You CAN buy a house with debt. You do not have to be completely debt free to purchase a home. What matters is your debt to income ratio. The bank will add up all of your minimum monthly debt payments (mortgage, student loans, credit cards, car payments) and divide that by your gross income to determine your debt-to-income ratio (it will be given as a percentage). I was told by my mortgage broker that you’ll want to keep your debt-to-income ratio under 40%. Keep in mind that this only includes debt. Things like groceries, phone bill and utilities are not included in this calculation. If you need help with your debt-to-income ratio try using a debt to income ratio calculator like this one.

Review your savings

When you buy a home you will need to have some money saved. Most home loans require a down payment, which is anywhere from 3%-20% of the purchase price. Depending on the purchase price a down payment can be very expensive. It is important to know that the down payment is not the only upfront cost of buying a home. You will also have to pay closing costs up front as well which range from 3%-5% of the purchase price. In addition to those costs you will have to pay for a home inspection, an appraisal and possible application fees.

There is also furniture, appliances, possible repairs or renovations and any other small necessities to consider. To be frank, it takes quite a bit of money upfront to purchase a home. I don’t say that to scare anyone. I just want you to be prepared and know what you’re getting into. Surprises are fun on your birthday, not when you’re buying a home.

Other steps to determine if you are ready to buy a home…

Look at the market

At this point it’s still early on and you haven’t officially started the home-buying process yet but it is a good idea to start looking at real estate apps. You won’t know how much home you qualify for yet but at least you can get an idea of what homes are selling for in your area. If homes are selling for $500K then you know that a down payment of 10% will be $50k and closing costs will be about $15k-$25k. You can also start looking into average costs of HOA or mello roos in your area. The app I really like using is Redfin. I find it easy to navigate.

Research home buying requirements in your area

I bought my home in southern CA so some of the information I give may not apply where you live. Be sure to look into what it takes to buy a home in your area, what paperwork/ documents you will need and if there are any first time home buyer programs that you qualify for. First time home buyers can get federal assistance (FHA loans) or local assistance from their city or state (in the form of down payment assistance or closing cost assistance). There are a ton of programs out there to help first-time home-buyers so I highly recommend researching these programs or meeting with a mortgage broker who works with these programs. Mortgage brokers are willing to meet with you because they want your business so try making an appointment to information and ask questions

Do you foresee any major life changes in the next 6 months?

Buying a home is a long process. From the time you get pre-approved to the time you have your house keys it can be several months. You’ll want to consider any major life changes that may interrupt or stop the process all together. For example, you have to have a work history in the same job, or the same field, for at least 2 years. So if you’re considering changing jobs you may want to wait, especially if it’s in a completely different field from your current job. Also consider any maternity leave or leave of absence that may occur as these may alter your home-buying timeline.

Prepare yourself mentally

Getting ready to buy a home is really fun but it’s also very stressful. For most of us it is the biggest purchase we will ever make. My husband and I almost lost our home about 5 times before we actually closed escrow. I’m not joking. It was 2 months on an emotional roller coaster, back and forth with the mortgage broker and the underwriter and by the end I was exhausted.

The process is not perfect. You may get outbid for a home, the underwriter can find something unsatisfactory with your financial history or the seller can back out for whatever reason. There are so many things that can go wrong and there are so many people involved in the process that lack of communication is almost inevitable. But, I will say that it is worth it. All the stress and tears are totally worth seeing a piece of property put in your name.

You are ready to buy a home. Go get pre-approved!

If you’ve made it through this list and you feel confident going forward then do it! Getting pre-approved is the first step in the home-buying process. I highly recommend getting a few pre-approvals so you can compare interest rates and maximum purchase price. Good luck and happy house hunting!

Tips for when you are ready to buy a home:

-Get advice from multiple real estate agents and mortgage brokers. Also, talk to friends or family who recently purchased a home and ask lots of questions

-Consider waiting to tell friends and family that you have started this process. It’s so exciting and you’ll wanna share it with everyone but keep in mind that if something doesn’t go your way you may have to explain that to everyone you’ve already told. This is just something to consider.

One last note- IT’S OK TO WALK AWAY. If at any time during this process it doesn’t feel right or you’re concerned that you may not be able to afford it, it’s okay to take a step back or to walk away completely. Don’t worry about what others might say. This is one of the biggest decisions in your life and it needs to feel right for you.

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