Currently, my husband and I are keeping our eyes and ears on the Austin real estate market. We are ready to purchase, but are also first time home buyers.
We have read those horror story headlines…”Young couple buys home with unescapable mold infestation”… “Newlyweds move into their new home and discover the real reason it was on the market”…”Couple discovers their dream home is haunted”
We don’t want to find ourselves in that kind of predicament; To buy a house with a mountain of BIG problems (or a ghostly one!)
We want a place that could use a bit of tender love and care and is reasonably priced, then turn it into our home.
So I’ve challenged myself to document my research into the real estate market and home improvement industry, to both track my efforts and share the knowledge I build.
Before we can even begin looking at homes and talking to realtors, we need to understand our budget though, right?
Let’s first answer the question – How do I get financing for my first home purchase?
All of our research will be related to the Austin market, but everything we find can be swapped out for your area!
How do I get financing for my first home purchase?
There are a few steps we can go through before settling on a home and mortgage lender. These steps will also give us time to freshen up on home-buying and the Austin marketplace knowledge. So it’s a win-win.
Decide Whether You’re Ready to Buy A Home
This is a critical question. Are we even ready to buy a home?
- Are we ready to fix the sink ourselves when the garbage disposal goes haywire?
- Are we ready to buy a new refrigerator when it just one day stops getting cold?
- Are we ready to spend our weekends fixing up the backyard instead of hanging out with friends?
- Are we ready to deal with unexpected, and sometimes unpredictable, challenges that come with home ownership without having a landlord to turn to?
Honestly, yes. HECK YES!
I’m ready for that challenge. I’m ready to learn those skills and become a little more well-rounded.
I’m ready for this.
But if you’re not, that’s ok too. At least you recognize it now, before you go any further down this rabbit hole.
Calculate How Much House You Can Afford
If you’re still reading and I am still writing, then we both are probably on the same page 😉
Let’s get a house!
Now we have to see how much house we qualify for.
This can be a very seamless and simple process for most people- most of the time.
Although, it wasn’t for me when I thought about purchasing a home last year. As a self employed/1099, I would have needed to produce 2 years of verifiable income. Income only from freelance work.
The problem was I only had 6 months of freelance experience. I had just jumped ship from corporate America and no mortgage lender would come near me with a six foot pole. (Now that I think about it, maybe it was COVID that kept them away?)
If you find yourself in a similar situation, there are things you can do to increase your level of trust with mortgage lenders. For instance, you could look into a No-Income Verification Mortgage.
I took a different route and asked my main client to take me on as a full blown W-2 employee.
It didn’t happen overnight, but it did happen. Now I’m on the other side of the mortgage lending experience, the seamless and simple side.
As a W-2 employee, a mortgage lender has confidence we can pay our bills. All they need as proof is a few recent pay stubs.
So let’s get to calculating what a mortgage lender would most likely lend to us.
I used the Texas Bank and Trust Mortgage Qualifier Calculator. You can use it here too: https://www.texasbankandtrust.com/calculator/mortgage-qualifier
Do a Quick Check of the Housing Market
Hopefully, that gave you some indication that you are on your way to owning one of the beautiful mansions at the edge of lake travis.
I, however, will be forced to start small. Alone, I really can’t afford much. Possibly a 500 square foot trainwreck?
Thankfully, I won’t be applying for the mortgage alone. With my husband and I partnering up, we can really increase our options.
Have you taken a look at the current market housing costs? Is the house you would buy within reach?
Yes? Time to save!
Save For A Down Payment And Closing Costs
First, take inventory.
What do we have in our savings and investments? What are our total available funds?
- How much are closing costs typically?
- How much should we also set aside for moving costs and renovations?
- How much should we hold onto for emergencies and other saving goals?
I’ve learned a good safety net is to have saved three to six months worth of expenses.
Now, take the inventory and subtract the plan. That is the maximum available cash available for closing.
Do we have a nice cushion left over to afford a $10,000-20,000k down payment or do we need to take some time and save?
It is standard to put a down payment of at least 3 percent of the home price, but many loan types and lenders require 5 percent down or more. Honestly, the more we can put down the more we will save over our lifetime.
The down payment affects the type of loan we can get, our interest rate, and our loan costs in general.
However, we could also consider a no-down-payment mortgage too. They do exist!
Check and strengthen your credit
The last item on our list of to do’s -before running over to the lenders- is to do a double take on our credit score.
Any lender will use our credit score and the information on our credit report to determine whether we qualify for a loan. It also affects the interest rate they will offer.
Our credit score indicates whether or not we are a risk, and how much of a risk we could be.
Personally, I don’t want to be seen as a risk so I typically pay close attention to my score.
We want to check our credit reports early on in the process to ensure there are no surprises or mistakes.
If there are mistakes, it may take some time to fix them up. I’m cringing just thinking about that process….
Hopefully we both find ours to have a beautiful and flawless credit report that is positively glowing. And mortgage lenders are begging to have us as their dutiful customer