Check your credit score

Your credit score will be very crucial in determining whether you will qualify for a mortgage. Knowing your credit history upfront will allow you to clear up any inaccuracies prior to being in the middle of a home search and needing to scramble to find financing.

Step 1: Get your credit report

Since 2003, every consumer has been given access to one FREE credit report per year from the three reporting bureaus: TransUnion, Experian, and Equifax. You can also pay $60.00 to obtain your FICO score for all three bureaus. Getting these reports can save you a lot of money and trouble in later steps on your real-estate journey!

Get your TransUnion Report
Get your Experian Report
Get your Equifax Report
Get your 3-Bureau FICO Report

Step 2: Dispute any errors found on any credit report

Maybe one of your reports is showing a missed payment on a credit card, but you already cleared this up with the credit card company. Perhaps your personal bank made an error on one of your accounts, causing an account overdrawn issue. You will want to dispute any inaccuracies reflected on your report. Below are some brief steps for disputing a credit bureau:

  • Communicate directly with the credit bureau where the error shows up via writing, phone call, internet, or in person, formally stating that you disagree with an item noted on their credit reports. If you do an internet search on the credit bureau + dispute, you will likely find the appropriate path to take for formally filing a dispute, ex. “TransUnion dispute.”
  • Once your dispute is submitted, the bureau will investigate your case. They will contact the furnisher or company (bank, credit card company, loan agency) that reported the item on the credit report, with a form to determine if what you claimed happened is actually the case.
  • The furnisher will then process the dispute and determine if what they sent to the credit bureaus was correct or incorrect. If they found they were incorrect initially, they will make changes and your credit reports will be updated.
  • The credit bureau will close the investigation and dispute. They will communicate the results of the investigation.

Step 3: Make sure you have enough tradelines on your credit history

You will need at least two tradelines active in the last 12-24 months for an FHA loan, and at least three active tradelines for a conventional loan. Tradelines are simply credit accounts (e.g. credit cards, car loans, student loans, etc.).

Step 4: Avoid closing any older, but still active credit accounts

You may have an older credit card you barely use, and you might have been thinking about closing it out. However, don’t! These older credit account actually boost your credit score. Keep them active by using the credit account every couple of months and pay it off.

Step 5: Avoid opening new credit accounts and having multiple credit checks

You want to avoid opening any new credit accounts around the time of locking in a mortgage. Opening new credit accounts and racking up credit inquiries (companies using your SSN to determine your credit score) will reduce your credit score.

Step 6: Don’t buy a new car or furniture (at least on credit!)

Similar to step 5, don’t make any large purchases with credit around the time of getting a mortgage. Not only will this increase new credit accounts and credit inquiries, but it will also affect your debt to income ratio, which could vastly change the amount you qualify for.

Step 7: Keep your money where it is

Don’t go closing checking accounts or moving large sums of money around. You will need to provide bank statements, investment account documents, and proof of income when it comes time for getting a mortgage. Closing accounts or moving money will need a well-documented paper trail and explanation, so you are better off leaving everything as-is, if possible!

Figure out how much you can afford

Once you know that your credit score is in a “mortgage-ready” state, next you will want to determine how much of a house you can reasonably afford.

Step 8: The good ole 36% rule:

The 36% rule basically states that your total debt payments should never sum up to more than your pre-tax income. To calculate what 36% is, you will need to determine what your pre-tax income is. Typically, this is your monthly salary (plus bonus if you can prove two years of history) plus any other sources of income you may receive. Then, you will need to determine any existing debt payments you may have (student loans, car payments, and other debt obligations).

Mortgage amount available = Pre Tax Income * (0.36) – Existing Debt Obligations

Monthly pre-tax Income = $10,000
Existing monthly debt obligations = $750
Mortgage amount available = $10,000 * (0.36) – $750 = $2,850

Here is a great calculator to help you determine how to stick to the 36% rule

Step 9: Figure out your down payment

As most people know, 20% down payment is the gold standard, as it makes you more attractive to lenders and you don’t need to pay that pesky mortgage insurance! There are plenty of other financing options that don’t require the full 20% down, so be sure to do your research.

