Preparing To Buy A Home
You’ve made the decision, you want to buy a home. So what’s next? What do you need to do NOW to make your home buying process a smooth one? How does planning ahead effect your future costs? What can you do today to get started? If you are wanting to buy a home in 2018, here’s what you should be doing right now to help get you into a new home this year.
Credit Scores
Ugh, who wants to hear about credit?! Well, if you are serious about buying a home, you need to be serious about where your credit score is.
In reality, a credit score is just a number that says how good you are at paying back your debt. Pay your bills on time every time and you probably have a pretty solid credit score to work with. Miss some payments or allow an account to go into collections? Now when you need the biggest credit line of your life, you might be feeling that pinch…
In short, the higher your credit score, the better the interest rate you can qualify for. So even if you have a pretty good credit score and can qualify for a loan as-is, it may be worthwhile to take a look and see if it can be improved before buying a home.
Those with top tier credit scores reap the rewards of lower monthly payments. A reputable lender will tell you what can be done in order to increase your score and reach the top tier rates.If you have no idea what your score is, you can check it at www.CreditKarma.com. It’s completely free and does not “ding” your credit.(aka: a soft inquiry)
Budget
There’s a difference between what you feel comfortable paying, and what you are approved for. Sometimes, you know you can handle a larger payment, but you are approved for less. Other times, you are approved for way more than you would want to spend on a home.
Before you ever start looking at homes, figure out a realistic budget and make sure it will work for you. You want to be comfortable with a payment. Work backwards by using a mortgage calculator, to figure out what a payment would be at a certain price range.
*Pro Tip – there is a big different between some mortgage calculators. When buying a home, your mortgage payment might be $1,500/mo, but you also owe taxes and insurance with your payment which brings it up to $1,800/mo. You should use a mortgage calculator that includes principal, interest, taxes and homeowners Insurance (P.I.T.I). You may also be responsible for mortgage insurance or HOA dues. To see the entire picture, use a calculator such as https://www.mortgagecalculator.org and you’ll know what your ENTIRE monthly payment is, not JUST the mortgage part of your payment.
Saving
Saving up for a house, or at least a down payment on a house usually takes some time. A little bit from each pay check over a long period of time goes a long ways. Historically, a 20% down payment is the gold standard to qualify for the best rates, but it’s by no means necessary.
In fact, it’s possible to buy a home without coming up with any down payment of your own money at all. You can use funds as a gift from family, receive a grant, or even obtain a second loan as the down payment for the first loan. As a general rule of thumb, the more you put down, the better interest rates and lower your payment will be.
Unfortunately not everyone is able to save up for a down payment. Down payment assistance programs are available just for this purpose. To help those who wish to be home owners, but don’t have the ability to save up enough for a sizable down payment.
To see if you might qualify for down payment assistance program, please contact me.
In addition to saving for a down payment, there ARE other costs associated with buying a home. Loan costs, inspections, appraisals, etc. While loan costs can be negotiated and often times paid for by the sellers, they can be around 2% of your loan amount. You should always plan for a home inspection between $300-$500, and an appraisal around $450. (* note sometimes a lender will not collect this until closing, or pay you back on successful closing, but it’s best to plan for it regardless).
Pre-qualified
Somewhere mixed in here is the process of getting pre-qualified for a loan. Sometimes getting pre-qualified happens after all this planning, and sometimes it’s before. You see, getting pre-qualified means looking at all these factors. So while you can plan around general guidelines, at some point, you just need to get the pre-qualification completed so you can make sure your budget, plans, and credit scores all add up to you being officially qualified to buy a home.
So your credit is in good shape, you have a budget, you know what costs to expect, and you are pre-qualified that means it’s on to the FUN part…. finding the perfect home for you and your family.
Take these steps today, and you’ll be in good shape to move into your new home soon! Whether you are a week or a year away from buying a home, please let me know how I can help you reach your real estate goals.
Jon Knutson REALTOR ®
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