Check Your Credit Score and Finances
You need to be sure you are ready for a mortgage and the expenses of owning a home. If you have a low credit score, you won’t be able to get a mortgage in most cases. Mortgage lenders want to know your credit score and your financial history before they will offer you a loan. To get a conventional loan, you will need to have a credit score of at least 620. Getting an FHA loan is a bit easier, and you could get a loan with a score of 580.
The better your score the better your chances, though. Additionally, when you have a better credit score, you might be able to get a better rate on the mortgage.
Get Your Down Payment and Closing Costs Ready
Next, you want to start saving money for your down payment and closing costs. The amount that you will need to put down will vary depending on the loan. With a USDA loan or a VA loan, you will not need to have a down payment. With most loans, you will need to have at least 3% to 3.5% that you can put down on the property.
However, the more you can put down, the better. It will help you save money in the long run. Most experts believe that you should strive to put down at least 20%, as this could eliminate your need to buy mortgage insurance.
You will also have to save money for closing costs. In some cases, you might be able to get the seller to pay the closing costs, but this is not something you should count on. Typically, the closing costs will be between 3% and 6% of the purchase price for the home. For example, a home that costs $200,000 would have closing costs between $6,000 and $12,000.
Know What You Can Afford
Before you start looking for a lender or looking at properties to buy, consider how much home you can afford. Think about how much you can pay each month for the property without struggling. When calculating how much you can spend on a home, consider more than just the principal amount you are borrowing. You also have to think about the interest, taxes, insurance, and any association dues if you are part of an HOA.
How much do you make each month and what are all of your other expenses? This will help you determine how much you can spend on your home. You will find that the house expenses are often comparable to what you are paying in rent. However, you will be responsible for repairs made on the property.
Find a Good Lender
The next thing you need to do is find a great lender. However, you shouldn’t choose the first lender that you find. Instead, you will want to shop around and get an estimate from several. This will let you see the options from each of the lenders, so you can find the one that can provide you with the best deal.
Once you have chosen a lender, you will then want to get pre-approved for a loan. The pre-approval process will require that the lender look into your finances and verify your income, credit score, and assets. When you obtain your pre-approval, you will know that you can get that amount for the loan, as long as your finances do not change. Getting pre-approved also means that sellers will see you as someone serious about buying. They may be more willing to negotiate.
Get a Real Estate Agent
Trying to buy a home without a real estate agent might be possible, but it tends to be a major mistake. The agent can help to guide you through the rest of the process of buying. They can find and show you homes that are within your budget and that meet your needs. The agents also have a substantial amount of knowledge about real estate that you do not have. Forego working with a real estate agent at your own risk.
Determine Exactly What You Are Looking for in a Home
After you know how much you can afford and you have an agent, you will want to let the agent know what you want from your home. This includes things like the location, the type of property you want to buy, whether you want to have land, the home size you need, the age of the home, the condition, and the number of bedrooms and bathrooms you need.
Look for the Right Home
Knowing what you need in a home helps to make the process of finding that home easier. You can now work with the agent to narrow down the right properties and start getting tours. For most, this is one of the most exciting steps because you get to think about all of the possibilities as you seek your dream home.
Make an Offer
Your real estate agent will help you come up with a reasonable offer for the property. They have an idea of how much the home is worth and will run a comparative analysis to come up with a fair price. In some cases, you might want to have contingencies added to the offer, such as appraisal contingencies or inspection contingencies, which ties in with the next step.
The Home Inspection
Even though you might feel that the house is in great shape, you can’t trust your own eyes. Instead, you need to hire a professional to do a property inspection. They will go through the property and will provide you with a report on what they find. If there are major issues, you might want to look at a different property instead. You could also ask for the homeowner to fix the problems or negotiate for a cheaper price.
Get an Appraisal
Lenders will require that the home be appraised before they release funds so you can buy. The appraisal will provide an estimate of the worth of the home and is based on comp sales in the area, as well as public records, market trends, and the inspection.
Finally, you will walk through the property with your agent to make sure that it is all in order. During this time, check to see if repairs promised by the seller were made or not. You will then review your closing disclosure. This paperwork will be sent to you a minimum of three days before closing. It will outline outstanding fees and closing costs. The property title then passes to you from the seller. Then, the home is yours.
Stress During The Home Buying Process
The home buying process is a stressful time for many people. When you are looking for your future home, you have to worry about the amount of money you have in the bank, how much house you can afford, where your kids will go to school, and so much more.
But there are ways that will help relieve some of that stress. One thing is to be prepared for the process ahead and know what to expect from it. Getting all of your ducks in a row before you start looking at homes can help make the whole process go smoother. You should also speak with a lender about what it takes to qualify for a mortgage and how much house you can afford.
By following these steps, you can break down the process of buying a home and make the intimidating process much easier. Although there is a lot to consider, it can be a great experience.