This script walks a borrower through the steps to buy a home.

This is Michael Anthony O’Connor with Community Home Funding and I’m here today to talk about the three first steps to buying a home.

It’s many people’s dream to own a home they can call their own and buying a home is probably the largest purchase most people will make in their lifetime. That’s why it’s important to understand the home buying process.  And, more importantly, it’s important to know where to start.  For many first-time home buyers, they start by looking at houses online.  This is fun and can keep you entertained browsing through websites, but if you don’t know how much you qualify for, it can be disappointing to find out the house you’ve been jonesing over is way over your budget. Many first-time home buyers get frustrated and simply thrown up their hands and decide to keep renting, when confronted with the details of buying their first home.  It’s doesn’t have to be that way and we are here to help understand where you should start.

That’s why we’ve put together this video to help you know the steps you should take when you are ready to buy your home beginning with step one, which is doing a  financial checkup.

Step One: Financial Checkup

Unless you’ve been fortunate enough to win the lottery or have inherited a ton of money, you will have to get a mortgage for the home you buy.  Before you can get a mortgage, you need to know how your finances are.  Planning should go into buying a home and you would feel terrible being told that you do not qualify for a mortgage after you have already gotten your heart set on the perfect home you found online.

A couple of things you will need to have in order to get a mortgage is a job or steady source of income.  Your mortgage lender will ask you for two years of employment history and for some loan programs, your school can count as some of that history as long as you have a job in the area you were studying.  Next, you will want to know your credit score and have an idea of what your credit looks like.  Things like late payments and high debt will have an effect on your credit score, so making sure that you make your payments on time and don’t overspend beyond your budget is important.

There are three major credit reporting agencies, Experian, Equifax, and TransUnion, and you can request your full credit report (including your score) from each of them once per year, for free.

Don’t rely on credit reports from outside sources because those scores may not be accurate. Get the actual reports directly from the three agencies.

Your credit scores will be reported on what’s called the FICO model and will rate anywhere between 300 and 850. Credit scores over 760 will earn you the best rates and terms, while scores under 500 are almost always too low a credit score for mortgage approval unless you’re applying for a VA loan.

Most home buyers today need at least a 620 to get a conventional loan; 580 is generally the floor for an FHA loan but some lenders may go lower. And even if you squeak in at those minimum numbers, you’ll end up paying higher interest rates, higher fees, or both. The higher your credit scores, the less you’ll pay and the more money you’ll save over the life of your loan.

You will also want to make sure that you know how much cash you have to cover the down payment and the closing costs.  Closing costs can range between 1-3% of the purchase price and while there are mortgages that only require a 3-5% down payment, you could need as much as a 20% down payment for some loan programs.

Step Two: Talk to a Mortgage Lender and Get a Pre-Approval

The first reason to talk to a mortgage lender before you start looking at houses is that they’ll give you a feel for the types of mortgages you may be able to qualify for. You can ask as many questions as you’d like about possible terms, interest rates, and specific requirements for credit scores and Debt to Income ratio or DTI. It also allows you to find the loan originator who is going to be best suited for you and you’ll be most comfortable doing business with.

The second reason to talk to a mortgage lender is that you will be able to get a  mortgage pre-approval. The pre-approval doesn’t guarantee that you’ll get a home loan, but it will include a maximum loan amount, which gives you a good idea of how much you can spend on your new home.

A mortgage pre-approval isn’t a necessity when you want to shop for a home, but it makes things much easier. Some sellers won’t give your offer the same attention as one from a pre-approved buyer.  In fact, some sellers won’t even show you their home without that a pre-approval, so plan on getting one before you start looking at homes.

 

Step Three: Find a Real Estate Agent

The seller is the one who pays for the real estate agents fees, so there is no reason for you to buy a home without a real estate agent.  You can research agents online or talk to your mortgage lender to find out who they may work with.  Having an experienced real agent can be your best ally when you get serious, particularly if this is your first home and you haven’t been through the process before.

A professional real estate agent can provide you with valuable information on things like market conditions, comparable sales and help you prepare your offer and counteroffers, as well as through any sticking points that might develop. They can also suggest available homes in the best neighborhoods or school districts if you’re new to the area and may even have access to homes which haven’t yet been listed publicly.

Step Four: Shop for Your Dream House

Once you know how much you qualify for and have a pre-approval letter and agent in mind, now you can go house hunting.

Your real estate agent will be your guide through the process, but don’t be afraid to trust your instinct and don’t feel like you have to make a quick offer if you don’t feel comfortable.  Yes, you may be in a fast-moving market, but this is a big purchase, and you may be living in this home for a long time, so make sure it fits in with your needs. On the other hand, if you find your dream home and all it needs is minor cosmetic work, don’t lose it over a few thousand dollars. There are plenty of home loan products available today that will allow you to do renovations to your home and build it into the cost of the loan.

Once you have found your home, you will submit your offer and there are many steps involved in getting your financing but knowing where to start will help you get going in the right direction.

If there are questions you have, be sure to work with your mortgage lender. They are licensed and trained and there to help you along the way.

Thanks for watching.