By: Stella Katsipoutis
On your mark. Get set. Go! When the clock strikes midnight on New Year’s Eve, it’s like a gunshot signaling the beginning of a year-long race to achieve the highly anticipated New Year’s resolution. This January, while most people were setting goals to slim down in 2016, my husband, George, and I decided to go big … with our dreams, that is! After celebrating our unforgettable Poconos wedding in October, we decided to dedicate this brand-new year to finding our first home and starting our life together as a family.
But, as is customary with all New Year’s resolutions, the initial excitement of the race can quickly subside to nervousness. As you start planning your first steps in reaching your target, the size and scope of your aspirations begin to look a little daunting. You begin to ask yourself, “Can I really do this?” George and I were no exception. Despite my admitted obsession with HGTV shows like “House Hunters” and “Fixer Upper”—which gave me the false sense that I was a real estate whiz kid and that we’d magically find our dream home within a half-hour timespan—I soon realized that buying your first house takes a lot longer and feels a bit scarier in reality than it does on TV. We still have a lot to learn and we have a long road ahead of us this year, but we’ve mustered up our courage and taken on the challenge anyway. After all, our two-bedroom apartment from the ’80s is starting to get cramped—not to mention the money we’re throwing away on rent.
Now, in this new blog series for first-time home buyers, I get to tell you all about our successes, blunders, smiles, tears, adventures and misadventures of our experience as property newbies … and share the important tips and lessons we learn along the way. Do you think we have what it takes to score the house of our fantasies? You’ll just have to keep checking out our blog to find out!
Of course, being rookies, George and I naturally didn’t have the slightest clue where to begin our search. We naively thought, “Why not start by visiting an open house?” What we didn’t realize was the home buying process starts long before you even set foot in your first of many house showings. As we strolled bright-eyed and bushy-tailed into the open house on the first weekend of January, we were met by the selling agent, who caught us off guard with a whirlwind of questions—to which we had less-than-stellar answers.
“Are you currently represented by a real estate agent?” Nope.
“Have you spoken to a lender to get prequalified for a loan?” I don’t understand a word you’re saying.
“What is your budget?” I don’t know … affordable?
“What neighborhood are you looking into?” Um … somewhere safe with great schools. Where is that?
“What does your credit score look like?” Oh, I know this one! Our credit is awesome. Now what?
Clearly George and I had some homework to do. So after a lengthy conversation with the selling agent and a few long hours of Googling back at the apartment, I figured out what first steps we—like all first-time home buyers—had to take before we started perusing homes. If you’re on the same boat as we are, here’s what you need to do:
Step 1: Shape up your credit.
Let me break it down for you: Your credit score, which is like a reputation you’ve built throughout your years as a borrower, dictates what kind of mortgage loan rate you’ll get. The higher your credit score is, the lower your monthly mortgage payments will be. So if you want to save money in the long run, you need to make sure your score is in tip-top form before you even consider applying for a loan.
Luckily, George and I already knew we had a great credit history thanks to our mania for paying our bills in full and on time. But if you have no idea what your credit score is, your first plan of action should be to find out where you stand. You may not know this (I didn’t), but you’re entitled to one free credit report from each of the three credit bureaus—Equifax, Experian and TransUnion—every year. All you have to do is mosey on over to www.annualcreditreport.com to get your free annual reports.
Look at each report closely, keeping a sharp eye out for errors. You might find some mistakes, like erroneous late fees or account information that isn’t even yours. Spotting these early on gives you the chance to contact the creditor and ask for a correction, getting your credit score where it needs to be.
Is your credit score looking a little drab? Whatever you do, don’t start chopping all your credit cards in half. Getting rid of accounts may actually hurt your score since you’re reducing the amount of credit that’s available to you. You’ll also want to avoid applying for new credit cards a year before you plan on buying a home. (Sorry, that hot new clothing store will just have to wait!) Lenders want to see that you’re a dependable borrower and have a healthy mix of credit in your name. You’ll do a much better job of improving your borrowing power if you simply pay off your outstanding balances and keep your expenses low and steady.
(Shameless plug: If you need some extra guidance, VyStar offers free financial counseling to members with less-than-perfect credit, and our representatives are more than happy to answer your questions and provide you with the effective advice and solutions you need.)
Step 2: Get your paperwork ready.
