Buying a new home is both exciting and challenging, especially for first-time buyers. There are so many tasks to tackle and decisions to make. Understanding each stage of the process can transform this experience from daunting to empowering. Here’s a comprehensive checklist to guide you through the homebuying process:
1. Get your finances in order
Before you start thinking about buying a house, you’ll need to ensure your finances are in order. Several months before you start your search, review the following:
Your income. You’ll need to demonstrate a consistent and reliable income source to lenders to show them you can handle the monthly mortgage payments along with other homeownership expenses.
Credit score. Most lenders will require the borrower to have a credit score of 620 or higher for a home loan. The higher your score, the more favorable the loan term and interest rates. If your score isn’t high, it may be worthwhile to wait until it improves before applying for a home loan. MSGCU offers our members a free tool, Credit Score, which provides personalized recommendations to improve your score. You can also contact our team for help with developing a plan to increase your score.
Debt-to-income (DTI) ratio. Calculate your DTI by dividing your monthly debt payments by your gross monthly income, which is the total amount of money you earn in a month before any deductions like taxes or insurance are taken out. A lower DTI ratio indicates better financial health and increases your chances of loan approval.
As you work through this step, it’s helpful to start gathering the documents and information you’ll need, including the following. Most of these documents are also requested when obtaining a mortgage or preapproval.
- Name, phone number, and street address for current employer
- W-2s from the past two years
- Profit and loss statement if self-employed
- Pensions and Social Security check stubs
- Statements for all checking and savings accounts
- Investments (such as stocks, bonds, or retirement accounts)
- Proof of any gifted funds from relatives
- Car loan information
- Proof of child support payments
- Copies of alimony checks
2. Determine your budget
Before you start your search, establish the mortgage payment you can comfortably afford based on your budget. Determine your current monthly expenses by listing all of your recurring bills, excluding your current rent payment. Include debts, groceries, and other expenses, and then see how much room you have left in your budget for a monthly mortgage payment. Be sure to budget for ongoing household expenses as well, including taxes, insurance, and occasional repairs. Reach out to an MSGCU mortgage expert who can help you determine an appropriate mortgage payment based on your budget.
3. Prepare your down payment
Be sure you have the funds saved for a down payment. While a 20% down payment is common, there are various loan programs that allow for lower percentages. Keep in mind that smaller down payments might require private mortgage insurance (PMI). To help our members achieve their dream of homeownership, MSGCU offers a no down payment mortgage option for first-time buyers, among other mortgage advantages.
4. Assemble your real estate team
Having the right professionals working for you can streamline the process. You’ll need to find a real estate agent who can provide market insights, negotiate on your behalf, and guide you through the buying process. You’ll also need a mortgage lender like MSGCU to help you navigate various loan options and find the best one for you.
5. Get pre-approved for a mortgage
A mortgage pre-approval strengthens your position as a buyer and makes the buying process easier. With an MSGCU True Pre-approval, you’ll be ready to place an offer as soon as you find your perfect new home. A pre-approval also indicates the loan amount you’re approved for, guiding your home search within your budget. You can easily apply online for MSGCU’s True Pre-approval. We also offer Rate Lock and Shop, which lets you lock in a mortgage interest rate for 90 days while you shop for your new home, protecting you from increases and benefiting you if rates fall.
6. Start house hunting
Once you’ve gotten your pre-approval and have your team in place, you’re ready to start searching!
First, create a wish list for your new home and identify your must-haves and deal-breakers. Consider factors like location, home size, and amenities. Explore different neighborhoods, attend open houses, and monitor market trends. When visiting potential homes, look out for the following:
- A sturdy roof. A faulty roof can mean expensive repairs down the line.
- Efficient heating and cooling systems in every home you visit. These can be costly to fix and replace, and inefficient systems can drive up your utility bills.
- If touring a new construction home, remember that the model home you’ll tour is likely outfitted with premium upgrades that are not included in the base sale price.
7. Make an offer
Once you've found the right home, work with your agent to determine a fair offer based on comparable properties. You’ll need to present an official offer letter, which includes contingencies, such as home inspections, financing, and an appraisal to protect your interests. Be prepared for counter offers and to negotiate terms that align with your budget and needs.
8. Conduct home inspection and appraisal
Once an offer is accepted by a seller, the home will go into escrow, or be under contract, until closing. This process takes approximately 60 days. During this time, you’ll need to have the home professionally inspected to identify potential issues, from structural problems to necessary repairs. If the inspection does reveal issues, negotiate repairs or adjust the purchase price accordingly. The home will also need to be professionally appraised at this time. The lender requires this to ensure the purchase price and actual value match up.
9. Finalize financing
Once you’re approved to close by your lender, it’s time to finalize your financing. Be sure to submit all required documents to your lender in a timely manner. If you secured a True Pre-approval from MSGCU, this will help make this step easy since all the work was done earlier in the process. When finalizing your financing, review the loan estimates to ensure you understand all costs associated with your mortgage, including closing costs and fees.
10. Prepare for closing
As the closing date approaches, you’ll need to perform some final tasks:
- Final walk-through. Inspect the property to ensure it's in the agreed-upon condition.
- Review closing disclosure. This document outlines your loan terms, monthly payments, and closing costs.
- Arrange funds. Ensure you have the necessary funds for the down payment and closing costs, typically via a cashier's check or wire transfer.
11. Close on your new home
You’re ready for the final step in the purchase of your new home: closing! Be prepared to sign multiple documents, including the deed of trust, promissory note, and closing disclosure. Once all documents are signed and funds are transferred, you'll receive the keys to your new home. Congratulations!
12. Post-closing tasks
After closing, you’ll need to transfer or establish accounts for electricity, water, internet, and other essential services. Make sure you also update the locks and garage codes for safety. Now for the fun part, decorate and refresh the house according to your taste to make it feel like home. Once you’ve put your personal touch on the space, all that’s left to do is pack up and move in!
Purchasing your first home is a significant milestone that requires careful planning and informed decisions. Follow this checklist to navigate the homebuying process with ease. MSGCU also offers a free Homebuyers Workshop where you’ll get valuable tips about the homebuying process and a coupon for $375* off a home appraisal. And as always, MSGCU mortgage experts are here to answer any questions you have and guide you through the process from start to finish.
*Attend our free Homebuyers Workshop and receive a coupon worth up to $375 to apply towards a residential real estate appraisal when you obtain a mortgage from MSGCU. The coupon credit will be applied at the time of closing.
Category: Finance
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