Buying a home is no walk in the park. Even after working with the help of a great real estate agent, you still have to deal with the financial side of buying a home. Unless you are in a position to buy the home outright with an all cash offer, you can take steps ahead of time to prepare and make the home buying process as easy as possible. Getting your finances is order is not too difficult, but can take time. Here are the steps you should follow to prepare for making an offer on a new home.
Save Your Down Payment
Well before you are ready to buy a home, you should start getting your finances in order by saving a down payment. The general guideline for buying a home is to save at least 20% as a down payment. This improves your odds of getting approved for a mortgage and helps you avoid costly private mortgage insurance, or PMI.
Of course, everyone can’t afford to save a 20% down payment, which is $40,000 on a $200,000 home. Take a look at the average price of homes in areas you like with your favorite real estate app, then estimate how much you need to save. Count on saving $20,000 for every $100,000 in home price.
Gather Your Taxes and Financial Documents
The next step to get your finances in order is all about organization. Gather your tax returns from the last couple of years and put them somewhere safe that you can quickly access them when the time is right. Also gather recent bank statements and pay stubs that you will need as proof of income and assets for a mortgage.
It is a good idea to always keep your financial information organized and easily accessible. I keep all of my tax files in digital format in my Dropbox account. Using the free app FileThis, my bank, credit card, and investment statements all download to my Dropbox automatically so I can quickly send them by email to a mortgage analyst or print them off for an in-person meeting.
Shop Around for Interest Rates and Fees
Just like houses, not all mortgages are created equally. Each mortgage lender offers different interest rates, points, fees, and customer service. Some lenders keep mortgages on their books for the life of the loan, while others sell them off to mortgage giants Fannie Mae and Freddie Mac.
Look at the entire cost of the mortgage from each lender and then pick the one that best suits your needs. Some banks offer better rates on a 30 year fixed while a competitor may have a better rate on the 15 year fixed. Each mortgage is somewhat unique, so find the mortgage lender that best meets your needs.
Get Pre-Approved By Your Favorite Lender
There are two types of advanced approval for a mortgage. Getting “pre-qualified” is not what you want. A pre-qualification says that you are someone they may approve for a mortgage, but that doesn’t hold too much weight when making an offer. Instead, insist on a pre-approval.
A pre-approval means you have been fully approved for a mortgage up to a certain amount given the property meets the lender’s requirements. This is evidence that you are clearly able to get a mortgage if you find the right property.
Start Your Mortgage Application
After making an offer and going under contract, you will go through the entire mortgage approval process. If you were already pre-approved, this is much easier and quicker as much of the work reviewing your finances has already taken place.
Getting your finances in order well ahead of time makes the mortgage process much simpler and smoother. Working with the right agent doesn’t hurt, as they can help you navigate the process as well. But if you can go into things with the right financial preparation, you’ll be on track to get the home you want with a pleasant transaction.
If you are buying or selling a house and are looking to hire a successful real estate agent to help you through the process, take a look at AgentHarvest's list of top-ranking local Realtors in your area. We found these agents by examining their sales track records, awards, rankings, client testimonials and by conducting personal interviews.