Buying a house may be the most complicated and emotional financial process of your life. By doing a little homework before you buy, you’ll feel more confident that you’re purchasing the best home at a price you can afford with the most favorable financing.
These six steps will help you make smarter decisions during this process:
1. Decide how much home you can afford.
Generally, you can afford a home priced two to three times your gross income. There are, however, plenty of online tools to help you determine the optimal purchase price you can afford.
Once you estimate your mortgage payment based on the purchase price, again using online tools, it’s important to factor in property taxes, home insurance, maintenance, utilities, and community association fees–if applicable–as well as costs specific to your family, such as day care and car payments.
2. Develop your “must haves” list for your new home.
Be honest about which features you must have and which you’d like to have.
Location and number of bedrooms and baths rank high on the must-have list. Start by listing your top priorities for location, such as commute time, schools and recreational facilities. Your REALTOR® can help you identify target neighborhoods based on your priorities.
Then, decide how many bedrooms and baths you must have for your family both now and in the future. Do you need a yard for your four-legged child, or accessibility for an aging parent? These items go on your must-have list.
Granite countertops and stainless steel appliances are in the “want” category. Come up with your top five must-haves and top five wants to help you focus your search and make a smarter choice when home shopping.
3. Start saving.
Have you saved enough money to qualify for a mortgage and cover your downpayment? Ideally, you should have 20% of the purchase price set aside for a downpayment, but some lenders allow as little as 5% down. However, a smaller downpayment will influence your interest rate and the type of loan you can get.
Also, if your downpayment is less than 20%, you’ll be required to purchase private mortgage insurance, which can add hundreds to your monthly payment. If you need downpayment assistance, the Georgia Department of Community Affairs has programs to help first-time home buyers, educators, healthcare workers and families with members who are disabled.
4. Ask about all the costs before you sign.
A downpayment is just one homebuying cost. A REALTOR® can tell you what other costs buyers commonly pay, such as home inspections, surveys, attorneys’ fees, and title transfer fees. Add up the extras you’ll also want to buy after you move-in, like a new dining room set or patio furniture for your new yard.
5. Get your credit report and score.
Lenders rely heavily on your credit report and credit score in determining whether, how much, and at what interest rate to lend for a home. Get ahead of lenders and order your credit report from Equifax, Experian, and TransUnion to see if there are any outstanding debts you don’t know about, and to make sure the information is accurate. Take actions to clear up errors or outstanding debts before you buy.
Lenders have different minimum credit score requirements to qualify for a loan. If your credit score isn’t that great, you can improve the score by paying every bill on time and paying down high credit card debt.
6. Get prequalified.
Meet with a lender to get a prequalification letter that says how much house you’re qualified to buy. Your lender will let you know the paperwork it needs to make loan application, like W-2 forms verifying your employment and income, copies of pay stubs, and two to four months of banking statements.
If you’re self-employed, you’ll need personal and business income tax returns for the previous two years, as well as current business financials.
This prequalification letter is vital to making a competitive offer on your new home. If you’re in a multiple-bidding situation, as has been the case in the current market, a prequalification letter will set your offer apart from another, possibly higher, bid.
Whether you’re a first-time or a repeat buyer, buying a house is a financial and emotional decision that requires the experience and support of a team of reliable professionals.
Consider me part of your team! Call, text or e-mail anytime with questions.