Shifting from being a renter to becoming a homeowner is equally daunting and exhilarating. The process is fraught with expenses and procedures that you would never encounter as a tenant, enough to make you reconsider entering the market if you aren’t prepared.
For first-time buyers in Oregon, Washington, and California, a competitive market only exacerbates these challenges. You often compete with seasoned buyers and investors to find a good deal on single-family homes or apartments.
This doesn’t mean the shift is impossible for West Coast buyers. Instead, it means to become a homeowner, having a first-time home buyer strategy is vital. You can create that strategy with these tips.
One Year Before Buying a Home
Yes, the process starts one year before making an offer on a home.
#1: Improve Your Credit Score
Lenders pay close attention to your credit score to determine your risk profile. Which in turn impacts how much they will lend you and at what interest rate.
Ideally, you want a near-perfect credit score, enabling you to acquire a better interest rate. If you have not considered your credit score until now, it could take you between six months to a year to improve it.
At the start of the year, request your credit report to ascertain where you need to improve. You should also:
Avoid Taking Out New Lines of Credit.
Even if you can afford more credit, taking out new lines of credit increases your debt-to-income ratio, making you a far riskier prospect.
Avoid Missing Any Payments or Paying Late.
Missing a payment or paying late decreases your credit score almost instantly but takes a while to revert to the score before the late or missed payment. For this year, ensure you always have a balance in your account to pay any unexpected amounts.
Stop Inquiring About New Lines of Credit
Even if you don’t take out credit, the act of inquiring about credit also appears on your credit report, giving lenders the impression you may be a risky buyer.
#2: Delay Making any Drastic Life Changes
Lenders also consider your lifestyle. They want to be sure you’ll be able to afford to pay your mortgage and aren’t a lifestyle risk. Therefore, they will have a keen eye on your employment history, bank statements for the last two years, and residence history.
#3: Save More Toward a Down Payment and Closing Costs
Ramp up your savings to ensure you aren’t caught off guard when you eventually initiate the process. Besides a downpayment, which can range from 3% using an FHA loan to 20% with a traditional mortgage, you also have to save on closing costs.
Six Months Before Buying a Home
As the date when you officially start your search starts approaches, you need to hone in on the type of home you’d like to purchase and the neighborhood you’re eyeing.
#4: Determine Your Budget
West Coast properties are notoriously expensive, so your budget should be based on where you think property prices may be in six months to a year.
In Washington state, expect to add 20 percent on current property prices.
In California, expect to add between 10 and 15 percent to current property prices. The same goes for Oregon.
This figure will help you get a true sense of the kind of home you can realistically afford.
Also, consider how much you can comfortably afford to pay on a mortgage each month. Keeping in mind property taxes, homeowner insurance, and HOA fees wouldn’t be part of the mortgage payment.
#5: Ascertain What You’re Looking For:
What would you like in terms of bedrooms, square footage, amenities, neighbors, and schools? List your negotiables and non-negotiables. Unlike a rental, you can’t move when your lease is over, so consider your lifestyle now and where you expect it to be in the next five years. Plan accordingly.
Yes, you can sell before five years are over, but any market appreciation you acquire on your home will go back into buying a new home.
#6: Assess Different Neighborhoods
Drive around the neighborhood at night, on weekends, and on holidays. Get out of the car to walk throughout the neighborhood. Repeat this process on different days and times to get a sense of the area.
Four Months Before You Buying a Home
You’re nearing the final stretch.
#7: Deposit Funds Into The Appropriate Account
If you intend to deposit your down payment into your checking or savings account, now would be the time to do that. Lenders look at your bank statements and transaction history from the two months before making your application, so you want to ensure that there aren’t any fluctuations in the income going into these accounts.
You also want the funds to be in your account for longer than 90 days before you make your application, as it shows lenders you’re sensible with your money.
Two Months Before
You’re on the final stretch.
#8: Begin Your Search for Lenders
You’ve already determined the kind of monthly repayments you can afford, so during this stage, you’re simply shopping around to see which lender is going to give you the most bang for your buck.
Consider the type of mortgage and the lender. Beyond finding the best rates, you also want a lender that will give you the best service.
#9:Get Pre Approval
After you’ve decided on a lender, get pre-approval. Pre Approval typically expires after 90 days and approves you for an amount you can access should your financial situation remain the same.
#10: Find Down Payment Assistance
The FHA has a comprehensive list of down payment grants, most are city-wide, but some can be countywide.
California has eight first-time home buyer grants, of which two are statewide.
Oregon has five programs.
First-time buyers in Seattle have access to the Office of Housing Down Payment assistance, the only one in the state.
#11: Work With A Real Estate Agent
Start your search for a real estate agent. You want someone you can trust with excellent communication skills to be helping you along this journey. You can have an informal interview with each of your top realtor choices before making your final selection. Once you have your final selection, share your list of negotiables and non-negotiables with them.
One Month Before
We’re getting down to the wire.
#12: Maintain Your Lifestyle and Financial Habits From the Past Year
Now is the time to maintain your finances and habits from the past year because if a seller accepts your offer, the lender will reassess your latest documents to determine if you still qualify for the preapproved amount.
#13: Be Ready to Make an Offer
West Coast buyers don’t have the luxury buyers in some states have. You need to be ready to make a reasonable offer on a home whenever one goes on the market, especially if you’re searching for a deal.
If you get to this point and a seller accepts your offer, all you have left to do is complete the closing process and move in. The complicated process is over. You can now focus on moving out of your rental and making your new purchase a home.