Six to twelve months before
The house hunt starts with your credit report, not with listings. Pull all three reports, dispute errors, pay card balances down and open no new credit, since a modest difference in score can change your rate for thirty years. Save for three piles at once: the down payment, closing costs of 2 to 5 percent of the loan, and a reserve for moving and first-month repairs. Twenty percent down avoids private mortgage insurance but is not required. Conventional loans for first-time buyers start at 3 percent down and FHA loans at 3.5 percent, and most states run down payment assistance through a housing finance agency.
Preapproval and the search
A prequalification is a guess. A preapproval means a lender has pulled your credit and verified pay stubs, tax returns and bank statements, and sellers take offers seriously only with one. It is good for 60 to 90 days. Get loan estimates from at least three lenders, because credit scoring treats mortgage inquiries made within a couple of weeks as one. Set your own ceiling below the lender's.
From accepted offer to keys
The stretch from contract to closing usually runs 30 to 45 days.
- You deposit earnest money, commonly 1 to 3 percent of the price, which is held in escrow and applied at closing.
- You hire an inspector within the contingency period, often 7 to 10 days, and then negotiate repairs, take a credit or walk away.
- The lender orders an appraisal, and a low one means renegotiating the price or bringing more cash.
- Underwriting verifies everything again while the title company searches for liens, and you buy homeowners insurance.
- You receive the Closing Disclosure at least three business days before closing, and you compare it line by line with the loan estimate.
- You walk through the house within 24 hours of closing, then sign and wire the funds.
What derails a closing
Underwriters recheck your credit and employment days before closing. Changing jobs, financing a car or furniture, cosigning a loan or moving large unexplained sums between accounts can kill an approved loan. Wire fraud is the other danger, since criminals send convincing emails with altered wiring instructions. Confirm the instructions by calling the title company at a number you looked up yourself, never the one in the email.
Tip Budget 1 to 2 percent of the home's value each year for maintenance, and keep a few thousand dollars untouched at closing. The water heater does not know that you have just emptied your savings.
