Why most first-time homebuyers aren't prepared?
A. Many first-time homebuyers are younger and less financially established, so they often don't see the need for a financial advisor. As a result, they may not receive guidance on how to prepare financially in advance, missing out on critical advice they could benefit from three or more years before their purchase.
B. The home buying and mortgage process isn't covered in school, and online resources are often designed to sell homes and mortgages rather than provide a comprehensive view on how to save money for consumers. Most professionals in this industry are salespeople, not financial experts, and their primary incentive is to get you to sign on the dotted line, rather than offering you the best financial advice.
C. Most young people don't know where they'll be or where they'll live in three years, making it seem impractical to plan for an event that might be far off. Typically, people only decide to buy a home after certain life events have aligned.
What should the timeline look like?
3 Years:
3 Years before you plan to purchase a home, we'll take a broad look into your finances and provide various recommendations based on your short and long-term financial goals. We'll also provide various Excel tools and other resources so you can start tracking and visualizing your financial picture. Here are some of the main questions topics we'll cover to set you on the right track.
Most efficient savings/investment vehicles for your initial down payment/closing costs.
Allocating investments into your retirement accounts at this age compared to brokerage accounts you can access before retirement.
Basic financial principles such as the time value of money, future and present value and compound interest.
Introduction of mortgage underwriting and qualification requirements such as debt-to-income ratios, front-end ratios and consumer debt ratios. Also, requirements for employment history and your qualifying income calculation.
Buy versus rent calculations
Creating an accurate cash flow statement to track and monitor both income and expenses.
How to build a strong credit history.
1 Year:
1 year from when you plan to purchase a home, we'll review your finances to determine your progress. We'll also discuss what your current qualifying credit score looks like and ways to improve it. Similarly, we'll identify certain debts you will want to start paying down in order to reduce your debt to income ratio. You'll want as much time as possible to strengthen your credit score since it's a key determinant for the interest rate you'll receive. We'll also update our approach as needed in terms of the funds you'll use for the down payment/closing costs.
6 Months:
At the 6 month mark, we'll complete your Mortgage Pre-Qualification to determine if you're ready to pursue buying a home. We'll also re-review your credit strength to make sure you're best prepared for the Pre-Approval/Final Application at the 3 month mark. Visit our Purchase Page HERE for all of the steps we'll perform as part of the Pre-Qualification.
3 Months:
After you've decided you're ready, we'll complete your Pre-Approval which gives you and your Realtor 90 days to secure the home. You'll be fully prepared and confident for the offers you submit on the home knowing it's within your budget and helps achieve your long-term financial goals. You'll also know you took all of the right steps required to obtain the lowest interest rate possible. Visit our Purchase Page HERE for all of the steps we'll perform as part of the Pre-Approval.
Conclusion:
If you don't plan ahead years in advance you're going to end up paying more in taxes (from not using the optimal savings vehicles), receive a higher interest rate (from not strategically building your credit score), pay more in mortgage insurance (from not saving enough on the down payment) and feel generally nervous/hesitant about your decision. Our goal is to end the notion that you only reach out to your Mortgage Broker once you start to look for homes. Purchasing your first home will be one of the most consequential financial decisions of your life, start planning for it now.
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