Making the leap from renting to buying is a major life decision, but it doesn’t have to be stressful. The key to making sure your very first home buying journey goes smoothly, is properly preparing yourself and knowing what’s in store for you on the path to homeownership.
There will be lots of new details that pop up once you officially begin searching for a home and working with a realtor to purchase your new home, but right now your primary goal as a potential homebuyer is to gain clarity so you can determine if now is the right time to buy and, if so, understand what you’ll need to get started. Think of this stage as the “pre-buying” stage, where you build the confidence and knowledge you’ll need to move forward.
Read on as we reveal expert tips about how to get started with the home-buying process, including specific questions that can help you determine whether you’re ready to become first-time home buyers.
Now that you know the general steps and considerations involved in getting started with the home buying process, let’s break down each of these tips in detail. We hope this can help you learn more about embarking upon your journey to home ownership!
1. Are you ready to buy a home?
To continue renting or to buy a home is an important concept to analyze as a team. Below are some topics to for deciding if homeownership is the next logical step in your life.
What does your life look like in the next five to ten years?
Buying a home can build a stable foundation and a place to grow. If you have a child on the horizon purchasing a home can serve as planting some roots for your future family. Even thinking about pets like a dog can open your eyes to home ownership with the flexibility of your yard.
How does your job look? Do you see yourself staying in the same position or staying the same job market in the future? Buying a home and then having to relocate shortly after that isn't an ideal situation to find yourself in.
Do you love moving regularly?
If you love to be in a new location every couple of years, then home buying might not be the best lifestyle choice for you at this point.
If you dread jumping from rental to rental, then the stability home ownership might be just what the doctor ordered.
Do you view homeownership as a means to investment and wealth growth?
Purchasing a home is a means of building wealth for you. A house can grow in value over time through both equity and appreciation. If this is appealing, then homeownership could be an excellent choice!
Feelings on maintenance and home improvement
Buying a home is a clean slate, a blank canvas. You can paint walls, knock down walls, build new walls. Homeownership provides you the means to improve your property how you desire.
If you hate the idea of changing light bulbs, fixing a leaking faucet, or mowing a lawn, then homeownership might not be a fit. Although this doesn't rule out buying a property, it makes some property types more attractive, like condos or townhomes.
Do you feel mentally prepared to buy a home?
Buying a home can be a time consuming and stressful time for a couple. Make sure that you and your spouse can focus on the home buying process. If you are stressed out about other life factors then putting off buying a home for awhile could be a good idea.
2. Can you afford to responsibly buy a home?
Money talks and you will need to talk about money before buying your first home!
Current Cash Situations
You will want to pull together all your bank statements to get a pulse on your available cash.
Current Debt Obligations
This is the time to take inventory on any and all debt obligations you currently have
- Student loans
- Credit card balances
- Outstanding loans for cars, weddings, honeymoons, you name it
Do you have investment accounts? It is good to get a snapshot of these because your lender may want to take a look at these down the road
- Individual investment accounts
- Annuities or dividends
You will want to determine if there are any financial plans or goals that have priority over purchasing your first home. Do you have existing student debt or high-interest loans you want to pay off soon? Are there investment goals you need to plan for such as 401k/IRA or brokerage account periodic contributions? You will want to budget out any financial goals and how it will fit into your monthly financials as a team.
Determine your financial capacity to purchase a home
You will want to determine how much of a house you can afford.
There are a ton of rules you can following to give yourself a decent measuring stick on the amount of home you can afford. A general rule of thumb is to calculate 25 to 30 percent of your joint monthly income. Use this number as comfort zone for your monthly mortgage + taxes + insurance for your new home.
Bankrate and Zillow also have some calculators to help you determine these numbers.
3. How’s your credit score?
Most home buyers will need to work with a lender to get a mortgage to complete a home purchase transaction. There are a handful of things you will want to check and fix (if needed) before jumping into the home buying process.
Check your credit
You must be knowledgeable about you and your spouse's credit score and history. Luckily in today's digital age, this isn't very complicated to achieve in short order. Since 2003, everyone in the U.S. is given FREE access to one credit report per year from the three reporting bureaus. You can also spend some money to get your FICO score from all three agencies.
- Get your TransUnion Report
- Get your Experian Report
- Get your Equifax Report
- Get your 3-Bureau FICO Report
Dispute any inaccuracies on any credit report
If you find anything incorrect on your credit history, you will want to make an effort to fix the issue before working with a lender. Perhaps your report shows a delinquent payment on a credit card you already cleared up with the credit card company, or your bank made an error on an account causing an account overdrawn issue. You will want to start a dispute directly with the reporting bureau that is showing the error.
Do you have a healthy number of tradelines on your credit history?
You will want to verify you have at least two active tradelines in the last 12 to 24 months for FHA loans and at least 3 for a conventional loan
Manage current credit throughout the home buying processing
If possible try to avoid closing any older, but active credit accounts. If you continue to use them periodically and pay them off immediately, they boost your credit score.
Try not to open any new lines of credit or have multiple credit checks in the time leading up to buying your home. Doing these will ding your credit score and could cause issues with your lender when you are trying to obtain a mortgage.
Avoid large purchases like new cars or furniture. If you need to make a significant purchase, if possible, try buying with cash only.
Keep your money where it is. Don't close checking accounts or move large sums of money around. These types of activities would require a thorough paper trail for your lender, so it is just easier to avoid if possible.
4. Gather the necessary documents for pre-approval
When you start meeting with a lender, you will learn that they need documents from you, a lot of them for that matter. It is better to get them all squared away now, rather than weeks before closing when time is not on your side anymore.
You will need to gather, hunt down, or prepare the following documents:
- W-2 forms — best to get at least two years of history, if possible.
