PRE-HOME BUYING PROCESS

Step 1: Monitor and improve your credit score.

Your credit score is a numerical number determined by a credit bureau to represent your credit worthiness. Lending institutions use this score to gauge the likelihood you will repay a loan. FICO scores range from 300 - 900 and the higher the score, the higher chance that a bank will loan you money and at a lower interest rate. 


Step 2: Identifying criteria for your home.

Decide what criteria is important to you and weigh your wants vs. needs. These can include:

  • Size: square footage, number of rooms, bathrooms, common space

  • Location: neighborhood, distance to your work, public transportation, schools, and childcare

  • Type of building: house, condo, town-home, co-op

  • Amenities: washer/dryer, balcony, rooftop, gym, pet friendly, security, parking

  • State of property: move-in-ready requiring or a fixer upper


Step 3: Saving for a down payment.

To get started in purchasing a home, you do not need much money, with only a minimum of 3.5% of the price of the home. You  will want to hold the money you’re saving for a down payment in a liquid, risk-free account, such as a high-yield savings account. 


Step 4: Find a lender.

Conventional wisdom advocates keeping mortgage your payment (principal, interest, taxes, and insurance) to about 28% of your gross income.  

  • Understand the type of mortgage you are applying for (FHA vs. conventional) and length of time (15-year vs. 30-year).

  • Understand the rate environment. As of 2020, we are in a period of historically low interest rates, and this might preference fixed rates.

  • Obtain a pre-approval letter from the lender, which is the maximum loan amount that the lending institution is willing to borrow you. If you are applying to more than two banks, ensure this is done within a 14-day period. Note that this will count as one hard inquiry rather than multiple hard inquiries and will affect your credit score.


Step 5: Find an agent.

Your real estate agent will guide you in the home buying process. Your agent’s job is to help you search for the right home, put together a team (lawyer, inspector, lender), prepare the offer, negotiate the offer, and then close. Real estate agents do not get paid until after all papers are signed at the closing table. Thankfully, as a buyer,  you do not have to pay the real estate agent as this comes from the sellers cost of selling the property.