What are the first steps to buying a house?
- Weigh your options. Determine if you’re ready to purchase a home. Compare renting vs. buying. Purchasing a home is a large financial comment and shouldn’t be taken lightly. You must be financially and mentally ready to move forward.
- Resale vs. New Construction. At the end of the day it all boils down to preference and affordability. A resale provides you with the charm of the previous owner(s); while a new construction gives you a blank canvas to create what you want. Both are great options but one can find itself with a hefty price ticket in the end. New construction is wonderful, but if you’re looking for all the bells and whistles it can get expensive pretty fast. Something else you should know; the lovely agent who takes your lot deposit represents the builder, NOT YOU. Regardless of the route you take, make sure you hire a Realtor.
- Start saving money for a downpayment. Although you may not have applied for a loan yet, once you’ve determined you’d like to purchase a home, it’s important to start saving. The amount you’ll need is based on your loan type and the sales price. The percentage typically ranges from 3.5% (FHA) to 20% (Conventional). There are some banks that will offer 100% financing, but there will always be some kind of out of pocket expense so be sure you have some cash stashed away. Start thinking about frivolous spending habits you can convert into savings. If in the end you don’t need the money to settle on your new home, you’ll at least have money for the earnest money deposit, inspection, and your welcome home mat!
- Get your finances in order. Are you paying your current bills on time? If you’re a renter, how has your rental history been over the years? What’s the condition of your credit? Have you checked your credit lately? Answering these questions will help you better prepare yourself when you’re ready to move forward with purchasing a home. During this discovery phase, make sure you order a free credit report. It’s important to know what a lender will see once you initiate the next step. Checking your credit will also provide you with the ability to dispute errors if needed.
- Research loan programs. You can always ask a lender about your mortgage options, but it’s wise to know a little about the different loan programs before engaging in the conversation. Having a general understanding of what it means to have a fixed vs. adjustable rate, FHA vs. USDA, jumbo vs. conforming, etc. can make the researching process a lot easier.
- Find a Lender. It’s important to shop around when finding a mortgage lender. Shopping for rates seem to be the top of the list but there are other items to consider including but not limited to: grants available in the area you’d like to move, potential amount of funds needed for closing, what fees can you expect by utilizing your services, will you be required to pay points, how long does it take the lending company to arrive at underwriting , etc. Once you’ve selected your lender, obtain a pre-approval letter to show the seller you have financial backing to support your offer.
Tips for finding the perfect home for you?
- Make sure you know how much you can afford. Imagine seeing a home with all the bells and whistles. You love it and want to buy it. You contact a lender and to your surprise, you’re approved for $100,000 less than what the house you love so much is listed for. From that point on, it’s been hard for you to find a house that meets your standards because you can’t get the house you love out of your mind. The same applies when you're approved for more but your shopping way below what you can afford. You’ll start thinking there’s nothing on the market because you’ve limited yourself to an amount when you qualify for more. Don’t do this to yourself. Knowing is half the battle.
- Begin the window shopping process. Conduct your own market research. Determine areas of interest. Start paying attention to listing and sales prices. Attend open houses. Think of your must have and nice to have list. Being a prepared buyer goes a long way and helps you and your agent find the home you want faster.
- Be realistic. It would be nice if we can always have everything we want but the reality is, it doesn’t always work out that way. You can build a house from the ground up and feel like you should have done something differently, like finish the basement or select hardwood floors instead of carpet. Don’t allow your want list to outprice your budget. Think of three things that are must haves and consider if the home has the potential to accommodate your “Nice to Have” list. This method of thinking allows you to put your stamp and sense of style into your new home without breaking the bank or missing out on a perfect opportunity.
Tips for getting to the closing table. How to get to the closing table?
- Do NOT open new lines of credit or close old lines of credit. Make sure you discuss any financial moves you’re planning to make with the lender. If the lender advises against it, DON’T DO IT. Keep your expenses as low as possible and your bank account in order. It may seem like a smart idea to purchase your new furniture to have it ready to deliver the day you move in, but a sudden change in your bank account or credit can keep you from signing your name on the dotted line and moving into your new home.
- Continue paying all bills on time. Protect your credit. Make sure all creditor are happy and payments are received on time for the amount requested. Failure to do so could impact your credit score; which could affect your interest rate or ability to obtain funding.
- Make sure you can explain all funds going into and coming out of your account. Don’t do anything out of the ordinary. The lending process can be a little intrusive. If a friend owes you money and decides to pay it back because they know you are purchasing a new home, talk to your lender about it before depositing the check. All funds must be accounted for. No drastic withdrawals or deposits until after you go to closing. When in doubt, ASK!