How to get ready to buy a home
Buying a home represents a major investment; for many potential buyers, it will be the most significant of their life. Because of this, it is important to go into the homebuying process prepared, organized, and intentional. The following steps can help potential buyers prepare to look for a house, apply for a mortgage, and successfully close on their new home.
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Financially prepare for the mortgage process
Without question, the most important part of the home buying process is applying for and securing a mortgage. To increase the chance to get the best rates on the market, begin financially preparing for the mortgage process up to a year in advance. Stop applying for new lines of credit at least one year before applying for a new mortgage – and keep the moratorium on new financing in place until after closing. Likewise, regularly check your credit score for inconsistencies and accuracy. While scores above 700 can ensure financing, a credit score of 750 or higher ensures the best rates. “Below 660 or 680, you’re either going to have to pay sizable fees or a higher down payment,” said Barry Zigas, director of housing policy for the Consumer Federation of America.
Determine what you can afford
For most potential buyers, monthly mortgage payments and other expenses should add up to less than 30% of their gross monthly income. Exceeding this can cause buyers to become “house poor”; this occurs when the majority of monthly income is spend on mortgage payments, insurance, utilities, and other expenses, leaving little to no room for other monthly expenses or building savings.
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Save for down payment and closing
A down payment of between 3 and 20 percent is recommended for most buyers. Having enough money in savings to start with a large down payment can help reduce monthly mortgage costs or make a costlier home more affordable. If you are unable to put a large enough amount down on a home, the lender may require PMI, or private mortgage insurance, on the loan.
Cash will also be required for closing. Average closing costs are between 2 and 5 percent of the cost of the home; purchasing a $150,000 home can cost between $3,000 and $7,500 at closing. A recent national survey found that the average buyer pays $3,700 at closing. Responsibility for closing costs can also be negotiated as a part of the real estate contract.
by Author, Nov. 07, 2018