In an ultra-competitive housing market, being prepared, educated and having the right team around you is going to be key for any homebuyer, especially those entering the market for the first time.
From meeting with a lender as early as possible to educating yourself on all the factors that come into play when buying a home, there are several steps to take before finding a dream home.
It may seem daunting, but if you start these crucial steps early in the process, you can reduce stress and increase your chances of success when buying your home.
Start Saving and Budgeting Early
Something that should start well before you begin to see homes is budgeting and saving for your down payment or future monthly payments.
A recent TD Bank First-Time Homebuyer Pulse discovered that less than half of first-time homebuyers (48%) have started saving for a down payment and more than half (54%) have not yet established a budget for their new home.
Even if you plan to put a nominal amount down on your home, it's imperative to have your monthly payments budgeted. You'll want to consider not only your mortgage, but maintenance and renovations, HOA fees, utilities and insurance.
It's key to factor in these costs and make sure you can afford them, while also having a low debt to income ratio.
"A budget will help guide the homebuyer in the process and give their realtor a price range on what kinds of homes their client should see," said Steve Kaminski, Head of U.S. Residential Lending at TD Bank. "The market continues to be competitive this spring with a lower inventory of homes. Combined with higher rates and elevated prices, many buyers are after the more affordable options. It's important to know early what you can and can't afford, so you can refine your search and be prepared to make an offer that you feel good about."
Kaminski added that budgeting will not only keep the buyers honest about what they can afford, but keep their realtors focused as well, steering them away from showing their clients potential "dream homes" that may be out of their price range.
Get Your Paperwork in Order
Once you've looked at your budget and know what you can afford, it's important to get your paperwork together early. It may sound simple, but it may be more involved than you think.
“It's undoubtedly a seller's market, where they're often entertaining multiple offers, so the most prepared buyers – those who have their paperwork in order and can enter a contract with ease – are most attractive to sellers," said Kaminski.
From knowing your credit history and score, gathering W-2s and pay stubs to investments, bank account statements and debt documents, it's crucial to get a holistic sense of your financial health.
Accessing them early allows you to be nimbler when applying for a mortgage, speeding up the process, which is also key in a competitive market.
It doesn't hurt to be overly prepared, gather any and everything that might factor in like car and even credit card payments. That will make the next step that much more efficient.
Meet with a Lender Early in the Process
Kaminski says that once you have your budget and paperwork in order, it's time to meet with a lender, sooner rather than later.
"Lenders can help first-time buyers find out how much they can afford, what mortgage options exist and level-set before they begin their search," he added.
Even if you're missing some paperwork and don't have your budget complete, a lender can help you finish those crucial items by answering any lingering questions you have about what items factor into either of those lists.
Increased education from lenders about first-time homebuyer programs could also ease the burden for borrowers. Certain programs and products may not be known, rightfully so, to those who don't have vast experience in the housing market. Meeting with a lender, who will learn your long-term goals of homeownership, could open the door for a mortgage you didn't know existed.
In fact, in the First-Time Homebuyer Pulse, only 22% of respondents looking to buy their first home had already spoken with a lender. That's almost 80% of respondents who didn't have this crucial resource in their corner early on.
Knowledge is Power
Understanding what you need to know better positions you to work with realtors and lenders during the process.
Know the basic laws and processes for your county or state and know the fundamental steps to buying your first home.
Now, this doesn't mean you have to go and become a realtor or a lender.
It simply means use the resources that are out there to give you a sense of the market, the buying process and more. This is quite possibly the biggest purchase in your life, so be prepared.
TD has a slew of valuable, free and easy to understand resources at your disposal.
A 25-page, First-Time Homebuyer Kit is a great place to start.
From breaking down condos, townhouses and fixer-uppers to detailing everything that should go into a proper offer on a home, this kit has it all.
There's also a resource center that compares all the types of loans that are available through a bank like TD. From mortgages that are 30-year fixed rates to those that are 3% and 3.5% down, the Affordable Home Loans Options page is another great place to read up on current options.
If you're looking for a page that's comprehensive, yet full of quick tips, TD's Steps to Buying Your First Home is for you.
This page helps you break down expenses, calculate mortgage rates and even talks about sometimes challenging processes like getting that home inspection before you close.
No matter where you turn for resources, the important thing is to seek them out, utilize them and don't count yourself out before you even enter the market. First-time and repeat buyers alike can succeed in this competitive market. Just remember – preparation is the key.