There are lots of benefits to owning a home, including putting money towards something that you own, rather than a property that you rent from someone else. If you’re thinking about buying a home and are wondering how long the process takes and when you should start planning, researching is a good place to start. It’s very helpful to think about these things in advance. The home buying process may take much longer than you expected, so giving yourself as much time to plan as possible is ideal. Check out this timeline to get an idea of how long buying a home can take and when you should start working on different tasks.
3 – 5 Years Before: Review Your Credit
3-5 years before might seem like a long time, but if you have a blemish on your credit, that’s about how long it will take to start making a difference in the correct direction. Bad marks on your credit take seven years to actually “fall-off,” but each move in the right direction helps. Since your credit score is one of the main factors in whether or not you’ll be approved for a mortgage and what the interest rate will be, you want your credit to be as high and pristine as possible.
Review your credit to make sure everything is correct. If something on your credit report is incorrect, be sure to dispute it with all three credit bureaus. If you find any unpaid bills that went to collections – pay them.
From this point on, be sure to take extra care in never missing a payment on any of your current loans. Especially if your credit is newer, one missed payment can really take a hit on your credit score.
If you don’t have much credit built up, start building it now. If you don’t have a credit card, open one and start using it and paying it off each month. You may have to start with a secured credit card at first and this helps just as much. You can also look into secured loans and loans that don’t require a credit check. These options can also help you re-build bad or damaged credit.
3 – 5 Years Before: Start Saving for a Down Payment and Closing Costs
A 20% down payment may not seem like much, but when you realize that 20% of $100,000 is $20,000, reality hits you. There are many mortgage options and government-backed mortgage options that can lower or eliminate the required down payment, but you will still generally need to put 5-20% down on a home. Keep in mind that if you put less than a 20% down payment on a home, you will be required to have private mortgage insurance (PMI).
Beyond the down payment, closing costs also need to go into your savings plan. Closing costs are often 2-5% of the price of the home. Again, these may not seem like much, but an additional $2,000 – $5,000 on a $100,000 home can be painful if unexpected.
6 Months – 1 Year Before: Figure Out How Much You Can Afford
Review your current budget and spending habits to see how much you think you could comfortably afford. Make sure to think of more than just the mortgage. Consider:
- Future bills, such as electric, water, trash, etc.
- Car payments
- Credit card and student loan debt
Also take the time to visit a lender and get pre-qualified. This does not require an application or digging out every financial statement for the past two years (that comes later). Getting pre-qualified is easy and only requires your word. Because it is so simple to obtain, it doesn’t have a ton of weight in swaying a seller, but it at least gives you a good idea of the amount that you will probably be approved for. The pre-qualification amount will just be a ballpark estimate, but will still be helpful for you to know what homes you should look at.
Be sure to match this pre-qualification amount with the budget details you looked at before. Most lenders will approve you for more than you can comfortably afford depending on your spending habits.
3 – 6 Months Before: Start Looking
It’s time for the most exciting part – start looking at houses! As you’re finding homes you want to check out, start making a list of the things you want your new home to have. Decide what is negotiable and what is non-negotiable. Keep in mind that one home probably will not have everything you want. This process will involve some compromise, but you will get to decide what to compromise on.
Be sure to keep in mind the amount that your lender pre-qualified you for when checking out homes. Save yourself from the heartache of finding the perfect home only to look at the price and discover you can’t comfortably afford it.
1 – 3 Months Before: Get Pre-Approved
After you’ve found the home you want or at least have it narrowed down to a few, get pre-approved by your lender. This is the part where you have to compile all of your financial documents from the past few years so that they can verify that you could afford a mortgage. After analyzing all of your information, your lender will come up with an exact loan amount that you are pre-approved for. These statements sometimes even include an interest rate.
Just because you have been pre-approved does not mean you will actually be approved for a mortgage, but they still hold a lot of weight when trying to sway a seller to accept your offer over someone else’s. Pre-approval’s get you as close to being a cash buyer as you can be without actually being one.
1 – 2 Months Before: Make an Offer
After you find out how much you can actually offer – make the offer! It can take anywhere from a few hours to a few weeks to find out if your offer was accepted or not. Typically it happens pretty quickly and you’re under contract to buy the home.
1 Month Before: Have the Home Inspected
Once your offer has been accepted, the next step is to have a home inspection done. This is to make sure that there are no major, expensive issues or repairs that need to be made. It also verifies that the home is worth what the seller asked for. The worth determined by the home inspector is what lenders use to finalize your new mortgage loan.
Almost There: Closing and Moving In
You’ve almost made it through the entire home buying process! This is where those closing costs you saved for come in. By the time you’re ready to close on your new home, you should have already done all of the moving preparations. Be sure to choose a reputable moving company if you need one.
Buying a home is an exciting and life-changing venture. Ensure you’re getting as much value as possible out of this long process by planning ahead and knowing what to expect at each step.
Chat with a Mortgage Consultant at Patriot Federal Credit Union
If you’re in the buying process and are ready to be pre-qualified or pre-approved for a mortgage, Patriot Federal Credit Union can help! Find one of our branches, call 717-709-2580, or visit our website to learn more about the mortgage options we offer or to sit down with a friendly and knowledgeable mortgage consultant. We know the home buying process is a long one and we want to be with you every step of the way from planning to closing.
The content provided in this publication is for informational purposes only. Nothing stated is to be construed as financial or legal advice. Patriot Federal Credit Union does not endorse any third parties, including but not limited to, referenced individuals, companies, organizations, products, blogs, or websites. Patriot Federal Credit Union does not warrant any advice provided by third parties. Patriot Federal Credit Union does not guarantee the accuracy or completeness of the information provided by third parties. Patriot Federal Credit Union recommends that you seek the advice of a qualified financial, tax, legal, or other professional if you have questions.