Getting the Homebuying Process Started – 3 Steps You Can Totally Do

You’ve likely been browsing homes online and thinking about buying, but you’re not quite sure what’s next. Well, that’s where this guide comes in. Let’s get the homebuying process started. We’re not here to make sure you close on a home next week, but by next year, absolutely.

Step 1 – Check in on your financial situation

Your financial situation is much like a long-lost high school friend: You’ve been avoiding checking in, but you’re also kind of wondering what it’s been up to. 

Credit score

Know your credit score. It’s what banks/lenders use to determine if you’ll qualify for a home loan. They’ll look to see if you were late on payments or have had other credit issues. Request your report for free to check for any issues, and get your free score at CreditKarma.com. The higher your score, the better your credit rating. A score of at least 640 will get you qualified for a conventional home loan with decent interest rates.

Debt to Income Ratio (DTI)

Lenders will look at your debt and compare it to your income, on a monthly basis. You can do a quick calculation: add up monthly debts (car loans payment, minimum credit card payment, student loans, etc) and divide that by your monthly paycheck before taxes and deductions. You want this number to be around 36%, topping out at  43% – that’s the magic number. These will just be estimates until you get pre-approved by a mortgage lender/bank – but hey, that’s what we’re here for, getting started!

Step 2 – Plan Your Budget

Budgets come in all shapes and sizes, unless of course, you don’t have one. 

Make a budget based on a mortgage payment, then give it a trial run.

A big first-time homebuyer pitfall is comparing your current rent to your future mortgage payment. That’s not a good way to think about buying a house and how much it’ll cost.

Instead, make a budget based on what you currently spend on your lifestyle, see where you can cut back and see how much you can dedicate to your mortgage. Remember, you’ll be getting equity (savings in your home) each month, so it’s better to think about how your home is like a savings account, not a rent check.

Make a first-pass at a budget and if your  mortgage payment is higher than your current rent/housing costs, do a trial run to see how this new lifestyle feels. Live as if you have to pay this new mortgage, see if you can do it comfortably, or if you need to cut back on some spending.

Determine your down payment

Will you still have a bit of a rainy day fund after you buy a house? It’s always a good idea to have some extra padding should a health or home emergency crop up. Or, if you just want to be able to take a vacation – you’re human after all.
And with Loftium, you only need 1% towards the down payment. If you’re in the Puget Sound area, don’t use your savings to buy a home. Use Loftium money instead! Keep your rainy day fund intact.

Step 3 – Determine your house criteria

If you use your hot-tub as a bathtub, that makes it practical, right?

Do you have any requirements for your house? 

Think about neighborhoods, style of house, number of bedrooms and bathrooms, and any other requirements you have. These may change as you search for homes, but having a rough idea will help to determine if the budget you set in the previous step matches reality. If not, adjusting your expectations (bye, bye rooftop hot-tub 😢) will make the home search more enjoyable – nobody likes to be disappointed.

You did it! You got started! 

Running through your finances, budget, and home criteria means you’re ready for pre-approval. Sign up on Loftium to start your application or chat with us if you have more questions!.

 

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