Are You Ready to Purchase a Home?
Most people would like to know they are truly prepared before they take on a major project, such as buying a home. You would not plan a road trip across the country without checking the condition of your car and most people do not get married on a whim. Along the same lines, buying a home requires a bit of preparation. As the season changes the following home-buying tips should help you find the right home for your needs.
The Decision to Buy a Home Should Come Straight From You
You should never buy a home based on one particular factor. Just because you have a comfortable job does not mean you are ready to purchase a house. And if you are the lone holdout among your circle of friends that has yet to plunge into homeownership that does not mean you should follow suit.
Use the information in this article to determine if you are truly ready for homeownership and decide on your own.
Make Sure You Have Decent Credit
Consider your credit rating like the grades we all received in school. The higher the score, the better the grade. Most lenders consider a score of 620 to 640 to be acceptable, or a C grade. This grade will likely be good enough to qualify for an FHA mortgage or USDA mortgage. If you are a veteran then you should be able to qualify for a VA mortgage.
From 640 to 720 the score is considered a B grade and anything above a 720 is an A.
People with the highest scores will usually qualify for almost any type of loan, most notably conventional mortgages. They will also enjoy the absolute lowest mortgage rates available at the time they apply.
As the score drops, the number of available mortgages will also drop and the available mortgage rate will increase slightly.
Put Away Some Money In Savings
Buying a home costs money. There really is no way around it. Even for people who qualify for a mortgage that requires zero down payment, there are still costs associated with purchasing the home. For starters, the majority of sellers will ask for some type of earnest money in order to sign a sales contract. Secondly, the home will need insurance coverage. And those are just two small examples.
Having a significant amount of money in savings provides more options for you as a buyer. You can negotiate a lower price on the home by offering to pay all the closing costs. Or, you can make a down payment on the home to reduce your interest rate along with the monthly payments. Or, you can keep the money in savings to protect you against financial difficulties that may arise in the future.
Bonus tip: Purchasing a house REQUIRES MONEY. Do not enter a sales contract if you have no money in savings.
Are You Ready to Put Down Roots?
Circumstances will change for almost everybody over the course of time, but generally speaking, we know if we will stay in an area for a while or if we have plans to move.
Most of the time, purchasing a house will require some out-of-pocket expenses. (See the previous item) If you spend your funds on the down payment, the closing costs, and a bit of customizing, that money will take time to recover. Selling a home within 3 to 5 years after purchase rarely works out for the good of the homeowner.
Your Work History is Steady
Besides having your credit score and savings, the other major factor in getting approved for a home is your source of income. The source of income needs to be reliable and steady.
Reliable income means that your earnings have stayed at a certain level for at least 2 years. If your job requires a lot of overtime, or you make significant amounts in commission, you will need to show that this has been the norm for a minimum of 2 calendar years. If you are self-employed, you will need to provide at least 2 years of both personal and business tax returns.
Steady employment means that you have either worked at the same place for 2 years or been in the same line of work for 2 years. A person who is a mid-level manager at a major office for the past 4 years has steady employment. A salesperson who worked for Xerox for 16 months and then took an offer from Konica Minolta to sell their copiers has steady employment. As long as you can show that you are in the same field of work and your duties are the same, or that you are shouldering more responsibility, you should be fine.
Bonus tip: Stability in your income, debt, and living arrangements are very important to getting approved for a mortgage
Try to Choose a Market with Stable Home Values
While the national news will report general conditions about real estate, each town is unique. There may be one or two neighborhoods in your area where the prices are dropping due to crime, a proposed commercial development, or some other reason. At the same time, there could be a dozen places where the average home price has increased steadily over the past 4 or 5 years. It is best to purchase a house in a place that has enjoyed appreciation over a length of time.
Purchasing a house that is holding or increasing in value will mean that your home will be worth more as time progresses, making this a wise investment of your money.
Clearly Define Your Needs For A Home
It is never a good idea to buy a home based solely on the price. Each person and family will have different circumstances and should approach the home based on their individual needs.