- Pay stubs — gather enough pay stubs to cover at least one month of employment.
- Bank statements — two months worth.
- Tax returns — two years of tax returns.
- Identification — driver’s license, social security card.
- Proof of U.S. residency if you aren’t a U.S. citizen, if applicable.
- Proof of military service — if applicable.
- K-1 and business tax return, if applicable (self-employed or business owner).
- Verification of funds if you received large sums of money (i.e., down payment from parents).
- Alimony or child support documents, if applicable.
- Proof of reserves — enough money left in the bank after close to cover at least three months payment
- Cancelled rent checks if currently renting.
- Investment account statements — 401k, personal accounts, IRAs.
5. Identify your needs and wants in a home
Now we are getting to one of the best parts of the home buying process. You get to jot down your dreams and desires for your new home. It is essential to know what is needed for your home, but it is also good to have some criteria you can settle without or upgrade later.
The BIG Four
Bedrooms. Bathrooms. Square footage. Parking.
When you think of a house from a perspective of a skeleton, these are the typical features that determine the ideal "bones" for your desired home.
You can change things like carpet, paint color, and countertops in a house, but it is much more expensive to replace the bones of a house.
How many bedrooms do you need now and how many do you need in the future? Think about future children or family that might live or visit frequently.
What is the ideal number of bathrooms for your home? Do you need more than one bathroom to get ready in the morning for example?
Do you have any storage requirements? Do you want extra rooms for hobbies, work, or fitness?
Do you have cars that you need to park at your new home? What the ideal number of parking spaces? Do you care if they are uncovered driveway spots or do you have needs for covered garage parking?
Architecture and Style
Determine home styles like and dislike.
Determine housing types you would enjoy living in and housing types you would avoid.
Maybe you will only consider two-story homes and wish to exclude rambler, ranch-style homes.
Take notes on dwellings like and dislike to narrow down a list.
Don't be afraid to keep an open mind as you can hone into specifics once you start scheduling showings.
Also, think about the ideal floor plan for your new home. Where do you want the bedrooms to be? Do you like open concept style homes?
Desired Home Types
Condos - if you hate apartment living then you probably won't enjoy condo ownership. Owning a condo is as close to renting an apartment as you can get. You will share walls with neighbors, have shared parking and other common areas. You will also be subject to a homeowners association (HOA). If you want to live in a high-density area such as Downtown or Uptown Minneapolis, then buying a condo might be one of the only options for you.
Townhomes - one step removed from condos and apartment life. You still do not have all the flexibility of a single-family home, but you are a little more independent. You will share some walls with neighbors, but not as many as a condo. You will still have an HOA, which can be a positive or negative depending on how you view it. If you want some of the perks of home ownership but some of the maintenance taken care of, a townhome could be a good option.
Single Family Homes - independence and privacy are the separating factors for single-family homes. You will get the most square footage in a single family home, but also a more significant purchase price and maintenance cost. You also won't have any shared walls with any of your neighbors.
Do you have any requirements or desires for an outdoor space? Minnesotans love their fire pits in the fall time, is this something you want space for or a room for a garden? Do you have any needs for large open areas for a pet or even a fence? Maybe you want a small yard because you want little yard work.
6. Figure out where you’d like to live
Urban, Suburban, Rural
Do you currently rent in Minneapolis and love the urban vibes and can't see yourself separated from that environment? Maybe you would rather live in a family-centered suburban area surrounding the Twin Cities. Perhaps you want several acres of land and seclusion from neighbors.
Determine what type of environment you want to live in future and also what is the best fit for a future family if that is in the plans.
Proximity to Work
What is the maximum distance you want to commute to work? Do you work in the Twin Cities or the suburbs?
Use Google Maps to determine commute times during your typical departure time frames.
School districts can be a tremendous driver in homes considered by potential buyers.
Even if you don't have children now, living in a desirable public school district can be an excellent investment for the value of your home.
Consider the safety and crime of potential neighborhoods for your home search. A general tip is to walk around some desired neighborhoods and get a feel for the location. If you don't feel safe walking around, then you likely won't feel safe living there.
Proximity to Friends, Family, and Leisure Activities
Determine if you have any added constraints due to the ability to visit friends and family frequently. Maybe you love running around a specific park trail system and can't live far away from it. Perhaps you have Vikings season tickets and need to be within certain distance to US Bank Stadium.
7. Build your home buying team
As mentioned before the core purpose of a real estate agent is to provide clarity and guidance on your journey to homeownership.
A good real estate agent will be your sounding board throughout your home buying process.
They also provide you contacts within the industry (lenders, home inspectors, and contractors).
Real estate agents will also assist and complete the necessary paperwork to complete a real estate transaction.
If you are working with a real estate agent, they will typically have a list of trusted lenders they transact with frequently and can assist you in finding an excellent lender for your particular home buying situation.
You can also leverage friends and families to find potential lenders.
Obtaining a pre-approval letter is one of the first things your real estate agent will have you perform.
It is your ticket to being taken seriously when presenting offers to buy a home to sellers.
The letter shows that your lender has preliminarily determined you would qualify for a loan at a specific home value and lending conditions.
Most people will buy a home, and most will do it early on, but now you have a step up in planning and preparing for such a move!
Will everything be relaxed and go smoothly? There’s no guarantee, but what’s for sure is that answering these questions and assessing your current situation will set you up to make the optimal decision for your current and future self.
Get Our Free Home-buying Workbook
So, do you think you’re ready to buy your first home? Our step-by-step workbook helps you check all of the boxes — from credit scores and finances, to required lender documents and desired home features — so that you can feel confident and ready to pursue your dream home. Plus, we provide you with valuable tips for home-buying success.Download your free copy today!