Buying a home isn’t a project you can undertake quickly, especially if you need a mortgage because you can’t pay with cash. The process takes planning and preparation — but how much planning is required?
Depending on your financial situation, it’s possible to buy a home in one or two years. Here’s how to prepare to buy a house in one year.
How To Buy a House in 1 Year
|Timeline||Homebuying Step||How To Prepare|
|Getting started||Check your credit score||Your credit score plays a big role in your ability to get a mortgage, as well as what interest rate you’ll pay. Borrowers with higher credit scores are considered more reliable and typically find it easier to qualify for a loan and get lower interest rates. A low credit score will make it more difficult to get a loan, and the interest rate on the loan likely will be higher.|
Check your credit score to make sure it’s free of errors and high enough for you to qualify for a loan. The minimum credit score required to get a mortgage varies by loan type and the lender you choose. If your score is lower than you’d like, you’ll need to focus on paying your bills and reducing your debt for some time to increase your credit score.
|Determine how much you can afford||You’ll need to know how much house you can afford. That includes the monthly payment on your mortgage, plus the ongoing expenses of homeowners insurance, property taxes, utilities, homeowners association dues, and maintenance.|
There also are upfront expenses to pay. Most loans require a down payment of at least 3%, and you’ll also need to pay closing costs, which range from 2% to 5% of the purchase price. The sooner you start saving, the sooner you can afford these upfront costs.
|Make a down payment plan||Creating a budget is one way to figure out how much you’ll be able to save over time for a down payment. As you build your savings, you’ll want to get the best returns on what you’ve already set aside. Consider placing the money in a high-yield savings account to achieve your goals sooner.|
|The first 3 months||Get familiar with the market||Take a look at where average mortgage interest rates stand because that will affect how much home you can afford. You’ll also want to know if you’re facing a buyer’s market or a seller’s market.|
|Find a real estate agent||Your real estate agent will be your key guide and teammate throughout the homebuying process. You’ll want to find a real estate agent who’s experienced and familiar with the area where you’re looking to buy. You can search online for agents or ask friends and family for referrals. Be sure to interview a few agents and choose the one you’re most comfortable working with.|
|List your wants and needs||Now it’s time to get realistic about what you need versus what you want in a home. If you have kids, you may require a certain number of bedrooms, no matter what. If you need a bigger home, then you could compromise on some of the perks that you want but can do without — like a fancy kitchen or a swimming pool.|
|Research neighborhoods||The neighborhood you buy in will affect your daily life and your future property value. Research neighborhoods to know how much homes have been selling for recently. Also look into school quality, tax rates, crime rates, local shopping areas, community resources, and how far you’ll be from work, family, and friends.|
|6 months in||Prepare documents||Your mortgage lender will review your finances to verify that you can afford to repay a loan, and you’ll be expected to document your income, assets, and debts. Preparing the necessary documents for getting a mortgage in advance can help expedite the underwriting process.|
You’ll likely be asked for:
— Recent pay stubs.
— Your two most-recent income tax returns.
— Statements for bank accounts, retirement accounts, investments, credit cards, and other loans.
— If necessary, any legal agreements detailing child support or alimony payments.
|Decide which type of mortgage you want||Different mortgage types have different eligibility requirements and features. Most mortgage lenders offer loans that take 30 years or 15 years to repay, as well as loans with a fixed interest rate or an adjustable interest rate.|
Popular types of mortgages include:
— Conventional loans. These loans give different loan limits and repayment options to borrowers with good credit. You’ll need a credit score of at least 620 and a minimum down payment of 3%.
— Federal Housing Administration loans. FHA loans help low- and moderate-income borrowers get a mortgage with a down payment as low as 3.5% or a credit score as low as 500.
— Veterans Affairs loans. VA loans are offered with no down payment to eligible military service members, veterans, and their surviving spouses.
— Department of Agriculture loans. USDA loans are offered with no down payment to low- and moderate-income borrowers buying rural homes.
|9 months in||Get preapproved for a loan||The next step is mortgage preapproval from a lender. Preapproval shows real estate agents and sellers that a lender expects you to qualify for a loan up to a certain amount. This amount is based on a cursory review of your finances and should not be confused with a guaranteed loan offer.|
It’s a good idea to apply with several mortgage lenders so that you can compare their offers and choose the best fit. Keep in mind that preapproval letters typically expire after 30 to 60 days.
|Shop for a home||The time has come to start house shopping. You can research listings yourself or with your real estate agent. Start scheduling tours and visiting open houses so you can compare different homes on the market.|
|The finish line||Make an offer (or a few)||Once you’ve found a home you’d like to buy, your real estate agent will help submit your offer. If it’s accepted, you’ll sign a purchase and sale agreement with the seller and put down any earnest money — also known as a good faith deposit.|
|Enter escrow||An escrow account will be opened to facilitate the transfer of funds. The escrow account protects both the buyer and the seller and makes sure that all fees and parties are paid promptly and in full according to the purchase and sale agreement.|
|Apply for a mortgage||It’s time to officially apply for a mortgage. Once you’ve applied, the lender will provide a loan estimate documenting all closing costs, conduct the underwriting process, and order an appraisal to determine the home’s fair market value. A title search also will be performed to detect any claims or liens against the property.|
|Get a home inspection||During the home inspection, a licensed third-party professional evaluates the condition of the home. Some buyers may waive this step, but it’s helpful to know everything you can about the property before you buy it.|
If you included an inspection contingency in the purchase and sale agreement and the home needs major repairs or is unsafe in some way, you can ask the seller to reduce the price or make repairs, or you can walk away from the deal.
|Do a final walk-through||The final walk-through is your last chance to inspect the home before closing on the deal. Make sure to examine each room and confirm that everything has remained in acceptable condition since the last time you saw the home. Confirm that the seller’s possessions have been removed and everything that’s supposed to come with the home is accounted for.|
|Close on the deal||On closing day, the deal is finalized and you become the new legal owner of the home. You’ll sign all the necessary paperwork, make your down payment, and pay closing costs. After that, the title will be transferred to your name and the home officially will belong to you.|
Here are answers to some frequently asked questions about how to buy a home in one year.