Buying a home is considered on of life's major accomplishments. For some, it's the first major investment and for others it's the first adult thing we've ever done. No matter what the motivation is for becoming a homeowner, it’s imperative to understand the home buying process. I've heard so many say that buying a home is overwhelming and intimidating. No fear...my guide to buying a home will help you cover all your bases.
Know Your Budget- There is nothing worse than finding the home of your dreams only to discover it is out of your budget. Talk about disappointment. Before starting your search, determine how much you can afford. There are several affordability calculators, such as the preceding link on Zillow, that gives you a great estimate of what you can afford. Your gross monthly income is the amount before taxes. Your debts should include all loans and credit cards, but not your household bills like utilities. As a general rule of thumb, your mortgage payment should bot exceed 28% of your monthly gross income. So if your gross income is $6000, your ideal mortgage payment is $1680.
Check Your Savings and Save More- It's best to have money saved to purchase a home. The amount required varies depending on your loan type, but it's safe to say that 3 months reserves is ideal. So for the example above, the saving balance should be no less than $5040. There are various loan products and grant programs so the money required to purchase could be substantially less than you expect.
Here are some rough estimates of down payment requirements for traditional loan programs: FHA LOANS- 3.5% of the purchase price
CONVENTIONAL LOANS- ranges from 3%-20% of the purchase price
VA LOANS- 0% of the purchase price
3. Know Your Credit Score and Improve if Needed- Your credit score will determine your loan type and interest rate. Having a great credit score will improve your chances for a lower interest rate and better loan product. You can get a free credit report each year to help you monitor your credit and learn more about your FICO score. Lenders use this score to determine your creditworthiness. The lower your score, the higher the interest rate. Your lender or real estate professional can assist in determining the best course of action if improvement is needed.
Now that we have our finances together, it's time to sit down with professionals to get the process started.
4. Research and Find Your Lender and Real Estate Professional- Well, you are halfway there because you already have ME as your trusted real estate professional. There are banks, credit unions and mortgage companies. So many choices and they offer different mortgage options. Do your research and interview them. Find out what special programs they may offer and most importantly, their hours. The last thing you want is to find a house and lose out because you can't reach your lender for a pre-approval letter. The pre-approval letter is key to moving forward with any offer. Most real estate agents will require you to be pre-approved as well. This is an important step for your buying a house checklist because it strengthens your offer to the seller by showing that the bank is willing to lend you the money.
5. Determine What's Important in Your Home- This is where the fun part starts. Get a pen and paper(or your cell phone to take notes) and write down everything that is important to your 'Must Haves" from your "Would Likes". When searching for a home, you typically find one that meets 80% of your entire list. Knowing what is most important will help filter those homes that don't meet your needs. Make a checklist with your Must Haves and Would Likes so you can determine which homes meet your needs.
So, we have navigated through the preparation phase of buying a home. Now that you understand the basics, you are in a fantastic position to determine your budget, assess your credit score, get pre-approved and start searching. The process of #buying a home may seem intimidating, but with this buying a house checklist in hand, you’ll be in control and be a homeowner in no time. Stay tuned for next week's blog to learn what happens when you find your dream home.