If you’ve put off buying a house or condo because you think the process is complicated, we’ve got tips to help you go from renter to homeowner in a year. Once you know the steps, and how long each should take, buying a new home is way more manageable. Check out our easy-to-follow one-year plan.
1st month: Determine how much house to buy
One school of thought believes you should buy as much house as you can afford. Others are more concerned with leaving a small carbon footprint and living a “less is more” lifestyle. Whichever side of the fence you’re on, some truths remain in starting your home-ownership plan.
Figure out your debt-to-income ratio.
Compare your income to your total debt load, including future mortgage payments, car loans, student loans, and credit cards. Experts say debt, including housing-related expenses and other recurring debt, should be no more than 36% of income. If you’re near 43%, the highest allowable to get a qualified mortgage, start reducing your debt ASAP. Our affordability calculator will show you what you can comfortably handle.
Know your credit score.
Get a free copy of your credit report once a year at annualcreditreport.com. A score of 690 or more is generally considered pretty good credit. Any lower could lead to higher rates on loans, so do your best to correct any credit mistakes.
Make a down payment plan.
Lower loan costs and better interest rates are likely if you’re able to put down 20%. If that’s out of reach, consider these helpful loan programs geared to first-time buyers, veterans, and lower-income applicants.
3 months in: Stop dreaming, start doing
Wants vs. needs.
Is a big kitchen more important than outdoor space? Does a shorter commute trump a two-car garage? Sure, you’ll know your dream house when you see it, but it doesn’t hurt to compare “nice to have” with “deal-breakers” early on, so you don’t waste time chasing listings that won’t make the cut.
Do your research.
To zero in on communities worth your time, scour the web to learn about local governments, schools, cost of living, crime statistics, and options for local commuting, shopping, and dining.
Hit the open houses.
There’s no better way to get a feel for a neighborhood than to visit open houses to see what’s on offer and who’s shopping.
Get serious about saving.
Seeing listings in real life can motivate you to keep adding to your down payment. Just don’t forget home inspection, title search, home insurance, and other incidentals. They add up, so budget appropriately.
6 to 9 months: Getting your docs in a row
Gathering necessary paperwork:
Don’t expect to get a loan unless you can prove you’ll be able to pay it back. The sooner you start assembling documentation, the better. Here are some items that lenders are looking for:
- Social Security number. Your SSN allows lenders to verify your identity, request tax returns from the IRS, and pull your credit reports.
- Bank accounts. Pull together your most recent checking and savings account statements. For money market and 401(k) accounts, go back at least three months. Keep updating your documents in case your plans get delayed.
- Credit info. Still paying car loans, student loans, and credit cards? You’ll need recent account statements for each.
- Employment history. Go back at least three to four years. List employer name, mailing address, and phone number.
- Proof of income. Always keep your two most recent pay stubs handy, and make sure they show year-to-date earnings.
- Taxes. Gather W-2 statements and tax returns for the past two years.
- Place of residence. List street addresses for everywhere you’ve lived for the past five to seven years.
Find a Realtor.
Have friends or co-workers recently bought homes in areas you’re interested in? Ask for referrals. Or chat up the locals. If they’re new to the neighborhood, they probably have a favorite Realtor. Online reviews help, too. Seek out someone good at negotiating and can help navigate the closing process.
Get a great loan officer.
A good one will be able to quickly see if you’re pre-approved so you know how much you can likely borrow and at what the terms (i.e., 30 years, 15 years, fixed-rate, adjustable-rate). Movement Mortgage has a searchable database of more than 1,200 experienced loan officers across the country ready to help.
90 days left: The hunt begins
First, get pre-approved.
Pre-approvals require a bit more documentation than what some folks call a pre-qual, but you got this! Once approved for a conventional mortgage, condo loan, or fixer-upper, you’ll get an offer in writing for a loan at a specific interest rate. Remember, pre-approvals are typically valid for just 90 days, don’t initiate the process until you’re seriously in shopping mode.
Now start house hunting.
Being pre-approved lets you focus on homes that match your budget and avoid looking at properties that are out of range. Plus, your pre-approval shows that any offer you make is legit, giving you an edge over casual buyers.
2 months to go: Decisions, decisions
Decide when to jump in.
Closings could take four to six weeks from when an offer is accepted, so work backward from the date you want to be in your new home. Allow some wiggle room for rejected offers, complex inspections, and subsequent negotiations.
Make an offer.
When you find “the one,” don’t hesitate. If the property is new to the market, you’re probably not the only interested buyer. Your Realtor will submit your offer to the seller’s agent on your behalf.
Get a home inspection.
Once an offer is accepted, things move fast. Hire a home inspector to look for health, safety, and structural issues like water damage, mold, or signs of infestation. Inspections last a few hours, with a report delivered in about three to four days. Depending on the findings, you may be able to revise your offer or demand repairs before closing.
The Home Stretch: the final 30 days
Have your loan officer take a final pass on the mortgage documents to make sure everything’s in order.
Before your loan can be finalized and funded, you’ll probably need to purchase a homeowner’s insurance policy and bring it to the closing. Sometimes, a proof-of-purchase letter from the insurer is allowable and can be faxed to the lender beforehand.
A day or two before closing, schedule a final walk-through of the property to make sure the home is clean, the appliances are working, and all negotiated repairs are completed.
Leave the checkbook home.
Personal checks are not accepted at closing. You’ll need a certified or cashier’s check or a money wire to cover the down payment, closing costs, prepaid interest, taxes, and insurance. Your lender will let you know the total amount, and it must be exact, so double-check.
Once you sign all the documents, you’re a new homeowner! Don’t forget your new house keys!