Buying a home is an expensive proposition. Using a Federal Housing Administration loan with the minimum down payment of 3.5%, you’d need $15,000 upfront — plus 2% to 5% of the purchase price for closing costs — to buy a single-family home for the national median sales price of $436,000.
Most aspiring homebuyers need a year or longer to save up that kind of cash and be ready to apply for a loan, but it’s possible to buy a home sooner if you have the resources to move more quickly.
Here’s how you can be ready to buy a house in six months.
- Preparing to buy a house in just six months will be difficult, but it can be done if you have sufficient resources.
- You should start saving and considering your budget as soon as possible.
- Also begin working with a real estate agent and lender ASAP, so you can be ready to make an offer when you find a house you want to buy.
Is It Possible To Be Ready To Buy a House in 6 Months?
If you’re starting with no preparation or planning, getting ready to buy a home in just six months will be difficult — especially for first-time homebuyers — but not impossible. You’ll need cash in hand and to be in an overall solid financial position to buy a home in six months.
If you’re starting the process with little or no savings, or poor credit, you likely will need more than six months to prepare to buy a house.
6 Months Out
Even if your savings are robust and you have good credit habits, there’s still a process to follow when buying a home. Here’s how to get started.
Check your credit score
Your credit score is a three-digit number that lenders use to get an idea of how creditworthy you are. Credit scores range from 300 to 850. The higher your score, the better your credit. While it’s possible to get an FHA loan with a credit score as low as 500, you’ll want a credit score of at least 740 to secure the best interest rates.
Your credit score depends on five factors:
- Your payment history.
- Your total debt.
- Your credit card balances compared to their limits, also known as your credit utilization ratio.
- Recent credit applications.
- The mix of credit accounts.
The bad news is that six months isn’t much time to improve your payment history, which is the most important factor in your credit score. But the good news is that your total debt and credit utilization ratio can be changed quickly. If you pay down your existing debts, your credit score will increase.
You also should avoid applying for new loans or credit cards, as each application will require a credit check that will temporarily reduce your credit score — even if you ultimately don’t accept the loan or use the credit.
Check your savings
In addition to making a down payment, you need to pay closing costs, moving expenses, and other costs when buying a home. To buy a home in six months, you should be close to having enough savings to cover those expenses.
Many documents are needed for a home loan, so it’s a good idea to start getting those together. If you have the paperwork ready when your lender asks for it, you’ll save a lot of time during the process.
Try to gather the following financial documents:
- W-2 forms and income tax returns from the past two years.
- Recent pay stubs.
- Bank statements.
- Investment account statements.
- Down payment gift letters, if any.
- Proof of income from any rental properties.
5 Months Out
Now that you have a stronger sense of your financial position, start thinking about how much house you can afford.
“Take into consideration the costs of owning a home such as mortgage payments, taxes, insurance, maintenance, and repairs,” says Jason Skinrood, a loan officer with Supreme Lending in Cottonwood Heights, Utah. “Make sure to factor in your current monthly expenses such as existing debt payments or child care costs. Once you have an understanding of your budget, consult with a lender to determine how much you can comfortably afford. They will be able to provide advice on the types of mortgages available to you and a range of loan amounts.”
Of course, you need to consider the monthly cost of the mortgage and make sure that a new loan fits into your budget. Your debt-to-income ratio is a key factor here. To calculate your DTI ratio, add up your monthly debt payments, divide by your gross monthly income, and multiply by 100 to get the percentage.
After including your potential mortgage payment, you should ideally have a DTI ratio of 36% or less. Most lenders have a limit of about 43%.
The down payment on a home is the amount you pay upfront. Rather than borrowing the full price of the home, you borrow a percentage of the home’s price and pay cash for the remaining portion.
How much down payment you need to buy a home varies. Though there are some types of mortgage loans that require no down payment, these typically are loans backed by government agencies such as Veterans Affairs and the Department of Agriculture that are for specific types of borrowers and properties. Most borrowers need a down payment to get a mortgage.
For most people, the lowest down payment option is an FHA loan, which requires a 3.5% minimum down payment. That means if you want to buy a $400,000 home, you’d need to put down at least $14,000.
Some loan programs have higher down payment requirements, which can benefit you in some ways. For example, a larger down payment means you’ll need to borrow less money, which leads to a lower monthly payment. A large enough down payment can also help you avoid paying for private mortgage insurance.
Closing costs refer to a variety of fees and other charges that you pay when closing on a mortgage and transferring ownership of a home. These costs must be paid in addition to the down payment.
Some examples of closing costs include:
Closing costs typically total between 2% and 5% of the loan amount. That means if you’re buying a $400,000 home with a 3.5% down payment, you’ll need $14,000 for the down payment plus another $12,000 to $24,000 for closing costs.
Owning a home means dealing with all the costs of homeownership. You need to make sure you’re ready for additional costs, such as:
- Moving expenses. Whether you hire professionals or rent a truck to do it yourself, moving costs money.
