Considering buying a home this year, but not sure where to start? The process of qualifying for a mortgage loan and purchasing a home, especially for the first-time buyer, can seem like the scariest ride at the amusement park. But by having a general understanding of the process, and taking a few steps in advance, the process can be made quite easy. Here are 10 tips to prepare you for your purchase:
- Check your credit and lose the credit cards
Your credit score is one of the most important factors when it comes to qualifying for a mortgage loan. Your score can have a significant impact on loan program eligibility and the overall cost of your loan.
Review your credit report for mistakes, unpaid accounts or collection items. And just because you pay everything on time doesn’t mean your scores will be excellent. Creditors reporting high balances, over-utilization or having too many new accounts can negatively impact scores. Give yourself plenty of time to address corrections to your report, as score changes take time.
While we are discussing credit, do yourself a favor and hide those credit cards. Lot’s of credit card activity can hurt your scores, even if only momentarily.
- Prepare financially
Good scores are one thing, but preparing your credit by paying off debt also puts you in the best position to qualify for and pay a mortgage loan. By reducing your outstanding debt, it frees up your income for down payment savings and allows for more of your income to be allocated to your mortgage payment.
- Get pre-approved early
There are a number of reasons to be pre-approved before you start shopping, and no reasons not to. First, real estate agents won’t give you the time of day without a pre-approval letter. Second, if you don’t know how much house you can afford, you will be wasting your time and your realtor’s time perusing listings and open homes. Additionally, a pre-approval will give you more confidence with the decision you are considering.
- Decide what payments you can afford
Chances are that your mortgage lender may approve you for more loan than you are comfortable paying. Being house-poor can quickly take the joy out of living in your new home.
Prepare your own budget. Your housing payment should include mortgage payment, taxes, insurance and HOA dues if applicable. Be realistic about potential future expenses, such as daycare, college tuition, savings, vacations and large ticket expenditures. And don’t forget to budget for costs to maintain and improve the home you are purchasing.
- Plan for your down payment
While there are some no-down payment programs available, including VA for veterans and USDA loans for borrowers buying certain types of rural properties, most likely you will be required to put some money down on your new home. The greater the down payment, the lower your loan costs and loan payment will be. Will you borrow a portion of your down payment from a retirement fund? Make sure that is acceptable to your lender. And most loan programs allow gift funds from a relative, but there are restrictions, so check with your loan officer.
In addition to down payment, you will also be required to pay closing costs and prepaid expenses, such as insurance and interim interest, at closing. You may be able to negotiate shifting some of these expenses to the seller, but the tighter the housing market, the less likely for a seller to accept an offer with seller-loaded closing costs. As a general rule of thumb, assume closing costs + prepaids will be 2.5% to 3% of the sales price of the home.
- Interest Rates – don’t be a market timer!
Have rates ticked up in 2018? Yes, and they may tick up further. But upward momentum in rates is a sign of a growing economy, low unemployment, and rising asset prices, including homes. The mid 3% 30-YR Fixed ship sailed several years ago. However, rates in the mid 4% range are still historically very, very low.
Waiting for rates to fall back to a 40-year floor may leave you on the sidelines forever.
- Choose a helpful real estate agent
Even if you are looking online at homes, plan on using a real estate agent. The buyer’s agent is paid from the listing agent’s commission, so there is no direct cost to you. And a good, professional realtor will not only help you find the right home in the right market, guide you through the process and help with vendor selection, he or she will also negotiate the purchase contract on your behalf.
Ask around for a good realtor referral; friends, family, coworkers. Find a realtor that listens to you and takes a genuine interest in understanding your unique needs and desires.
- It will take you longer to find the right home than you think
In most markets, inventory in 2018 remains tight. Be prepared to move quickly when you find a home you like and don’t expect the seller to come off his list price significantly.
If you like the home, make a strong first offer. Especially if the home just went on the market, and you know there will be multiple offers. If your realtor recommends a tactic such as a personalized letter to the seller, jump on it.
- Always get a home inspection
This is one area you don’t want to play Scrooge and save a few dollars. Failure to identify hidden problems in the property prior to purchase can prove to be expensive or even catastrophic. Your realtor can refer an inspector, but be sure to vet him yourself.
10. Call Us at First Liberty Bank
We offer a wide range of competitively priced mortgage loan products. Visit our website or call one of our friendly loan officers at 405.608.4500 for more information.
Buying a home can be nerve-wracking, especially for first time buyers, but if you take the right steps and surround yourself with the right real estate professionals, the process can be demystified and surprisingly simple.