1. Financially prepare

Credit/Debt

• Get a copy of your credit reports from a free resource such as https://www.annualcreditreport.com/.

• Review your credit reports for errors. Some examples are late payments that were actually on time or accounts you didn’t open. If you find an error, file a dispute with the mistaken credit bureau and notify the creditor. Be prepared to provide proof for the correction.

• Discover your credit score using a resource such as https://www.myfico.com/. They have free or paid options. Credit scores change as information changes. And credit scores vary depending on what you’re applying for so the mortgage company may use a slightly different number than you see but pulling your own credit score is still helpful to finding out an approximate number.

• Get acquainted with your credit score. If you have no credit history or your score is under 580, you might need s little extra time to make improvements. Step 3, “consult with a lender”, will shed more light on where you stand regarding applying for your mortgage right now.

• While you’re reviewing your credit reports, consider calculating your credit utilization. Mortgage lenders will factor credit utilization into your mortgage approval. This number is a percentage reflecting how much of your available credit is being used. Keeping your credit utilization below 30%, is a good target.

• Another number the mortgage lenders will focus on is your debt-to-income (DTI). This is key because it shows them what percentage of your monthly income is going toward paying debt. Keeping your DTI lower is helpful to your mortgage application, and below 36% can be a useful planning target—but mortgage requirements vary based on the loan program and your overall financial picture. So when you get to Step 3, “consult with a lender”, you’ll know more about how your DTI stacks up.

🥅 Goal: Don’t get overwhelmed with how the credit bureaus and credit scoring works. Your goal is simply to pay down debt if DTI and/or credit utilization are too high and to increase your credit score if it’s too low. This can take time but keep moving the needle and it’s how you eventually get approved for your first mortgage!

🛑 Pro Tip: Don’t close old accounts you’re not using. The available credit is helping your credit utilization. Unless no credit is your obstacle, don’t open new credit lines in an attempt to improve credit utilization. New accounts are not as helpful as an old credit line with available credit.

Savings

• Evaluate your savings. How much money do you have saved to afford a down payment + closing costs? You may opt for a no down payment program and qualify but most buyers will still need some funds for closing costs even if they do no down payment. In addition, mortgage companies will often require you to have extra savings/reserves for unexpected loss or reduction of income. Of course the more savings you have, the better, even if you won’t be using all of it for your home purchase.

• Make sure all of the funds you plan to use are in an account that is yours. If you’re going to be using funds from a family member and they don’t want to give the funds to you until closing, then you and the family member may have some extra steps to complete such as writing a gift letter and sending copies of the family member’s bank statements to the mortgage company.

🥅 Goal: How much money you need to have saved varies greatly depending on your purchase price and the type of mortgage. Step 3, speaking with a trusted lender, is going to shed light on the specific goal for you. Don’t be afraid to have this conversation. Most people are underprepared until they consult with a professional for clarity and guidance.

2. consult with a lender

You've become acquainted with your credit, debt, and savings. Now it's time to consult with a trusted lender. This step will help you transition from “I think I'm ready” to “Here's what I can realistically do right now”.

• Create a list of 3 or more lenders you’d like to consider. You could use recommendations from friends/family, authentic online reviews, and lenders you may have already connected with. Here’s my short list of trusted local lenders to get you started.

• Reach out to your list and let them know you are in the initial steps of buying your first home and you’d like to see if you are mortgage-ready and what your mortgage options are. Be prepared to answer lots of questions about your finances and complete their mortgage application. The more information they have from you, the better their answers will be. Use the button at the end of this section to access a good list of questions to ask.

• These lender conversations will not only answer questions about whether you’re mortgage-ready, how much money you’ll need for down payment and closing costs, and what kind of budget you’re looking at, it is also your opportunity to discover which lender you like and trust the most. This means taking note of the way they communicate, their availability, and generally if they seem like a good fit for you.

• If it turns out you are indeed mortgage-ready, this step will result in a mortgage pre-approval! It’s not a guarantee you will get the loan but it means the lender did a thorough review of your financial information and determined that you're likely to qualify for a mortgage up to the amount specified on the lender’s pre-approval letter. Now you’re safe to begin house-hunting within the budget you and your lender discussed.

🛑 Pro Tip: Don't choose a lender based solely on the lowest rate someone quotes you. A slightly different rate can be outweighed by fees, loan terms, service, or whether the lender actually understands your situation.

3. Find a Birmingham Realtor

When done right, finding the best Birmingham agent for you will make the next steps more successful and just plain easier. Experience and good fit go hand-in-hand when choosing your own buyer’s agent.

View the message below to learn what a buyer’s agent is and what they may do for a Birmingham homebuyer

🏆 Pro Tip: Always have a buyer’s agent when purchasing in Alabama. Factor in experience and authentic client reviews in addition to how much you like a potential agent.

4. House Hunting

• Now the fun begins! Make a list of your must-haves and nice-to-haves before you start house hunting. Share these with your buyer’s agent. The list may naturally change while touring homes but this is your starting list.

