Tips for Home Buyers - Getting Started
Buying a home is one of the biggest decisions you will make, and it can be especially daunting and intimidating when stepping into it for the first time. It’s easy for people to fall victim to the false impression that this type of purchase doesn’t differ much from say the act of buying a car or another high-priced item. However, this type of thinking can cause people to quickly become overwhelmed when reality sets in. Heading into 2019, the market continues to favor the seller mainly due to the low amount of inventory available for purchase. Historically the number of available homes drops even further during the winter months. Financial experts are also predicting the Fed will continue to raise interest rates. Certainly, these facts alone should cause potential buyers to bide their time, because after all patience is a virtue, right? The only problem is that soon dust can start accumulating and their dreams have the potential to become faded memories. The good news is that this doesn’t have to be the case. What follows are tips that will help you increase your odds of landing that dream home and establishing a solid foundation for your family.
In the age of credit cards and “buy now, worry about it later” consumer behavior, there can be a false assumption that home buying won’t be much different. This is far from reality however, so a great place to start is to create a budget and ensure your finances are in order. The last thing you want is to have a high interest rate on your home loan that includes a large monthly payment. Good credit is extremely important and will ensure lenders give you the best deal possible. For conventional loans they’d like to see a minimum score of 620, and for FHA loans it’s typically 580. Making on time payments for your bills and keeping the balances low will help you achieve this desired level. Pulling your credit report off of free sites like creditkarma.com should be a priority before you start searching for any homes. This will allow you to address any problems that are dragging down your score. In addition, having proof of a reliable source of income and a debt-to-income ratio below 50% will give you a greater chance of approval. Viewing your overall financial situation can help you assess what you can reasonably afford. This can open doors for you to save towards a down payment and closing costs.
People may tell you that putting 20% down is a pre-requisite to even get your foot in the door with a loan company. Although this will ensure a lower monthly payment and help you avoid mortgage insurance, the average family will have to save a very long time to even come close to that amount. Before you droop your head in defeat, know that there are other options available to you. FHA loans require only 3.5% down, conventional loans can be as low as 3%, and if you qualify for a VA or USDA loan that number could be 0%. Be aware you will need to provide two months of bank statements proving you’ve had the down payment funds in there for at least 60 days. Closing costs will need to be included in the amount you come up with, and these usually end up being about 2-5% of the value for your desired home. When determining the loan length, first time buyers are sometimes convinced they’ll live out the rest of their days in the residence and jump at the opportunity for a 30-year fixed rate. But if you’re purchasing a studio or smaller home, you might not even make it halfway to that period of time. If that’s the case, it may be smarter to settle for a shorter term. Another option is delayed financing, which has you paying cash up front, and acquiring a mortgage after closing on the property.
Although they sound similar, prequalification and preapproval are different. The first is basically a much less attractive version of the second. In a preapproval, your bank vouches for the amount you can afford to pay which makes this option much more appealing to sellers because you’re very likely to land that loan. The lender will be looking at your credit report and asking for financial documentation such as paystubs and recent W-2’s. As you would have done most of the paperwork up front, this process is also much faster than prequalification. Once you’re preapproved, it’s wise to avoid making sudden financial changes such as switching jobs. This will add unnecessary risk and increase the chance you’ll lose ground on all you’ve been working towards. Finally, ensure you have that coveted preapproval letter which will make the offer valid.
FINDING THE RIGHT AGENT
As our market currently favors the seller, it’s especially important to do your research when seeking an experienced realtor. These skilled negotiators will be able to level the playing field and counsel you every step of the way until the final purchase. Anxiety is a natural reaction when the overwhelming process of buying a home stares you in the face. The right realtor can significantly reduce your anxiety level as they help you overcome each hurdle with confidence. Similar to looking for a doctor, online reviews, word of mouth recommendations, and even in-person interviews are tools that should be used during the search for the right real estate agent. The investment you’ll be making with your time and money necessitates selecting an honest person who will help set reachable and attainable goals. He or she will be your advocate and should be trusted to always act in your best interest. You should also select someone who will tell you what you need to hear, not just what you want to hear.
Now that you’ve done the initial legwork, it’s time to search out the house of your dreams. Whether it’s checking out an open house, looking online, or using apps such as Redfin, this is the fun part of the whole deal. Take advantage of the fact that you have an expert on the local housing market, your real estate agent. Don’t negate their overall value to you by excluding them from this portion of your search. Start by viewing listings online, and write down any appealing aspects of the homes that stand out to you. Once you’ve acquired an extensive list it is worthwhile to rank the attributes in order of importance. During any future home visits you make with your agent this list will prevent impulse decisions and help keep you grounded. By checking online listings, you can get a bird’s-eye view of the market and narrow your focus to homes that fall within your price range. You can save money by only hopping in your car to check out those that are closest to the ideal fit. Another piece of advice is to pick your top three choices and devote the biggest portion of your time to them. This will help keep you balanced and prevent you from sacrificing characteristics that you value because you’re overrun by quantity instead of quality. Shortly after a favorable choice becomes available on the market, get to the showing quickly and make an offer right away if you love it. The market we’re presently in prevents leeway when it comes to negotiating. Lead with the best offer you can afford.
Don’t simply stop saving once you’ve accrued enough for the down payment. You should make a point to set aside what will amount to several months of mortgage payments and use this as an emergency fund. Besides being a physical reminder of your ability to make future regular payments, it will give you a cushion if unexpected surprises occur post purchase. Having this solid foundation will give you peace of mind as you start this new chapter in your life, that of a homeowner. Creating good financial habits such as this also sets you on the path for flexibility down the road for re-financing your loan for a better rate or getting rid of any mortgage insurance. In the short-term, sacrifices will have to be made to get to this level of savings, but the long-term benefits far outweigh any drawbacks.
Carlile Realty has an experienced team of realtors who would love to help you get into your perfect home. Contact us with any questions, and if you’ve found these tips helpful feel free to share them.