For example, a married couple with 3 children under the age of 10, along with one on the way, may be interested in a home with a lot of bedrooms and a big yard. A young woman who graduated from college 3 years ago and with no immediate plans of getting married might be interested in a two-bedroom condo.
Besides the bedroom and bathroom combinations, it is also a good idea to consider different aspects of the home.
Pay All Your Bills on Time
Having a good credit score is important to qualify for a mortgage. However, a good credit score does not indicate that you have your debt under control. It simply means you are paying on time.
Lenders will at your income and compare it to your existing amount of debt along with the proposed home payment. If all of your debt and the home payment are more than 45% of your gross monthly income, it will be a challenge to get approved for a home loan.
Now is the time to pay down and pay off as much as you can. Avoid borrowing money until after you have moved into the home. Most lenders now have a policy to re-check your credit score the day before or the day of the loan closing. If any new credit cards, loans, or inquiries show up the mortgage could be canceled or at least delayed.
Allow Plenty of Time
It is important to work within your current situation. If you just signed a 2-year lease on an apartment or home and there is a significant penalty to leave the lease early, then now is not the time to go house shopping. In contrast, if your lease ends within 2 weeks and you do not want to stay at the same place, you may not have enough time to find a home.
Typically, it will take between 30 and 60 days to find a home, negotiate a contract, and get approved for the mortgage. In order to give yourself some extra breathing room, you should plan for 90 days from start to finish.
Get Pre-Approved For A Mortgage
When you are ready to purchase a house the best option is to visit with a lender to get pre-approved for a home loan. The lender will sit down with you and discuss everything related to your finances. You will need to provide your residential status for at least the past 2 years, your source of income for the past 2+ years as well as copies of your checking, savings, investment, and retirement account statements.
Don’t hold back on anything with your lender. They are trying to get you approved for the best loan that fits your needs. It is best to tell them everything about your situation and let them decide which program is best for you.
Bonus tip: Be open with your mortgage lender about your finances. Your lender is on your side and trying to get you approved for a mortgage.
Make Sure Your Expectations are Accurate
Purchasing a house is a learning process. Most people think that they can simply purchase a house with a payment that is roughly equal to their old rent payment. However, they are not accounting for the necessary maintenance and repairs on the home.
Some people don’t understand the differences in prices between different areas or even different neighborhoods. Finally, the number of documents needed to complete a mortgage, as well as the amount of time needed to review said documents, takes longer than most people anticipate.
In order to keep your expectations in line with reality, it is good to have a nice, long conversation with both your real estate agent and your mortgage lender. They can prepare you for the process and keep you informed during the duration of the purchase.
One important aspect that new home buyers miss is open communication with the lender and real estate agent. It is possible that after you have been pre-approved for a mortgage your lender may call and request some other document from you. Or, your real estate agent may need to discuss a change in the contract. Make sure you are reachable, either by phone or email, when going through the home purchase. Respond to questions in a timely manner. This will help the whole process move along at a better pace.
Organizing Your Personal Finances Can Take Time
Buying a house is unlike most other types of lending. The credit score requirements, income levels, and need to document income are much more detailed when compared to buying a car or getting a credit card. It takes time to establish a solid work history. It takes time to build up your credit score. It takes time to show that you have lived at one residence for at least 2 years.
Bonus tip: Purchasing a home is a marathon, not a sprint. It will take time to get your finances in order.
Summarizing Buying a House in the Fall
If you have reviewed this list and feel that you are lacking in one or two areas, it is not the end of the world. It simply means that you have some areas to work on in order to prepare yourself for homeownership. Take these fall home buying tips and apply them during any season. You’ll be ready to purchase a house in no time!
However, if you have looked over all these items and you can say “yes, I have done that” to every item, CONGRATULATIONS! You are ready to buy a house this Fall!
Related Fall Real Estate Resources:
Ways Sellers Can Make Their Home Stand Out in the Fall by Bill Gassett
How To Sell Your Las Vegas Home in the Fall by Debbie Drummond
How To Sell A Home During The Fall by Kyle Hiscock
Seller Tips to Optimize Your Home in the Fall by Angela Duong