Buying a home is no simple task. It takes time to get ready to choose and apply for a mortgage, let alone to find a house that you want and can afford. While it can’t be done overnight, it’s definitely possible to buy a house in a year if you understand the process and take the time to get ready.
Here’s a road map for how to prepare to buy a house in one year:
- Getting Started
- The First 3 Months
- 6 Months In
- 9 Months In
- The Finish Line
- The Bottom Line on Preparing To Buy a House in a Year
When you’re trying to understand how to prepare to buy a house, the first step is to build a strong financial foundation. And you do that by improving your credit score, building your savings, and paying bills on time, says Glen S. Phillips, CEO and chief economic analyst for Lake Homes Realty in Birmingham, Alabama.
“The biggest mistake people make when preparing to buy a house is lack of financial discipline,” says Phillips. “People often improve their credit score, but can’t resist the ‘I want it now’ temptation. They then buy on credit, and fail to put aside enough money for buying a house.”
Calculate your credit score
Lenders use credit scores to decide everything from how much you can borrow to the interest rate on your loan. It also can affect how much you need for a down payment, and whether you need a co-borrower on the loan.
A high score will earn you better terms from your lender, while lower scores will make it more difficult to get a loan. If your score is on the lower end of the spectrum, you may want to look at government-backed loan programs offered by the Federal Housing Authority, Veterans Affairs, or U.S. Department of Agriculture.
When you check your credit score, look for and dispute any errors you may find. You also should try to pay down high balances, handle any accounts that may have gone to collections, and avoid applying for more credit-based accounts.
You will need cash on hand to buy a home. There is a down payment to make, closing costs to pay, repairs that may be needed, as well as the unexpected expenses that are part and parcel of owning a home.
- The down payment.
- Homeowners insurance.
- Property taxes.
- Unexpected repairs.
- General maintenance.
If your down payment is less than 20% of the sale price, your lender likely will require you to pay for private mortgage insurance. PMI protects your lender in case you default, and can cost hundreds of dollars per year. PMI payments typically end when your equity in the home passes 20%, or when you reach the midpoint of your amortization schedule.
The First 3 Months
So, it’s been decided: “I want to buy a house in a year.” Your finances are in good shape, and you have an idea of what you can realistically afford. It’s time to start searching.
Get familiar with the market
In a competitive housing market, it can be tempting to jump on a property that is otherwise a poor fit for you, overpriced — or both. Researching the market will help you better evaluate homes as they come up for sale.
The right real estate agent can be an invaluable asset. Find one who is familiar with the area where you’re looking to buy, who works with homes in your budget, and who feels like the right fit. You should interview a few candidates before choosing an agent.
Unless you have an unlimited budget, you simply can’t have it all. Spend some time thinking about what you need versus what you want in a home. For example, you may want a big island in the kitchen, but you need three bedrooms and a fenced backyard no matter what.
If you don’t have a specific neighborhood in mind, spend some time getting to know the area you’re eyeing. Talk to neighbors, friends, and your agent to find out about the local schools, property taxes, traffic, and community resources before deciding on a neighborhood.
It’s time to prepare to get a mortgage.
- Your two most recent income-tax returns.
- Recent pay stubs.
- Proof of identification.
- Statements for your bank accounts, retirements accounts, investments, credit cards, and other loans.
- A divorce agreement or decree specifying any alimony or child-support payments.
If you have other sources of income — from self-employment, a side hustle, or a rental property — expect your lender to ask for documents such as receipts, profit-and-loss statements, and lease agreements.
Know what type of mortgage is right for you
There are different types of mortgages to consider. The right one for you will depend on your income, credit score, the type of home you want to buy, your location, and even your occupation.
For example, eligible veterans and active military members can get a VA mortgage with no down payment, and borrowers who qualify for an FHA loan can make a 3.5% down payment — even with a lower credit score.
Compare your options to decide which mortgage type is right for you.
Get prequalified for a loan
Once you have a rough budget in mind, get prequalified for a mortgage, says Mayer Dallal, managing director at MBANC, a mortgage lender based in Manhattan Beach, California.
Pre-qualification means that a lender has taken a cursory look at your credit and finances, and tentatively is willing to offer you a home loan.
Pre-qualification will show agents and sellers you’re serious about buying a home, Dallal says. “If you find your dream home, you’re ready to pounce — and that’s important in the competitive market we have right now,” he says.
“Don’t just go to the first lender and accept the terms they give you,” Dallal says. “Get quotes from two or three, because what they offer can vary.”
Start shopping for a home
Your real estate agent can pull listings for homes that match your budget and needs. And as you tour properties, you can see what you like and what you don’t — and adjust your specifications and expectations accordingly.
The Finish Line
When you first started wondering how to buy a house in a year, this moment may have seemed like it was never going to arrive. Now, when you find a home you want to buy, you’re ready to make a deal.
Make an offer — or a few
To buy a home, you’ll need to put in an offer. This document outlines how much you are offering to pay for the property, and sets contingencies or conditions for the sale. If the seller accepts, you both will negotiate and sign a sales agreement based on the offer.
In a competitive market, you might not get the first home you make an offer on. According to the National Association of Realtors, the average home sold in 2021 received four offers, so expect to compete with other buyers.
Learn about the home inspection process
A home inspection usually is required by your lender, and can be valuable in telling you exactly what you’re buying.
The inspection evaluates the condition of the home’s major features, structures, systems, and appliances. The buyer typically pays for the inspection, and it may take a few weeks to complete.
If the inspection reveals major problems with the home, you may be able to renegotiate the price with the seller — or walk away if your sales agreement includes an inspection contingency.
Either way, you’ll have a much better idea of exactly what you’re buying.
Close the deal
After the sales agreement is signed, the closing process begins. It takes on average 49 days to complete, according to data from Ellie Mae.
Your mortgage lender will begin underwriting, which is the process where they verify your financial documentation and approve the final terms of your loan.
The lender likely will order an appraisal, to get an independent opinion on the home’s value, and a title search to ensure there are no other claims on the property.
Once the required inspections have taken place, the loan has been approved, and the title has been cleared, you can sign the paperwork that finalizes your status as a new homeowner.
Preparing to buy a home can be a lengthy process, from building a strong credit history to saving for a down payment over the years. Once you’ve made the decision to buy a house in a year, though, there are ways you can ensure the homebuying process is as smooth and successful as possible.