Whether you’re a seasoned homeowner or a first-time buyer, purchasing a home requires thorough preparation and planning. It’s essential to organize your finances and get clear(ish) about what you want before diving into the house-hunting process.

This groundwork ensures that when you’re ready to take the plunge, you can confidently proceed to make your dream home a reality.

It’s important to recognize that this initial stage of buying a home doesn’t happen overnight; if you have thoughts of making a move in the next year, start planning now! And if you are unsure whether a purchase is in your future or not, taking the following steps can help you make that decision.

STEP 1: PLAN YOUR FINANCES

Before you begin dreaming of white picket fences (or downtown high rises), you need a reality to anchor those dreams into. We do not want to begin this exciting journey with disappointment by finding out you can’t afford a home you have already fallen in love with.

Familiarize yourself with your mortgage options

You should be familiar with the various mortgage types that you may qualify for such as FHA, Conventional, USDA, VA, etc. They each have their unique advantages and disadvantages that may apply to your individual situation. You will also want to be familiar with whether the loan has a fixed or adjustable rate or requires private mortgage insurance (PMI)

If you already own a home, you may also be looking into bridge loan or HELOC options.

Feeling overwhelmed already? The best way to approach this step is to have a conversation with two or three local loan officers. They can narrow down your options based on your situation. I have worked with many and can recommend a few that have consistently impressed my past clients.

Do you qualify for buyer assistance programs?

If you need assistance to afford your own home, there may be a program for you. A great place to start is with the Tennessee Housing Development Agency (THDA) which has options for first time homebuyers, first responders, and even downpayment or closing cost assistance for current homeowners.

Determine your true affordability

It’s nice to know how large of a loan you qualify for, but it is more important to determine the maximum payment you actually feel comfortable with.

While a bank primarily considers your debt-to-income ratio when determining your loan approval amount, you will have more budget line items to consider such as childcare costs, a travel fund, investments, or saving for big ticket renovations.

I can help you determine the best price range to search within by working backward from your desired monthly payment.

Improve your credit score, if needed

Lenders rely on your FICO score to assess your borrowing risk, so maintaining a high score expands your loan options and can improve your rate.

While there are many factors that play into your score, the two most important elements are on-time bill payment and a low borrowed to credit limit ratio.

If you need a plan to reduce your debt, check out the Debt Avalanche method, one of the highest regarded debt reduction strategies. It can take 6 months or more to improve your credit score, so start today! And if you are applying for a loan as a couple, then BOTH of you will need a qualifying score.

Do you need a down payment?

Great news! You no longer need a 20% down payment to purchase your home. In fact, if you qualify for a VA or USDA loan or a home buyer assistance program, you may not need a downpayment at all.

Generally, prospective home buyers should budget for a minimum down payment of 3% for a conventional loan, 3.5% for a FHA loan with a minimum credit score of 580, or 10% for a FHA loan with a minimum credit score of 500. Your lender will help you calculate the amount that’s right for your individual situation.

That said, you will have a much easier time if you have more than the bare minimum. A higher down payment may improve your interest rate, eliminate PMI payments, encourage a smoother underwriting process, and potentially improve the desirability of an offer to purchase.

And remember! Affording a home isn’t only about the purchase price, but includes taxes, insurance, maintenance, repairs, and possible HOA fees. A lender wants to see that you have some cash reserves so they feel confident you can handle all financial aspects of home ownership.

STEP 2: PLAN YOUR HOME

Here comes the fun part! Dreaming about your new home and getting all those thoughts down on paper will help to guide your search and keep the number of options from being overwhelming (even in times of low home inventory, not having proper search parameters can result in too many choices!)

You are going to want to ask yourself the following questions:

What is your preferred timing? Do you want to be in a new home before the school year begins? Before the holidays? After you retire?

What do you need? Number of bedrooms? Primary bedroom on the main floor? Garage? These are your “must haves” and you should not waste time looking through homes without these features.

What do you want? Fenced in yard? Newer construction? Large windows? These are your “would like to haves” and can help narrow down your search if your list of needs still leaves you with too many options.

Where do you want to be? A walkable neighborhood? Short commute? Schools? Space from neighbors? Lets go beyond just “Farragut” or “South Knoxville” and really envision the type of community you want to spend your time in.

For a more comprehensive list of thought prompts, download my “Thoughts To Dwell On”.

STEP 3: TALK TO ME

The sooner we talk, the better, even if you aren’t planning a move until next year.

I will help you put the puzzle pieces into place and make a plan so that when you are ready, you’ll be READY!

If you already own a home and plan to sell, we will have a whole lot more to discuss! In the meantime, check out my free download, “How To Buy And Sell At The Same Time With Ease”.

As always, you can reach out to me at melissa@melissazittrealtor.com or request a phone call here.