10 Things to Do If You Plan to Buy a House in 6 Months

Buying a home is an exciting venture, whether you're a first-time homebuyer or an experienced property owner. Besides being one of the largest financial transactions you'll make in your lifetime; there are many steps in the process. So, it's a smart idea to do your research and plan. In this article, we'll discuss how to prepare to buy a house. From reviewing and improving your credit to the cost of homeownership and more — we'll help you every step of the way to your new home.

1. Review Your Credit Score

With only six months before purchasing a home, it's essential to be familiar with your credit report. The difference between an excellent low-interest rate and a much higher one often lies in your credit score. By checking all three credit bureaus early, there's time to start making whatever changes are needed. And the good news is that you can get a free credit report each year.

2. Improve Your Credit Score

Let's begin with some basic information about credit scores. They can range from 300 to 850. For most mortgages, you'll need a score of at least 620. And, for some of the better rates, a score of 700 or more. Take a look at this chart and see where your score is currently:

With your credit report in hand, see where your score falls. If it's below 620, you have some work to do. But if it's above 620, consider applying for a mortgage right away. Here's why — when rates are low, it's better to get a loan as soon as possible. Otherwise, you could spend months working on perfecting your credit only to have rates rise.

If you need to increase your score, first make a list of any errors. Next, contact each credit bureau and request they fix the errors. Here are their addresses for easy reference. We've also included a link where you can dispute online.

TransUnion Consumer Solutions
P.O. Box 2000
Chester, PA 19016-2000
Online dispute

Equifax Information Services, LLC
P.O. Box 740256
Atlanta, GA30374-0256
Online dispute

Experian
P.O. Box 4500
Allen, TX 75013
Online dispute

Besides asking the bureaus to fix any errors, there are several significant things you can do:

Credit Do's

• Pay on time. Your payment history plays a large part in determining your score. Set up automatic payments a week before they’re due to ensure you're always on time.
• Reduce debts. It's best to use 1/3 or less of your available credit. So, pay anything down that you can.

Credit Don'ts

• Don't close accounts. Even if you pay your credit cards off, keep them open. Closing accounts can plummet your score.
• Don't open new accounts. Hold off getting any new credit or financing vehicles. New credit inquiries can drop your score. Plus, more debt means less money for a house payment.
• Don't finance new vehicles. More loans fall through because the borrower decides to buy a beautiful new truck or car. Now they can't afford a home.

3. Determine Your Housing Needs

Now it's time to dream and make a list of the features you'd love to have. Involve the entire family. Put these needs in order of importance.

• Bedrooms: How many bedrooms do you need?
• Bathrooms: How many bathrooms do you need?
• Floor plan: Are you looking for a specific type of floor plan?
  
  For example - make a note if you have your heart set on a modern/open plan. Or if you have teenagers - having bedrooms on the opposite ends of the house might be a necessity.
• Style: List your favorite home designs. Consider Craftsman, Victorian, modern, ranch, and Spanish.
• Kitchen: Many families consider the kitchen the most important room of the house. So, make sure you think about all your needs. These may include a stand-alone kitchen island, pantry, or granite countertops.
• Stories: Decide on how many stories you'd like. It will make house hunting easier. For example, if you're hoping to retire soon - a ranch-style may be better than a three-story Victorian.
• Garage: This is something often overlooked until you move in. If you love older homes, consider the fact that most of them have small garages. That means you will have to park your SUV in the driveway since it won't fit in a single low-ceiling garage. It might not matter to you, but it's good to consider.
• Driveway: Some parts of the country get lots of snow. If that's the case where you live, you might want to avoid a steep driveway. That's especially true if you have teenage drivers.
• Location: Consider everything from how close you are to work, schools, and shopping. And don't forget your church, friends, and family. Decide what's essential and what isn't.
• Neighborhood: The specific area you select will affect your enjoyment of your new home. For example, growing families will want to be around other families with children. Living in a dog-friendly neighborhood is also a big deal for animal lovers.
• Walkability: Do you want to live in a country with plenty of space? Or do you prefer a more metro area with high walkability, including local dining and shops?
• Amenities: Is a pool important? Or would you prefer a planned community that's amenity-rich?
• Yard: A yard may be on the top of your list or the bottom. It's good to consider that if having a yard isn't essential right now - it may be later.

You can also check out our beginner's checklistfor housing needs for an even more expansive list.

