Are you considering buying a house? Whether this is your first time as a home buyer or you’re moving up the property ladder, it’s important to know what to do to make the process as smooth and stress-free as possible. Here are six important tips to get you started on your journey to homeownership.
Savings for Down Payment, Earnest Money Deposit, and Closing Costs
When you buy a house with a conventional home loan, you’ll need a down payment, an earnest money deposit, and closing costs.
Down payment: A down payment on your new house is the portion of the purchase price you’re responsible for paying upfront. The standard down payment on a home is twenty percent of the amount of the loan. However, there are some loans, such as FHA, VA, or USDA home mortgages, that can lower or eliminate the down payment.
Earnest Money Deposit: Your earnest money deposit, which you submit with your offer, is a good faith deposit that’s typically one to two percent of the purchase price of the home. This money will be applied towards your down payment or closing costs.
Closing Costs: Closing costs in real estate are all of the accumulative fees and expenses associated with getting a mortgage and buying a house, and they can add up to several thousand dollars. In a buyers’ market, it’s possible to negotiate closing costs with the seller, who may be willing to pay part or all of those costs to secure the deal.
You’ll also need to set aside funds for your move, such as boxes, moving trucks, utility deposits, and basic household needs. It’s also wise to have an emergency fund set aside because, when you own a home, you never know when something may need to be repaired or replaced.
To avoid being caught off guard by these costs, start saving early and have a solid plan in place.
Credit, DTI, and the 28/36 Rule
Your credit score is one of the most critical factors in getting approved for a home loan, and the higher your score, the better. At the very least, it should be 620.
In addition to your healthy credit score, your debt-to-income ratio (DTI) is also important. This is the amount of debt you have compared to your income, and lenders like to see a DTI ratio that’s under 36 percent.
The 28/36 rule is a general guideline that says your total monthly housing expenses (mortgage payments, property taxes, insurance, etc.) should not exceed 28 percent of your gross monthly income, and your total monthly debts (housing expenses, car payments, student loans, credit card debt, etc.) shouldn’t be more than 36 percent of your gross monthly income.
Get Pre-Approved for a Home Mortgage
The next step in the process is to get pre-approved for a home mortgage. This involves submitting a loan application and providing documentation such as your pay stubs, tax returns, and bank statements.
Getting pre-approved will give you an idea of how much money you can borrow and what kind of interest rate you can expect to pay. It’s also a good way to shop around and compare rates from different lenders.
Pre-approval also gives you an advantage when you’re ready to make an offer on a house because the seller will know that you’re a serious buyer who is already approved for financing.
Find the Right Buyers' Real Estate Agent
The next step is to find the right real estate agent. You want someone who is knowledgeable about the area, has experience working with buyers, and who you feel comfortable communicating with.
A good real estate agent will be able to answer your questions, offer advice and guidance, and help you find houses that fit your criteria.
A buyer’s agent services may include:
- Helping you determine how much house you can afford
- Aiding in refining your wish list
- Identifying properties that meet your needs
- Negotiating the purchase price
- Assisting with the closing process
To find a good agent, ask for recommendations from friends or family, or search online for real estate agents in your area. Check ratings and reviews, and visit agent websites to see how they represent themselves online.
House Hunting, Offers, and Negotiations
Now comes the fun part: house hunting! With your real estate agent’s help, you’ll start looking at houses that fit your budget and criteria.
When you find a house you want to make an offer on, your real estate agent will help you negotiate the purchase price. The goal is to get the best price possible without overpaying for the property.
Keep in mind that there are other factors to consider besides the price, such as the condition of the home, the location, and the seller’s motivation.
The Closing Process
During the closing process, the lender requires that the house be appraised and inspected. The title is also checked and transferred.
The appraisal is to make sure that the house is worth the amount of money you’re borrowing.
The inspection is to check for any problems with the property.
The title is checked to make sure there are no outstanding liens or judgments against the property.
The closing process takes time – anywhere from a few weeks to a few months, and there are a lot of details to be aware of. Your real estate agent and loan officer will help you navigate this process and answer any questions you have along the way.