Knowing what to expect when you’re buying a home will help keep the excitement of the occasion alive. Learn more about the six steps to buying home so you’re prepared for your upcoming venture.
💯 Know Your Credit Score
Your credit score is the most important thing lenders look at when deciding whether to approve or deny a mortgage loan application, so it’s important to check your score regularly. The three major credit bureaus — Equifax, Experian, and Transunion — offer services that help you monitor your score monthly, which is a good idea for anyone in the process of buying a home.
The minimum credit score needed to qualify for a mortgage isn’t set in stone. In fact, it often changes. Lenders tighten in the reigns during economic downtimes and as the overall economy improves, lenders become more lenient. For example, after the housing market crash in 2008, people with credit scores of 730 weren’t being approved for mortgages. However, as of August 2017, people with scores as low as 620 have been approved for home loans.
The credit score needed also depends on the type of loan you get. Some FHA loans online require a credit score of at least 580, while conventional loans require your score to be at least 620 for approval.
💰 The Importance of Saving Money
Ideally, you want to have a down payment on your home equal to at least 20 percent of the sale price. In fact, in most cases, lenders require a 20 percent down payment before approving an applicant for a conventional home loan. Therefore, it’s important to save money before you start the buying process.
It might seem like a 20 percent down payment is a lot, especially if you plan to purchase a more expensive property. However, saving your money so that you have a down payment equal to 20 percent of the sale price has several benefits including:
- Lower upfront fees
- Lower interest rates
- More immediate equity in your home
- Lower monthly payments
If you absolutely can’t save enough money to equal at least 20 percent of the home’s sale price, FHA loans and loans backed by Fannie Mae and Freddie Mac approve borrowers with between three and 3.5 percent of the house’s sale price for a down payment.
Keep in mind, your down payment isn’t the only reason you need to save money. You also must have money available for earnest money, closing costs, and any repairs you want to make to the house before you move.
🙋♂️ Find the Right Real Estate Agent
Many buyers skip hiring a real estate agent for themselves completely. They assume that because the seller already has the house listed with an agent, they need to contact that person. However, that’s not a great option.
The real estate agent the seller hired has the seller’s best interests in mind — that’s his or her job. You need an agent who has your best interests in mind, which means you need to find your own real estate agent before you start looking for houses. To find a great agent:
- Ask friends for references
- Verify credentials
- Check recent listings — you want an agent that’s familiar with the current housing market in your local area
- Look for someone with experience
- Check references — they should be able to provide you with a list of clients they’ve worked within the past year that includes contact information
✔️ Get Pre-Approved for a Home Mortgage Loan
Before making an offer on a home, your real estate agent and the seller will want to see a pre-approval letter from your mortgage company. The pre-approval letter indicates that the lender is confident you can make the purchase, and therefore, your offer should be taken seriously. It also tells you how much money you can spend on a home.
To get pre-approved, simply apply for a mortgage — if you don’t have a lender in mind, your real estate agent can give you a referral. The process requires the lender to go over your assets, income, bank statement, and credit reports. Once the lender approves you for a mortgage, the pre-approval letter is typically good for between 60 and 90 days, depending on the lender.
💵 Placing the Right Offer
The key to placing the right offer on a home is choosing a number that wows the seller and isn’t too low. Offering the asking price will get the seller’s attention, and if there aren’t many offers on the home, yours may be accepted. If you’re looking at a hot property, you might consider offering slightly above the asking price to outbid other offers.
However, offering at or above the asking price isn’t required. Ultimately, you shouldn’t offer more than you can afford to spend — regardless of your approval amount. The more you pay for your home, the higher the monthly payment and your monthly house payment shouldn’t exceed 28% of your monthly income.
📅 What Happens After the Offer is Accepted?
After the offer is accepted, you must secure the mortgage. It often takes between 45 and 60 days to close a home loan. During this time, you need to schedule the required home inspections and have an appraisal completed. Additionally, you should start inquiring about homeowner’s insurance and hire a real estate attorney if necessary.
Your real estate agent is the best source of information about the local community and real estate topics. Give Felipe Crook a call today at 213-268-6832 to learn more about local areas, discuss selling a house, or tour available homes for sale.