6 must-do’s before buying a home
1. High credit scores needed
The higher your credit score, the lower your monthly payments. Lender will typically seek a credit score no lower than 620. There are lenders that will accept a lower score but you will get a higher interest rate and the lender might require a higher down payment.
On the other end, a score of 700 to 720 will get you a good deal, and 750 and above will garner the best rates on the market.
Improve your chances by: pulling your credit reports and ensuring you’re not being unfairly penalized for old, paid or settled debts. Stop applying for new credit a year before you apply for financing.
2. Get a home that’s financially comfortable.
There are various rules of thumb that will help you get an idea of how much home you can afford. Ideally your home payment shouldn’t exceed 31 percent of your monthly income. But a lower percentage will leave room for life’s emergencies (or vacations).
Calculate your debt-to-income ratio
Try to pay off any financial obligation long before you sign the mortgage papers.
3. Save for your down payment and closing cost.
Depending on your credit and financing, you’ll typically need to save enough money for a down payment — somewhere between 3 percent and 20 percent of the home’s price.
One exception: Veterans Affairs loans, which require no down payment. For more on VA loans
It’s not just about the down payment. There are other fees involved: closing costs. Whatever your loan source, you’ll also need money to pay closing costs. For a $200,000 mortgage, closing costs run (depending on where you live) from $2,300 to $4,000. Ask your lender for a quote.
In a buyer’s market, you can also negotiate to have the seller pay a portion of the closing costs.
4. Build up your savings
Building your savings is something you should do over and above saving money for the down payment and closing. Your lender wants to see that you’re not living paycheck to paycheck. If you have three to five months’ worth of mortgage payments set aside, that makes you a much better loan candidate.
That money will also help cover maintenance and repair issues that come up when you own a home. While repairs are sporadic, items such as a new roof, water heater or other big-ticket items can be unexpected.
It’s a great idea to set aside money every month. Here are 100 great ways to save money
5. Get pre-approved for a mortgage
The first step in the home buying process is getting pre-approved for a loan; that is if you are not paying cash. Speak to your lender and establish a budget. The lender will be able to give you what’s called a good faith estimate. This a form will list basic information about the terms of a mortgage loan for which you’ve applied.
Before the real home shopping begins, you want to get financing in place. The pre-approval process is much more extensive than it was a few years ago.
6. Finding Your Perfect Home
If you’re buying today for yourself and your family, you want a home that will make you happy for the next few years. On average home owners stay in a property for 5 years before they consider moving.
- Using an automated e-mail system, I will send you details on all available properties that meets your criteria concerning location, size, number of bedrooms, number of bathrooms, and price range.
- At your convenience, we will schedule some time to view properties. Some buyers find their perfect home right away, while others take much longer.
- Once you find the perfect home, the first step is to write an offer. Based upon the seller’s asking price and my analysis of comparable sales, we will discuss the appropriate offer price and the seller’s likely response. I will walk you through every step of the paperwork, answering all of your questions.
- Next, we will engage in price negotiations with the seller. Depending upon your initial offer, any number of scenarios may take place:
- The seller may accept your first offer outright and you will proceed to open escrow.
- The seller may reject your offer outright.
- The seller may make a counteroffer. You then have the option of accepting the counter and moving on to open escrow; rejecting the counter outright, thereby ending negotiations; or making another counteroffer.
Once you and the seller reach an agreement on price and other terms, you sign the sales contract and move on to the next steps:
- Escrow opens. Escrow opens after you and the seller sign the sales contract. Escrow assures that the lender releases funds at about the same time the deed records, reflecting new ownership of the home. Escrow collects the deposit and shepherds buyer and seller through the paperwork involved in a purchase/sale, including documents related to contingency removals.
- The home inspection. A professional home inspection should be completed prior to closing. The inspector conducts a thorough survey of the structure and systems of the home, from foundation to roof. The inspector then prepares a detailed report describing the inspector’s findings and explaining the scope of any problems discovered. You then have an opportunity to request that the seller make necessary repairs or to request a credit against the sales price so that you can make the repairs yourself. Depending upon the scope of any problems discovered, you also have the right to cancel escrow. I have successfully assisted buyers through this process and will bring this experience to help you during your inspection process.
- The appraisal. Your lender will require that you obtain an appraisal of the home’s value. Lenders require an appraisal because they want to make sure that they are not lending more than the house is worth. The appraisal is also a useful tool to you as the buyer because it provides an objective analysis of the home’s value.
- Release of contingencies. The sales contract contains language referring to a variety of contingencies relating to financing, insurance, and home inspections. During the escrow process, there are various deadlines by which these contingencies must be released.
- Final documents. The paperwork generated just before closing includes the tax documents and the settlement statement (among others).
- Closing. Escrow closes when the escrow office records a new deed in your name, the seller gets paid, and all funds are disbursed
- CELEBRATE YOUR NEW HOME!!
Remember, I will be there working for you at every step of the process. I am always happy to answer any questions or address any concerns that you may have.