February 18, 2022
How to Prepare to Buy a House in One Year
When you begin thinking about buying a house, whether it's your first time or you’ve owned many homes in the past, there are several things to keep in mind, research, and prepare for. The more time you spend planning and researching, the easier the process will be for you in the long run.
This is a high-level overview of what you should expect and think about as you plan to buy a house within the next year.
- Get your credit in order and understand your financial readiness.
- Research different mortgage types and know your various options and rates.
- Apply for a mortgage and go over your loan estimate with your loan officer.
- Understand your housing needs and outline your priorities.
- Find a great real estate agent — they'll make the process easier and can save you time and money.
- Understand your home buying budget and total cost of homeownership.
- Get preapproved for a home loan from a reputable lender.
- Start your house search – make sure to stay within your budget.
- Make an offer and have your earnest money ready.
- Once your offer is accepted, order an appraisal and home inspection.
- Receive your closing disclosure and compare it to your loan estimate.
- The day of closing, you’ll sign paperwork and receive keys.
What Should My Credit Score Be to Buy a House?
The answer to that question depends on the type of loan you choose, your down payment amount, your income, and more. The short answer, however, is you should have the best credit score that you possibly can. The minimum score for most loans is 620. Reviewing your credit 12 months in advance can allow you time to improve your score if necessary.
Review your credit report with all three credit agencies to ensure all of the information they are reporting is correct. Reach out to them to fix any errors that may be on your record.
You can dispute inaccuracies online at the three bureaus.
In addition, try not to buy anything leading up to your home purchase. Even a credit check like car shopping or taking out a new credit card can reflect negatively on your credit report.
What Are the Different Mortgage Options Available?
Because everyone has different financial needs, lenders have developed several different types of mortgages to allow for more people to buy a house. Each loan type has down payment requirements.
- VA loans offer as little as $0 down with attractive rates if you are VA eligible.
- There are conventional loans (both fixed and adjustable) with down payments between 3 to 10% and up.
- FHA loans have a 3.5% down payment program.
- Jumbo loans normally require 20% down or more.
What Are Your Housing Needs and Priorities?
When it comes to buying a house — as with most things — you’ll have your needs and wants. Do you require three bedrooms due to the size of your family? Do you want an office because you work from home? Do you need to live close to transportation, family, friends, doctors, or entertainment?
You’ll want to consider many things as you think about your needs and begin to prioritize. These include:
- School rankings
- Pet-friendly neighborhoods
- Security and neighborhood safety
- HOA (homeowners associations)
- Swimming pools
- Travel time to and from work
- Noise in community — airports, traffic, trains
- Yard needs – especially for pets and entertaining
- Maintenance costs
- Fireplace for colder climates
- Open floor plans with a modern layout
How Do You Find a Great Realtor?
While it might seem helpful to hire a mutual or family friend to be your realtor, it may be more worth your while finding someone familiar with the area you are researching to live. These local experts understand the comp values — what other homes that are similar in value have sold for — the schools, and much more.
A great realtor can be worth thousands of dollars to you, whether you're buying or selling. Realtors do this for a living, and you should consider your interview with prospective realtors just like you’re interviewing them for a job. They are, in fact, doing just that to represent you and your housing needs.
Do You Understand Your Budget and the Total Cost of Homeownership?
You can work with your loan officer to find out what you may be preapproved for. First, your loan officer will look at your income and expenses. Then, they’ll do a deep dive to fully understand and document your income, expenses, and potential purchase amount you may be approved for. Along with filling out an application, you’ll be asked to supply documentation such as:
- Paystubs and W2s
- Taxes – especially if you’re self-employed
- Bank statements
- And more
While this isn't a guarantee that you'll be approved for a loan, it's a great first start. Once you receive a prequalification letter from your lender, you’ll be able to shows sellers you're a serious buyer.
You should be familiar with all of the additional costs that go into homeownership. For example, there are costs and fees involved with the closing of your home. These include closing costs and your down payment.
After you've closed and you’re a homeowner, you’ll have expenses like repairs, upgrades, and more.
Here's a short list of things you may want to consider when thinking of additional costs that come with owning a home. It's also smart to keep a cushion in your savings — just in case.
- Repairs on appliances, roofing, fencing, plumbing, and more
- Lawn care — whether you hire someone or do it yourself
- HOA fees
- Property taxes
- Water, gas, utilities
How Do You Get Started with Your Search?
Once you have a good understanding of your budget, needs, and what you can afford, you can enjoy the home search process. It can be frustrating at times finding the perfect home (especially in a seller’s market), but even the search process can provide a great learning experience. You'll see a lot of different houses in various areas and fine-tune your needs and priorities.
Getting to the point of finding your perfect home and placing an offer all starts with doing your homework in advance. If you've allowed for one year in advance, you will likely be very well prepared. The processes will go smoothly, and you’ll have enough time to fix any issues or roadblocks that can make the process more difficult.
To learn more about PenFed loans or what loan is right for you: