Roughly 91% of Americans have the goal to own a home at least once in their lifetime. However, buying a home can be a daunting task. Especially if your financial situation isn’t where you’d like it to be. Luckily, there are some tips that you can keep in mind that may be able to help.
Tips to Keep In Mind During the Home Buying Process
Before you begin the homebuying process officially, there are some ways you can prepare for the process.
Get Your Savings In Order
Buying a home isn’t cheap. There are a lot of expenses that you will need to account for before buying a home. Your down payment, closing costs, and moving costs should all be kept in consideration.
The actual amount that you will need to have ready will vary based on your financial situation. You could have no down payment, a down payment of just 3.5%, maybe even 10%, or higher! There are so many different factors that determine just how much you will need to provide for your down payment. Other expenses like closing costs and moving costs vary too. You can expect your closing costs on average to be between 2% to 5% of your home. Moving costs vary but it doesn’t hurt to have a solid cushion. The more savings, the better!
What’s Your Budget?
While many people may like to live in a $750,000 home, not everyone will actually get a home like that. Instead, you need to find what home price can fit into your budget. You can do this by yourself, with the assistance of a professional, or by using free available tools online. The Department of Housing and Urban Development states that affordable housing is anything less than 30% of a person’s income. Anything that costs more than 30% can make the borrower cost-burdened.
Get a Clear View of Your Credit
Your credit score has a big impact on your ability to purchase a home. Your lender will take a look at your credit score in order to determine your creditworthiness. You may be able to properly prepare your credit before they take a look!
There are free credit reports that you can request. You get one free report per year. You can take a look at your credit report to see if there are any errors that you want to dispute. You can also strengthen your credit. Make sure to pay your bills on time and keep your credit utilization low. A good rule of thumb is to keep your credit utilization between 20% to 30%. You can always check your score (not the report) for free online whenever you want.
Now that you have prepared yourself for the purchase of a home, you can begin considering your mortgage options.
Types of Mortgages
There are plenty of loan options available when it comes to buying a home. The most popular options are:
- Federal Housing Administration (FHA) Loans: This is a type of loan that is backed by the U.S. Federal Housing Administration. They provide eligible borrowers the opportunity to have a reduced down payment. These down payment rates can be as low as 3.5%.
- Conventional Mortgages: These are your standard mortgage options. They are not backed by the government and vary in loan terms. However, these loans may be able to provide borrowers the opportunity to have a down payment as low as 3%.
- U.S. Department of Agriculture (USDA) Loans: This loan option was designed to promote rural living. Backed by the USDA, these loans are designed for borrowers who agree to live in specified rural areas. Borrowers of this type of loan typically have no down payment.
- Department of Veterans Affairs (VA) Loans: This loan is backed by the VA. This is a great option for current or previously serving military service members. These loans are designed to support veterans so they typically don’t have down payment obligations.
You want to find a loan option that is based on your financial situation. If you don’t know what would be best you can speak to a professional that can point you in the right direction.
Are You a First Time Home Buyer?
If so, when looking at mortgage options you want to see if there are any special opportunities for first time home buyers. Typically these buyers will be able to find special mortgages that are designed to those purchasing a house for the first time. These mortgages can have lower interest rates, down payment assistance, closing cost assistance, tax credits, and more. Each financial institution is different so that means loan terms will vary by lender.
Comparison Shopping is Key
In order to properly look at your mortgage options you will need to compare them. When you comparison shop, you can get a better idea of the pros and cons of each lender amongst one another. The best way you can compare is by using online platforms that compare for you, or doing comparisons yourself at home. You can request loan estimates for the same mortgage type across multiple lenders. This can give you an idea of the differences between closing costs, interest rates, fees, and more.
Try to Get a Preapproval
When you get a preapproval letter, you can use that during the homebuying process. When you present this letter to the realtor and seller, it shows that you mean business about getting a home. This can potentially make you look more prepared compared to other buyers.
Now that you have an idea of the preparation and mortgage terms that you want, you can start looking at homes.
Your Real Estate Agent is Key
The best way to handle the home buying process is to have a real estate agent along for the ride. They can help ensure that you find a home that meets the criteria you are looking for. They can also help with the negotiation and closing process! The best part? The better the real estate agent then the better connections they may have. The better connections that they may have can in turn possibly provide you more home buying opportunities. Try to find a real estate agent that has numerous highly rated reviews.
Choose Your Home Type
Not every home is the right fit. You need to look at your lifestyle in order to determine a home size that may be beneficial to you. Not only is lifestyle an important component but so is the price of the home. You already figured out your budget and the type of mortgage you are interested in. From there, you need to find the type of home that works for you. Home types like condos, townhomes, and single-family homes all have benefits and drawbacks.
Choose the Location of Your Home
Just as your home type is important, so is the location of your home. If you have kids then the school district should be an important aspect to look for. The safety of the area, the proximity to work, how far your family is, and more can determine a good area to live in. You will also want to look at lifestyle as well! If you know that you like mountains and want a specific seasonality then Florida may not be a good option.
Do Not Stray from Your Budget
You spent the time preparing your finances in order to get a clear picture of what you can afford. Don’t break the bank in the process of buying a home! If a house is too expensive, then you will need to consider other options. Your perfect home will not jeopardize your current financial standing. If you stretch your budget too much, the house may become unaffordable. If you find yourself struggling with your home payments then you run the risk of foreclosure.
Take Advantage of Open Houses
While virtual walkthroughs of a home can be helpful, they may not accurately show the home. Virtual tours cannot show the smell of the home, the sounds the house makes, and more. That is why you should tell your real estate agent that you want to try to find open house options. These open houses can provide you a better idea of the home!
You got tips to prepare for the homebuying process, tips to handle your mortgage, and tips for looking at houses. Now it is time to review some tips that can help you during the actual process of purchasing a home.
Make Sure to Get a Home Inspection
Before you purchase your home it is extremely important to get a home inspection. A home inspection is an in-depth look at the home from the inside to the outside. A home inspection is done by professionals that have the eye for these types of problems. Before you hire a home inspector you want to have a clear understanding of what they are gonna be looking at. It’s a good idea to accompany the inspector when they look at the home. You can follow, ask questions, and get a better overall understanding of what’s going on in the home before you purchase it.