How to prepare to buy a house
You’ll find the house buying process to be thrilling and rewarding. But, it can also be daunting and confusing at times. This article will walk you through how to prepare to buy a house, from getting your finances ready to signing on closing day.
You’ve made the decision to buy your first house. Congratulations!
You’ll find the house buying process to be thrilling and rewarding. But, it can also be daunting and confusing at times. This article will walk you through how to prepare to buy a house, from getting your finances ready to signing on closing day.
Check your credit score
First, you’ll want to prepare your credit score. Your credit score is the first metric lenders will use to determine if-- and how much-- you can borrow to buy your dream house. Low credit scores can lead to house loan denials, or higher loan interest rates, which add up significantly over the life of the loan.
Start saving
When your credit score is where you want it, the next step is to save for a down payment. Essentially, a down payment is the amount of money you are prepared to put down on a house. The remaining balance will come in the form of your mortgage. The more you put down, the less you’ll owe on your mortgage.
Depending on the type of house loan, you’ll want to save 3% to 20% of the total house price. The larger the down payment, the more attractive you’ll be as a buyer. In today’s housing market, having a larger down payment than competing buyers can mean the difference between landing your dream house and missing out.
Take advantage of online tools such as Associated Bank’s “How Much Should I Put Down for a New Home ” calculator.
Get prequalified and preapproved
Once you’ve prepared your finances, you’ll want to get prequalified and/or preapproved. These two terms can be confusing because they’re often used interchangeably, even though they mean very different things.
Put simply, prequalification is a quick, informal process that will give you a rough estimate of how much house you can afford. Your lender will start by collecting some basic financial information from you, including your income level, assets, debts and more. Then, the lender will give you an idea of how much you can borrow. Prequalification isn’t required, but it can help you narrow down your house search at the beginning of the process.
When you’re ready to get prequalified, Associated Bank can help. Simply schedule an appointment at one of our many locations and we’ll guide you through the process. No formal documentation is collected, and no underwriting review is completed.
Before you begin actively shopping for a house, you’ll want to get preapproved. Preapproval is a much more formal step than prequalification, and requires the lender take a deeper dive into your financial life. Unlike prequalification, be prepared to provide in-depth financial records, including pay stubs, bank statements, proof of employment, tax returns, W2s, and more. In addition, lenders will run a credit check as well as verify that you have enough to afford a down payment. Also, if you are applying for a government loan or need a more in-depth review of finances, you will want to get preapproved.
Work with a real estate agent
When it comes to shopping for houses, most house buyers choose to work with a realtor. Real estate agents can help you to find houses that meet your must-have criteria, set up house tours, prepare and guide you through the negotiation process, and act as an expert guide during the house buying process. Using an agent may come with an additional cost – usually 6% of the sales price – but the house seller usually pays that fee.
Take house inspection seriously
Hiring a quality house inspector can help eliminate many headaches down the road. A house inspector will examine the house from top to bottom to ensure there are no problems.
Prepare for the house inspector to point out several issues—some will be minor, like cracked concrete walkways. Others will be more significant and could include severe structural and mechanical problems like bowing basement walls, a damaged furnace, an unsafe electrical system or plumbing issues.
Your house inspector will point out “deal-breakers”—problems that should be fixed before closing. In fact, if an issue is too dangerous or costly, there’s a chance your lender may deny your house loan. Sellers are not obligated to fix any of the “deal-breaker” issues, but many sellers will choose to repair the issue or offer a closing cost credit or price reduction to fund repairs. If you encounter a deal-breaker issue that the seller refuses to repair, either prepare to walk away from the deal, or set aside the funds to have it repaired.
Close on your house
Closing day is the last step on your house buying journey. It’s when the funds for your house purchase are transferred from buyer to seller, closing costs are paid, and the house finally becomes yours. It’s an exciting day!
When you get to closing, be ready for mountains of paperwork. Expect to sign documents for an hour or more. While tedious, it’s worth it. At the end, you’ll receive the keys to your first house! Congratulations!
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Sources:
“How to buy a house in 2021,” bankrate, December 2020
https://www.bankrate.com/real-estate/how-to-buy-a-house/
“6 Financial Prerequisites for Buying a House,” Investopedia, October 2020
