If you are starting from scratch, it can be particularly helpful to establish some guiding principles for your housing search. We’ve created a little exercise we call the “Home Buyer’s Mission Statement” to lead us through this initial phase. Once completed, you’ll have a short paragraph like the one below that will clearly state your intentions for yourself and anyone else you interact with in your home buying process.
“The home I am looking to buy must have the following characteristics (# of bedrooms, fenced backyard, urban setting, etc.). It would be nice if it also had (large covered porch, neighborhood pool, paved driveway, etc.) but these features are not essential. Based on my calculations, employment status, & current savings, I can afford to spend (total cost of the home) while putting (a percentage or dollar figure) down, for a monthly mortgage payment around (monthly mortgage budget).“
Follow Along with our Home Buying Mission Statement Worksheet. Click Here to Download!
Needs vs Wants
This is the fun part! From a young age, we dream about the home we’ll live in one day. Now you’re about to make at least some part of that dream a reality. So, what type of house are you looking for? A manicured subdivision with an active Homeowners Association? A fixer-upper that you can really make your own? A rural farmhouse with a wrap-around porch? It’s time to write down those needs & wants and decide which are truly non-negotiable versus the ones that would be nice if they’re available in your desired area and price range.
It’s worth pointing out that while a home is a big investment, you don’t need to go into this process looking for your “forever home”. Circumstances change all the time – a promotion at work, new relationships, growing families. We recommend trying to take into consideration how your needs may change over the next 3-5 years, but don’t stress out too much over how your first home will suit you a decade or more in the future. If it works out, great! And if you’re in the market for another home in a few years, just think how much more knowledgeable you’ll be about the process the second time around.
Here’s that first sentence in the Home Buyer’s Mission Statement again…
“The home I am looking to buy must have the following characteristics (# of bedrooms, fenced backyard, urban setting, etc.). It would be nice if it also had (large covered porch, neighborhood pool, paved driveway, etc.) but these features are not essential.“
Assessing Your Situation
Here are a few areas that we’ll need to take into consideration as we gather the information we need to finish our mission statement.
Work Matters
The details of your employment are key to your mortgage process. Answers to questions like how long have you been at your current job, how is your compensation structured (hourly vs salary; commission-based, contract, or self-employed, etc.) and are you eligible for overtime or bonuses, will be necessary to share with your lender when it’s time to apply for a mortgage.
Cash for Mortgage Costs (& A Savings Tip)
In addition to your salary, you’ll also want to take stock of any savings or other assets that you can put towards your home purchase. Are you expecting a large financial gift from a family member that will be a part of your commitment to your new property? Will you have cash available for a down payment and/or closing costs? As you might imagine, any savings you can bring to the process will be beneficial.
One of our mortgage specialists likes to share a budget-building savings tip that we find particularly clever. Say, for example, you are currently paying $800 a month in rent, but your “back of the napkin” math suggests that your new place will cost closer to $1200 monthly. If you open a separate account and put that additional $400 away, you’ll not only have additional cash to put towards your closing costs, but you’ll also demonstrate to a lender that you won’t be overwhelmed by the increased monthly payments. A win-win!
Your Credit Profile
We made it this far, but we can’t go any further without mentioning your credit. You’ll want to review your credit reports from any (or all) of the major credit reporting bureaus, which you can do for free via annualcreditreport.com. Once you’ve reviewed your report for accuracy, ask yourself – is your credit history aligned with the size of purchase you intend to make? Are there things you can do to improve credit score in the short-term to enhance your purchasing power?
Ultimately, lenders like to see continuity – an established career with reliable income, a pattern of savings, a strong credit report. All of these factors will be considered when the decision is made regarding your mortgage application. More on that later!
It’s time to plug all of the details we gather above into an online mortgage calculator to get the numbers that will fill-in the second line of our Home Buyer’s Mission Statement
“Based on my calculations, employment status, & current savings, I can afford to spend (total cost of the home) while putting (a percentage or dollar figure) down, for a monthly mortgage payment around (monthly mortgage budget).“
Once you fill-in these “blanks”, we’ll be ready to move on, knowing we took an important first step in our process before we even searched “homes for sale near me” on Google.
Your Home Buying Mission Statement
“The home I am looking to buy must have the following characteristics (# of bedrooms, fenced backyard, urban setting, etc.). It would be nice if it also had (large covered porch, neighborhood pool, paved driveway, etc.) but these features are not essential. Based on my calculations, employment status, & current savings, I can afford to spend (total cost of the home) while putting (a percentage or dollar figure) down, for a monthly mortgage payment around (monthly mortgage budget).“
How did it turn out? Hopefully, you have a better understanding of what you’re looking for and what you’ll be able to afford, and can now begin your search in earnest.
Be sure to make a copy of your Home Buyer’s Mission Statement (or print out your worksheet) and save it in your notes app on your phone or on your desktop at home. It’ll be a great reminder and guide to the beginning of your process and worth sharing with the members of your “team” as you go along. If you’d like to add Call Federal and our friendly, knowledgeable mortgage specialists to your team right from the start, give us a call at 804-274-1200. We’d be happy to guide you at every step along the way.