I had been daydreaming about my family’s future home each day as I listened to my sons argue in their shared bedroom. Some early mornings, my youngest would cry and wake up his brother. Some nights, I would be refereeing fights over whether the nightlight should be on or off. So when my husband and I started house-hunting, I was determined to purchase a house where peace could be achieved with separate bedrooms for my boys.
The only problem? I had no idea where to start.
From the location to knowing how much we needed to save, the prospect of purchasing a house seemed too daunting. We knew we would need to save up for a down payment, fees, and the costs of ongoing home ownership and maintenance. Doing all of that while raising two children, paying back our student loans, and wading through the pandemic did not seem like the ideal time to buy a house. But as luck would have it, we found our dream home in our ideal neighborhood while searching on Zillow just for fun.
At the time, we knew our budget, and there appeared a beautiful split-level home just minutes from the small, family-friendly town we’d passed by dozens of times. I immediately called a realtor to set up an appointment to view the home and make sure the photos weren’t deceiving. Since my husband and I were not “officially” searching but gearing up to it, we had to scramble to get pre-approved for a loan and research all the do’s and don’ts of first time home-buying (one anxious Google search at a time.) To help other families thinking about buying a home right now, I reached out to licensed real estate professional Dawn Watson, who shared a few key steps to prep for when searching for and buying a home.
Know Your Budget
This step encompasses a lot of financial planning, from checking your credit to saving for a down payment to knowing your debt-to-income (DTI) ratio. Interest rates and approval for most mortgages rely on good credit ratings. Before you start house shopping, it’s essential to look up your credit score to get a sense of your loan range and mortgage rate.
If your budget is tight, make sure to research programs and loans that take smaller down payments around 3 percent vs. 20 percent. We started our savings by putting a little aside every paycheck for a few years until we had a sizable amount. As emergencies came up, we sometimes had to borrow from our own savings but made sure to pay it back as soon as possible.
Your DTI ratio is also important. DTI compares your monthly gross income to your debt obligations. This number is one way lenders measure your ability to manage the monthly payments to repay your loan. According to the Consumer Finance Protection Bureau, your DTI ratio with your mortgage should be 43 percent or less.
Once you have a good handle on your credit, down payment, and DTI ratio, you can then go to mortgage providers and apply for preapproval. Once you go through the preapproval process, you can move to the next step on your home shopping journey or take some time to reevaluate to make your application shines so it can get approved next time.
‘In this fast-moving market, where properties can go from offer to acceptance within hours of being listed, you have got to be ready, and able to pull the trigger on your dream home.’
Why is preapproval necessary?
“In this fast-moving market, where properties can go from offer to acceptance within hours of being listed, you have got to be ready and able to pull the trigger on your dream home,” Watson said. “Showing the seller that you are prepared and more than qualified moves you to the front of the line, financially speaking. As far as the money part of the equation goes, the only thing that can outperform mortgage pre-approval is an all-cash deal.”
Consider a Real Estate Agent
If you’re a first-time home buyer, you may think that you can save some money by foregoing a real estate agent, but a good real estate agent can help you through the complex process and help you save on the final cost in the home. Without ours, my husband and I would have been drowning in legal paperwork and confusion as we figured out how to make offers and go about the next steps.
Watson shared that an agent who is your fiduciary (meaning they are legally and ethically bound to represent your best interests) can be an excellent resource for advice and referrals. Assembling a team that includes the best mortgage broker, lawyer, inspector, and surveyor for you makes a smooth transaction that much more possible. It’s always going to be an easier process if you have an expert in your corner.
Align on Must-Haves
A real estate agent can also help you figure out what you want and don’t want in a home as you go through the process. Watson suggests that you make a list and start prioritizing what you want in your home. A home will never have every single thing that you want, so make sure you know your deal-breaker items.
Make Your Offer Shine
When you have your pre-approval and are ready to move on a home, Watson shared some tactics to improve your offer.
“The housing market as we knew it was turned on its head last year, and I don’t see it going back to pre-pandemic “normal” conditions any time soon. Engaging an expert agent can make the difference between landing that property and losing it,” she said. “Buyers need to be extremely agile if they want to score the most prime properties. Being best qualified financially is a step in the right direction. And being the most flexible is another. What that means is that buyers with the fewest contingencies, or demands on the seller, will frequently vault to the top of the pile when there are multiple offers presented.”
“Earnest money is (also) a show of good faith, like a pre-payment on a property, to confirm that you, the buyer, are serious about completing the purchase,” Watson said. “It’s also a strong negotiating tactic in a competitive market—i.e. the buyer who can put down the largest earnest money deposit has a distinct advantage when multiple offers are presented.”
Lastly, Watson offered a few words of caution for conscientious buyers.
“Check with your agent before you sit down to write a ‘love letter’ to the seller. Due to increased vigilance regarding Fair Housing Laws, this practice that some buyers have used to stand out from the crowd has recently come into question,” she said. “Even receiving such a letter could potentially open the seller and involved real estate professionals up to fair housing violations and legal actions. Seemingly harmless at first glance, the letters—which frequently divulge personal information regarding the buyers’ familial status, race, and religion—provide opportunity for bias and have been shown to unfairly advantage some while disadvantaging protected classes. Thus, according to the National Association of Realtors, agents should not take part in drafting or delivering these letters. Good agents will follow best practices by educating and protecting their clients from liability.”
Prepare for a Whirlwind
“The process can be a whirlwind in the early days of offer and acceptance,” Watson said. But then there’s a waiting period. “Getting to contract can take a bit longer, as that’s when the lawyers need to hash out the terms of the agreement. After that, a lot needs to happen before closing takes place. The major things include all of the steps involved in getting a clear title and a clean Certificate of Occupancy—inspection survey, permitting, soil testing if there are underground tanks, making sure the property hasn’t been over cleared, etc. All of this can take anywhere from about a month or so after the contract has been signed by both parties, as long as there are no major snags. Complications add frustration and time.
A good deal occurs when both buyer and seller feel like they have been treated fairly and have gotten something of value.”
I know the entire process can be super overwhelming, especially if you live in areas that are very competitive. Try to tackle one thing at a time until you feel comfortable taking the leap to home ownership. When you budget a little money every month for a down payment or take steps to improve your credit, you’re one step closer to your next home. Try and remember that when you’re settled into your new home and eating a meal with your family at the dining table or relishing the quiet of kids asleep in their separate bedrooms, it will all be worth it.