Later in this blog series, I’ll be covering in-depth the potentially murky topic of prequalification versus preapproval, so don’t panic if you don’t know what those terms mean. For now, all you need to know before you sit down with a mortgage lender is this: Your lender will need to see some important paperwork in order to fill out your loan application. I’m fortunate enough to work at the VyStar headquarters, which means our mortgage department is just a few steps away from my desk. But for those who don’t have that luxury, it’s a great idea to gather up this paperwork and be totally prepared before your meeting with the lender. Here’s a quick checklist of the documents you’ll need (make sure you have the most recent copies from the last two years where applicable):
Step 3: Create a budget.
This one was a doozy for me and George. Trying to figure out exactly how much we can afford—without digging ourselves into a hole—seemed impossible. The truth is we still don’t have a budget set in stone; it seems to fluctuate ever so slightly as we continue to plug through our home search, dive deeply into our expenses and learn more about the average cost of the house size we’re looking for.
This is where your lender comes in. Pulling your paperwork together will not only prepare you for your appointment with the lender, but also help you draft a budget. Taking a close look at your financial documents gives you a clear picture of how much you can realistically afford to pay for your down payment, monthly mortgage, interest, property taxes and insurance. Now, after sitting down with a mortgage loan officer here at VyStar and laying everything out on the table, George and I have a much better idea of what we can spend each month, what our absolute maximum budget is and what price range we need to stay within when we’re house hunting.
Keep in mind that when a lender tells you how much of a loan you qualify for, it doesn’t necessarily mean it’s within your financial means. It’s important to know the boundaries of your budget so you don’t overextend yourself and buy a home you can’t afford. A good rule of thumb: The monthly cost for your home shouldn’t be more than 28 percent of your gross monthly income. These helpful budgeting calculators on the VyStar website also helped me gauge how much we can afford, what our monthly payments would be at different price points and more.
Step 4: Start saving.
George and I have to give a huge shout-out to our parents who—occasionally at the risk of their own sanity—let us live at home prior to getting married, helping us save loads of money for our future. But stashing cash in today’s world isn’t easy, and not everyone has the convenience of living with their parents and saving years’ worth of rent. So if you haven’t already, you’ll need to start setting aside as much money as possible for your down payment, which generally ranges from 3% to 20% of the home’s price.
What came as somewhat of a shocker to me was the fact that home buyers also typically have to pay cash for closing costs up front. These can range anywhere from $2,000 to $4,000 for a $200,000 home, depending on location. This is another expense you might have to save up for, but luckily VyStar members have access to a variety of affordable mortgage programs, one of which is our No Closing Costs Mortgage. You can bet that George and I will be taking advantage of that great offer!
You’ll also want to make sure you set aside at least a few months’ worth of mortgage payments; it’ll show your lender that you won’t just be living paycheck-to-paycheck after you purchase your home. Plus, you’ll need that extra cushion in case the house needs any repairs or new furniture after you’ve moved in.
Step 5: Make a (realistic) wish list.
If there’s one thing I do know, it’s what I want my house to look like: granite countertops, large gourmet kitchen, open concept layout, hardwood floors, walk-in closets, big backyard for our two dogs … the works. (Can you tell I’ve been watching too much HGTV?) Okay, I know we’re not going to find everything we want, but it’s essential that the home we eventually decide on meets most of our current and future needs—while staying within our budget.
For example, we’re planning on having a family in the near future and living in our home long-term, so we are looking for a house that we can grow into. We don’t want to sell a home we’ve quickly outgrown, because that can be a really slow and expensive process. On the flipside, we also don’t want to make an extravagant wish list that’s difficult or impossible to achieve at our price point. All first-time home buyers should do some online research to see what the average prices of homes are in their desired area and what they can get for their money. Think about what you can’t live without and what you’re willing to sacrifice, and start piecing together a sensible wish list you can share with your realtor. In all honesty, I’m still having a hard time accepting that I won’t be able to get everything on my list, but a girl can dream, can’t she?
Now that these steps are taken care of, we’re getting closer to the fun part: house hunting! Check back again soon for my latest crazy home-buying stories and helpful tips in the next installment of the “My First Home” blog series. See you soon!
*The content provided in this blog consists of the opinions and ideas of the author alone and should be used for informational purposes only. VyStar Credit Union disclaims any liability for decisions you make based on the information provided.