4. Research the Different Types of Mortgages

There are three main categories of mortgages: conforming, government-insured, and jumbo. Here are the basics:

conforming loans conform to specific guidelines. These guidelines include:

• The maximum loan amount for 2023 is $726,200 for a single-unit property and $1,089,300 in high-cost areas.
• The minimum credit score is 620.
• The minimum down payment is between 3-5%.
• You can buy a home, rental, or investment property with a conforming loan.

Government loans include VA loans, FHA loans, and USDA loans. Here are the basics:

• VA loans offer as little as 0% down, have excellent rates, and — lenders like PenFed —require a minimum credit score of only 620.
• FHA loans require 3.5% down and borrowers with less than stellar credit have an easier time getting an FHA loan. Keep in mind, not all lenders offer FHA loans.
• USDA loans are for rural properties. Keep in mind, not all lenders offer USDA loans.

Jumbo loans are for properties that exceed the conforming lending limits of $726,200 for a single-unit property and $1,089,300 in high-cost areas. Here are the basics:

• There are various requirements for jumbo loans, including a credit score of over 700.

The above loans are available in different terms, including:

• Fixed-rate loans of 10-, 15-, 20-, and 30-years
• Adjustable-rate loans where the payment is fixed for a certain number of years and then goes up or down after the initial period

PenFed specializes in conforming, VA, and jumbo loans. Because we focus on these three types of mortgages, our loan process is smoother, and our loan officers are more knowledgeable.

5. Understand the Cost of Homeownership

There are costs to owning a home. And if you are a first-time homebuyer, it's good to know what they are. Some fees cover the purchase, and others are for once you're a proud homeowner.

When you buy your house, you'll have some one-time expenses. These include:

• Down payment
• Closing costs
• Earnest money (small down payment with your offer)
• Appraisal
• Inspection fees

It's essential to start saving money right away. Once you have your home, you'll have ongoing costs. These include:

• Maintenance and repairs (HVAC, roof repair, tree trimming, and pest control)
• Homeowners insurance
• Property taxes
• HOA fees or condo/co-op fees

When you're renting, your landlord pays for the above. As a homeowner, it's good to have some money in savings for those unplanned emergencies.

6. Start Saving Money and Stop Shopping

This may sound obvious but starting to save immediately is some of the best advice you can get. Depending on the loan type, you may consider putting 20% down. Having a 20% down payment means you can avoid private mortgage insurance (PMI).

If you don't have 20% down, there are still mortgages you can get with only 3-5% down.

The other important thing to do is save your money. Don't buy anything before you close on your home. Avoid car shopping and don't apply for any new credit. Don't add to any existing balances leading up to a home purchase. Your goal is to reduce debt and keep your credit report clean.

7. Get Pre-Approved

As soon as you can, get pre-approved. It's helpful for you to know what you might be able to qualify for. Plus, many sellers require preapproval before they accept an offer.

It's important to know that a preapproval is not a guarantee that you will be approved for a mortgage. It is an initial review of your finances that shows what you should be able to afford. Once you find a home and put in an offer, you will receive a more solid approval.

8. Get Your Documents Together

Having all of your documents together and organized will help move your loan along much faster. Here are the main ones you need:

• Paystubs: Most recent 30 days
• Bank statements: Most recent 60 days
• W2: If you're employed, you'll need 1-2 years of your W2s
• Taxes: If you're self-employed, you'll need 1-2 years of your taxes
• Profit and loss: Only if you're self-employed
• ID: Current driver's license and Social Security card
• Certificate of Eligibility (COE): Only if you're getting a VA loan

As you move further along the mortgage process, you will most likely need to submit additional documents. So, be flexible. Your willingness to provide whatever the lender needs quickly is the best thing you can do.

9. Find a Great Real Estate Agent

Finding an exceptional real estate agent can save you time and money. It's essential to locate a professional who understands the market and the neighborhoods you're interested in. Their experience will save you time during your search. The right agent can likely save you money by steering you to better values.

10. Find Your Home and Make an Offer

Here's where the real estate agent can show more of their value. In addition to helping in your search, the right agent can guide you along. They can tell you how to make an offer, how much to offer, and where there might be negotiation room.

Buying a home is a journey. Whether this is your first purchase or if you've made several, it's always great to understand all of the steps and options to make your journey as smooth as possible. We hope you've found this information about how to prepare to buy a house helpful.

To learn more about PenFed mortgages:

• Call 800-970-7766
• Visit the Mortgage Center