NerdWallet has a great article and calculator to help you plan for your down payment!

Step 10: Determine if you are financially ready to move forward

Sometimes in life, the timing just isn’t right, and rushing into a house definitely isn’t a great idea! If the numbers aren’t adding up for you to buy something, you really want you need to make a decision. You need to decide if you can sacrifice some criteria and look for cheaper homes, or hold off for a year or so until you strengthen your finances.

If the numbers look great, awesome! You are right on track!

Take inventory

Next, you will need to gather a ton of documents to get ready for your journey, especially when you start working with lenders and begin locking in a mortgage. I won’t lie to you and say this part is fun. Taking inventory of your tax documents, W2s, bank statements and federal documents is quite tedious, but essential on your path to buying a home!

Step 11: Become a file clerk (just kidding, but for real, file and pull a ton of docs)!

You will need to gather, hunt down, or prepare the following documents:

  • W-2 forms — best to get at least two years of history, if possible.
  • Pay stubs — gather enough pay stubs to cover at least one month of employment.
  • Bank statements — two months worth.
  • Tax returns — two years of tax returns.
  • Identification — driver’s license, social security card.
  • Proof of U.S. residency if you aren’t a U.S. citizen, if applicable.
  • Proof of military service — if applicable.
  • K-1 and business tax return, if applicable (self-employed or business owner).
  • Verification of funds if you received large sums of money (i.e. down payment from parents).
  • Alimony or child support documents, if applicable.
  • Proof of reserves — enough money left in the bank after close to cover at least 3 months payment
  • Cancelled rent checks if currently renting.
  • Investment account statements — 401k, personal accounts, IRAs.

Let Captain Home Finder guide you on your journey to buying your first home!

Want to learn how to QUICKLY and EASILY get ready to buy your first home? All you need to do is enter your email below and we will send you a STEP-BY-STEP series on first time home buyer prep!

Research desirable areas to live

Congrats! You have completed a lot of the difficult stuff upfront. Now we start getting into the interesting parts of the journey. Now, you have the ability to start researching where you want to search for homes! Most people start here mistakenly and find out later that they can’t afford their desired location later down the road, but luckily, you know how much you can afford!

Step 12: Pick a neighborhood or group of neighborhoods in which you want to search for homes.

This step is completely personal preference, but some things to consider are:

  • Median sale price
  • Schools
  • Proximity to work or hobbies
  • Safety

Livability has some great tools and articles to help you do research!

Find a great real-estate agent & mortgage lender

Now that you have a sense of where you may want to look for homes, let’s get you one step closer to making that home purchase a reality! Your next task is to staff up your home buying all-star team.

Step 13: Find a great mortgage lender

Get recommendations from friends and family. Ask them who they used for their home buying process, and get feedback on their experience, both good and bad. Talk to at least three lenders and determine who seems to be a good fit and someone you are comfortable doing business with. There are different types of lenders (Zillow has an article to help decipher these). Ultimately, select a lender to take along on your home buying journey.

Step 14: Get a pre-approval letter

Zillow states that a pre-approval letter is, “a written statement from a lender stating the lender’s preliminary determination that a borrower would qualify for a particular loan amount under that lender’s guidelines. The determination and loan amount are based on income and credit information. Most pre-approval letters are good for 60 to 90 days.” A pre-approval letter is your ticket to be taken seriously by real-estate agents, and most importantly, home sellers evaluating your future offers!

Step 15: Find a great real-estate agent

Work with the absolutely stunning Captain Home Finder, duh! Seriously though, do your research just like you did with a mortgage lender. Talk with people you know who bought or sold a home; understand their experiences working with a real-estate agent. Narrow down your list and determine who you are comfortable leading you on your journey!

Setup a meeting with Ryan Fischer, REMAX Results, and the Captain Home Finder team to talk over your home buying goals!