• Your Birmingham real estate agent will search for homes that fit your budget and list. Most buyers will search on their own as well and ask their agent about listings that caught their interest. Your agent will schedule showings and meet you to check out each home.

• Use the button at the end of this section for showing tips & etiquette.

🏘️ House hunting in Birmingham can take anywhere from days to months. And the main factor can often be the size of your search area with larger searches leading to a quicker match.

5. Make a Smart Offer

Once you find a good match, your experienced Birmingham agent will help you craft a smart offer based on your needs and current market trends. With professional guidance, you will make the decisions and your buyer’s agent will handle the paperwork and communication.

• Consider consulting with your lender again about a specific offer scenario.

• Your agent can help you understand recent comparable sales, current competition, days on market, seller circumstances when known, and how your offer fits the market.

• Look at the whole offer. Price is only one piece. Closing date, contingencies, earnest money, due diligence/inspection terms, seller concessions, and financing can all affect how strong an offer really is.

• Be as available as possible for updates from your agent because negotiations can be time sensitive.

💬 This is the part where negotiation takes place. If you’re ever unsure about a decision, return to your must haves list and revisit your motivation for buying. This will help guide you.

6. earnest money & Due Diligence

The inspection timeframe is your opportunity to understand the property’s condition. You’ll want to hire a reputable Birmingham home inspector to perform your home inspection. After you receive your home inspection results, you may choose to ask the seller to make some repairs or provide funds for you to do the repairs after closing. Your agent will handle these requests and negotiating.

Earnest Money

• The earnest money amount and how it is handled is negotiated in your offer.

• In most cases, you’ll pay the earnest money amount with a check, money order, or electronically - no cash.

• Be sure to use your own bank account to pay the earnest money. Your lender will need to see that it was paid with your own funds and from an account they already know about. If you’re unsure, consult with your lender about what account to use.

• There is almost always a tight deadline to have earnest money paid. Often it is 3 days from when you and the seller signed off on the contract.

• Your Realtor will provide you with instructions for how to pay the earnest money.

• The earnest money is typically held in an escrow account by a real estate brokerage involved in the sale or the selected closing attorney — not given directly to the seller.

• In most cases if you close on the home, the earnest money is credited toward your closing costs & down payment.

• What happens to the earnest money if the contract falls through depends on the terms of your contract.

Due Diligence

• During the due diligence phase, you have various deadlines to complete your inspection or inspections. The deadlines are determined by your purchase contract and your Realtor will help you know and meet those deadlines.

• Here are a few inspections or tasks you may choose to complete during your due diligence period:

  • general home inspection - here’s a short list of Birmingham home inspectors

  • septic or sewer inspection

  • get homeowner’s insurance quotes

  • look into the homeowner’s association (HOA)

  • wood infestation report/termite inspection

  • swimming pool inspection

  • fireplace inspection

  • verify school district & bus route

  • look into utility providers

  • ask the seller questions that pop up & review the seller’s answers/disclosures

🔍 Your home inspector will usually e-mail you a report after they’re done with explanations and photos. But try to attend the general home inspection in person so that you can meet your hired inspector, see issues in person, and easily ask questions.

6. appraisal & financing approval

After you’re satisfied with your due diligence, your lender and Realtor are still working behind the scenes to get you to a successful closing.

Appraisal

• Your lender will typically order an appraisal be done to help determine whether the home’s value supports the amount being borrowed.

• You won’t choose the appraiser and neither will the seller. Your lender will choose an appraisal company they’ve already approved.

• The appraiser usually visits the house in person to evaluate the property and researches comparable sales and other factors that affect value.

• After the appraiser has completed the appraisal report, they send it to your lender. Then your lender will review it before sharing a copy with you.

• The seller may be curious what the appraisal says but they don’t receive a copy of the appraisal unless you choose to share it with them.

• If there is a problem with your appraisal such as value issues or a required repair, your Realtor and lender can help you understand your options.

Financing Approval

• Your lender will need the appraisal report and any other conditions the underwriters require in order to finalize your mortgage approval.

• The lender may require you to send additional documents. This can happen throughout the process.

• Although you were already pre-approved before you made an offer, now you are in the final stage to be fully approved. There’s not much for you to do here except wait and respond to requests from your lender.

📁 When your financing is 100% approved, your Birmingham lender will let you know that you’re “Clear To Close”!

7. close & receive keys

• Before closing, you’ll meet your Realtor for a final walk-through of the home. Final walk-through is usually the day of or day before closing but the timing can vary.

• Right before the closing date, your lender will review with you the final amount for the closing costs + down payment so that you can wire your funds to the closing attorney’s office or get a check/money order to pay what you owe.

• The actual closing will be a meeting held at a local office. This part involves signing oodles of paperwork to officially become the new homeowner.

• In some cases, you’ll receive keys at the closing after paperwork is signed. In other cases, you’ll receive keys at a later date after the seller has moved out of the home. This depends on the details of your contract.

• Right before or after you get possession of the home is a good time to set-up your utilities.

• Don’t forget to CELEBRATE!🎉