- Homeowners association fees. If you buy a home with an HOA, you’ll have to pay monthly dues.
- Property taxes. You’ll owe property taxes to your local government. These payments may be part of your mortgage payment or separate, so make sure you check with your lender.
- Homeowners insurance. Lenders typically require homeowners to maintain an insurance policy on their home.
- Maintenance. Homes need consistent upkeep and maintenance. A rule of thumb is to budget 1% to 2% of the home’s value each year for maintenance and repairs.
4 Months Out
With a better understanding of what you can afford, it’s time to start looking for a home that fits your needs.
Research the housing market
Start by looking in the area where you want to buy a home. Look at different neighborhoods to see which are more expensive and which are cheaper. Can you identify the places that are in great demand and commanding high prices? Are there any spots that look like they’re up and coming and will be desirable in a few years, but have low prices today?
Also, get a sense of whether it’s a buyer’s market or a seller’s market. Are homes moving fast or sitting on the market? A slower market is good news for buyers because it means you may have more room to negotiate.
Shop for mortgages
Compare fees and interest rates, as well as different mortgage types, such as fixed-rate vs. adjustable-rate mortgages, or 15-year vs. 30-year loan terms. One key figure to compare is the annual percentage rate, or APR, which includes all costs and fees associated with the loan.
3 Months Out
As you hit the halfway mark, it’s time to get even more serious about the process of buying a home.
Get mortgage preapproval
Mortgage preapproval means giving the lender your financial information so it can estimate how much you’ll be able to borrow and important terms of your loan, such as the interest rate. This will give you a solid idea of how much house you can afford, and show agents and sellers that you’re ready to buy a house.
Find a real estate agent
A great way to find an agent is through your friends and family. If someone you know has bought or sold a home recently, ask for a referral.
“The No. 1 way to find a good agent is through asking your friends and family,” says Daniel Pitner, a Realtor with Realty One Group in Glendale, Arizona. “It is no secret that the best agents rely solely on word-of-mouth marketing. If the agent is top-tier, their name and services will spread like wildfire organically.”
Shop for homes
With an agent by your side and preapproval in hand, you’re ready to start looking at homes. Work with your agent to attend as many open houses and showings as possible.
A house tour gives you a chance to find a home that you’re interested in buying. It’s also a good way to learn about the things you find appealing in a home, and to narrow down your list of must-haves and nice-to-haves.
The Finish Line
Once you’ve found a home you want to buy, you’re ready to move on to the final steps of the process.
Make an offer
Work with your agent to make an offer on the home. Depending on the market, you might make an offer over asking, or try to make a lower offer and leave room to negotiate. Your agent can guide you.
Don’t forget to include any contingencies that you want in the offer, such as a financing contingency.
Sign a purchase and sale agreement
If the seller accepts your offer, it’s time to sign a purchase and sale agreement. This document outlines how the rest of the transaction will work, including dollar amounts, key dates, and contingencies.
It’s important to review this document carefully to make sure it contains all the contingencies and information you want in it. Having a lawyer draw up the agreement or review it is a good idea.
Apply for a loan
Even after getting preapproved, you still need to complete a final mortgage application. This is where gathering your documents in advance pays off.
Provide your lender with any new documents it requests, and wait as the lender handles underwriting. You’ll receive a loan estimate with details about your mortgage, such as the monthly payment, fees, and interest rate.
Appraise and inspect the home
Your lender almost always will require a home appraisal to be sure the property is worth enough to justify your loan amount.
Getting an inspection also is a good idea. During the home inspection, a professional will examine the condition of the home and report on any potential functional or safety problems that may need repairs. This can uncover costly problems before you close on the purchase.
If you have contingencies in your offer and a problem comes up during the inspection, you can back out of buying the house if the seller won’t agree to make repairs or adjust the price before closing.
Close on the home
Closing means making the down payment, paying closing costs, and signing all the paperwork that officially completes the home purchase.
At least three days prior to the scheduled closing date, you’ll get a five-page form from your lender called the closing disclosure. It outlines the interest rates, fees, monthly payments, and other details of your loan. It’s basically a summary of the loan you’re agreeing to.
Once you finish signing the paperwork, you’ll get the keys and officially own the home.
FAQ: How To Prepare To Buy a House in 6 Months
Here are answers to some frequently asked questions about buying a home in six months.
This depends on many factors, but a key one is how competitive your market is. In a hot market, it may take three to six months or longer to make a successful offer. In a buyer’s market, it can take less time.
How quickly you can save for a home depends on how much you need and how much you make. Between the down payment and closing costs, try to have a minimum of 10% of the home’s value saved to give yourself some wiggle room.
It depends on the lender, but it’s common for preapproval to expire after 60 to 90 days.
The Bottom Line on Preparing To Buy a House in 6 Months
Buying a house is a long process that can be difficult to complete in just six months. Using these steps to guide you will help set you up for success. At each point in the process, don’t forget to shop around to find the right agent, the cheapest loan, and the right home for you.