Simply select a time that works for you to meet with Ryan and get your home buying journey started!

Search for homes

The hunt is on! It’s time to go look at some homes!

Step 16: Look for potential prospects online

Your real-estate agent will create you a custom MLS search based on your criteria (home price, location, home type, sizing, etc.). This will be your hub and main communication to your real-estate agent and their team. Showing interest in homes on these searches will indicate what homes should get a showing scheduled and what showing should be removed from the search altogether. There are plenty of other real-estate listing sites you can browse as well (Zillow, Homes, Coldwell Banker, REMAX, Trulia, Edina Realty, to name a few).

Step 17: Visit homes

You can do these two ways — book showings or visit open houses. First, for booking showings, take your list of home from the previous step and let your real-estate agent a time you want to visit some properties! You can also keep track of when open houses are and visit some without your real-estate agent during your free time (most open houses are in the afternoon on the weekend).

Step 18: Keep score

Take notes, take pictures, record video to help you categorize and remember details of specific homes you like. Rank homes against each other to help narrow down your search. What do you like about a certain home over another? What do you hate? Is there a feature/amenity you can’t live without? Keeping track and score of these details will help you a) find a home you want to purchase, or b) narrow down your search criteria for prospective homes!

Make an offer

You’ve visited homes and kept track of what you like a don’t like, and now you have selected the property you want to make your next home! You are almost there. Only a couple more steps to go!

Step 19: Submit an offer

You chose a house you love and want to attempt to purchase. Tell your real-estate agent you would like to make an offer. They will run some market analysis on the property to help you submit a fair and strong offer to the seller’s agent.

Step 20: Negotiate terms

You might receive a counteroffer from the seller, and in this case, you will need to negotiate the terms of the purchase agreement. Some terms that are negotiable are:

  • Closing date
  • Seller concessions
  • Appraisal deadlines
  • Inspection deadlines
  • Repair caps
  • Financing contingencies
  • Existing home closing contingencies
  • Earnest money refundability

There are a lot of terms to negotiate, but be certain you are comfortable with any changes made from your initial offer, because they can be more difficult to change after this step.

Step 21: Deposit earnest money

Congratulations, your offer was accepted! You now need to submit your earnest money—, which in layman’s terms is collateral or a down payment for the purchase agreement transaction between you and the seller. You will be credited back your earnest money at closing, or you will forfeit to the seller if you cannot act on the agreed terms in the purchase agreement.

Inspect. Appraise. Close.

Take a deep breath. You can now see the light at the end of the tunnel!

Step 22: Schedule an inspection

There will likely be an agreed upon inspection period in your contract with the seller, so be sure to schedule an inspection with a reputable home inspector in your area to do a thorough investigation of the home. Once the inspection is complete, the inspector will provide you with a list of findings. With this list of findings, you can take the issues as-is or request the seller to address some or all of the findings. Be cognizant of not being to nit-picky on small items, but be careful of potentially large issues, such as structural issues!

Step 23: Get an appraisal performed

You won’t need to do much here, as your mortgage lender will likely take care of this for you. Your mortgage company will want to verify that the loan amount and the value of the home match or the appraised value is higher. Failure to appraise the home can be a trigger to terminate or renegotiate the purchase agreement with the seller.

Step 24: Close on your home transaction!

Set up a closing time on the closing date with your chosen title company and the selling party. Bring all required documents (driver’s license/passport/identification) and funds to closing (down payment, closing costs, and fees)—. You will know this amount in advance. Both you and the selling party will sign all of the docs and the mortgage company will fund your loan. You can now call yourself a homeowner!

Move in

You are a homeowner, but now what? Well, there are a couple of things you will need to do once you get your keys!

Step 25: Move in and get your new house up and running

Below is a short list of items to consider when moving in:

  • Get internet setup
  • Turn on gas and electric
  • Change your address
  • Get home insurance squared away
  • Get home professionally cleaned
  • Spare keys made

Here is a comprehensive moving checklist by HGTV