9 steps to start the home buying process

Buying a home is a huge decision. For first-time buyers, figuring out where to start can be confusing and overwhelming. Let’s walk through nine steps to help you conquer your home buying journey.

Plan ahead

1.      Assess your debt. Understand your debt-to-income ratio (or DTI)—the percentage of your income that goes toward paying your monthly debts. This number helps lenders decide how much to lend you. The lower your DTI, the better your chance of getting approved—at a rate and amount that works for your plans.

2.      Know your credit score. An “excellent” credit score could land you a lower interest rate and allow you to put a little less down. Review your credit report for any errors that could negatively impact your application process.

3.      Explore locations. Start thinking about where you may want to live. Try to be somewhat flexible, and don’t set your heart on just one neighborhood or one part of town—this will limit your options tremendously.

Understand what you can afford

4.      Crunch numbers. Calculate your average monthly spending. How’s it looking? Should you be saving more? A lender may have educational tools such as a loan calculator that might help you figure out how much you may be able to afford. If you need to, determine where you can make cuts from your budget. Here are a few savings tips to help.

5.      Follow a home buying budget. When looking at how much house you may be able to afford, be sure to include principal, interest, property taxes, homeowners insurance, as well as PMI (a monthly insurance fee if you do not put 20% down) and HOA fees, if applicable.¹

6.      Account for other costs. Factor in expected maintenance costs and anticipated repairs and try to save enough to pay for these expenses while remaining comfortable financially.

Get your documents in place and assemble your dream team

7.      Pull together paperwork. Gather your bank statements for the past two months, as well as pay stubs, W-2s and tax returns from the past two years for your lender. This is in addition to documents you will provide that show any other sources of income you have.

8.      Find the best deal. Compare rates from different lenders and don’t forget to look at loan fees and customer service ratings. Once you land on a lender, get pre-approved to know how much you can borrow so you can finalize your budget. Pre-approvals are usually valid for 60 to 90 days.²

9.      Enlist some help. Find a real estate agent who knows the area where you plan to buy—they will help advise you on whether offers are appropriately priced and identify any issues with the house or neighborhood that you might not recognize. Your agent will also help you negotiate pricing and terms.

As you get closer to buying your home, you should feel pretty confident in your financial life, have a good understanding of what you may be able to afford and have a team of professionals lined up to work with you. Most importantly … remember to have fun! Shopping for a home to call your own is a great experience that you deserve to enjoy.

3 Key Takeaways

1. Learning is the keystone to continuing your financial journey.
3. A little bit of information goes a long way and will help build your library of knowledge over time.
5. Have face-to-face conversations, whether you are looking to network or find a mentor.

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