Preparation is the key in today's housing market
Buying a home is a tremendous accomplishment and an opportunity to take root and build justice.
However, with a 30% drop in national inventories, the real estate market has become more competitive.
This is especially true for mid-priced, affordable houses.
How do you progress in a hot market? The key is preparation.
The sooner you prepare to buy a house, the easier it will be to beat the competition.
But even if you're already looking for a home, it's not too late to take some of these steps and improve your prospects of buying houses.
Check your eligibility to buy homes (August 4, 2020).
Preparation for buying a house: early stage
Check your balance
Find out DTI
Determine your budget
So prepare when you are ready to buy a house now
Research loan programs
Get pre-approved for a mortgage
Find a real estate agent
Be ready to make a serious cash deposit
How to Prepare to Buy a Home When You Are at an Early Stage
If you are in the early stages of preparing to buy a house, you have one leg up.
You have extra time to get your loans, debts and savings under control. This means that you have a bigger home buying budget and a lower mortgage rate when you are ready to buy.
Here are four steps to help you prepare if you can find a way out of buying a home:
1. Check your balance
Once you have decided to buy a home, you must first check your balance. To do this, you need to access your credit report from each of the three offices (Experian, TransUnion and Equifax) and determine your creditworthiness.
Your credit determines whether you are eligible for a mortgage and affects your mortgage rate. The higher your score, the lower your rate.
Most mortgage programs require a minimum loan value between 580 and 620.
Ideally, you should review your balance at least six to twelve months before applying for a mortgage. This gives time to improve a low personal score if necessary.
You should also check your report for accuracy and deny any errors, especially negative errors that reduce your score.
To obtain your credit card, please contact each of the three offices separately or order all three copies at AnnualCreditReport.com. Every year you are entitled to a free report from each of the offices.
2. Find out your DTI
Your debt-to-income ratio (DTI) is the percentage of your gross monthly income that is used to repay debt. Mortgage providers use this percentage to measure affordability.
Typically, lenders prefer a DTI rate that is no higher than 36% to 43% depending on the mortgage program.
If you have a gross monthly income of $ 4,000, your monthly debt payments (including a future mortgage payment) should not exceed $ 1,720Your DTI is 43% ($ 1,720 / $ 4,000 = $ 0.43)
Some mortgage lenders allow a higher DTI, but only if a borrower has “balancing factors” such as high credit or a large cash reserve.
To improve your DTI rate, pay off as much debt as possible before applying for a mortgage. This includes credit cards, auto loans, student loans and other loans.
You don't have to be debt free to buy a house, but less debt can increase purchasing power.
3. Save money
Most mortgage programs today require a deposit. This amount ranges from at least 3% to 5% for a conventional loan and at least 3.5% for an FHA home loan.
So if you pay $ 200,000 for a house, you will need at least $ 6,000 to $ 10,000 as a deposit.
No deposit is required for a VA loan or USDA loan.
Also keep in mind that if you buy less than 20% down payment, you are likely to get mortgage insurance. This insurance protects your lender in the event of a default.
You are also responsible for the closing costs, which are approximately 2% to 5% of the loan amount (or $ 4,000 to $ 10,000 for a $ 200,000 loan).
If you're having trouble saving for a deposit, you can use gift vouchers or deposit support to qualify.
When applying for a mortgage loan, your lender will request copies of your bank statements to confirm that you have sufficient reserves for your down payment and closing costs.
If you don't have enough cash, borrowers can use gift funds on some mortgage programs to cover all or a percentage of their mortgage-related expenses.
There are also several Down Payment Support Programs (DPAs) in each state. These offer grants or loans – often forgivable loans – to qualified home buyers who need help with their down payments.
So if you need additional help with expenses, DPA is definitely worth a look.
See if you qualify for a home loan. Start here (August 4, 2020)
4. Determine your budget
Before meeting with a mortgage lender, use an online mortgage calculator to estimate affordability.
Once you know what you are likely to afford, you can estimate how much you will need to save on your down payment and closing costs.
For example, if a calculator says you are likely to afford a $ 250,000 home, you should save at least $ 12,500 on your down payment, and possibly an additional $ 5,000 to $ 7,500 on closing costs.
Estimated Purchase Price: $ 250,000 5% deposit (typical for a conventional loan): $ 12,500 Estimated closing costs (approximately 3% of the loan amount): $ 7,500Minimum savings amount: $ 20,000
Mortgage calculators vary. Some estimate your monthly payment based on home price, down payment amount, interest rate, loan term, and other monthly mortgage costs such as homeowners insurance and property taxes.
However, other calculators estimate affordability based on information you provide about your income and current debt payments.
However, keep in mind that this is only an estimate. You still need to contact a mortgage lender to find out how much you really qualify for.
Get a Custom Loan Quote (August 4, 2020)
So prepare when you are ready to buy a house now
These are steps everyone can and should take before buying a house.
But even if you have found your dream home out of the blue and feel rushed, with a little preparation you can get the best financing available and make a competitive offer.
Here's what to do.
1. Research loan programs
Even if your mortgage lender discusses various home loan solutions, you should do your own research before you meet with the bank.
Once you're ready to buy, the process will go quickly. It can be difficult to digest everything your lender says – and you may not feel like you have time to explore funding options.
Once you're ready to buy, it's quick. You may not feel like you have time to explore all of your funding options.
If you settle for the first loan offered, you may miss out on lower interest rates or a cheaper loan program.
So take your time and find out about various mortgage products. Think about what you really want from a mortgage. Is it:
All of these things are possible. However, a loan officer can only help you find the right match if you know your priorities.
Knowledge is your best weapon to make an informed decision and choose the best loan for your situation.
2. Get pre-qualified / approved in advance
Pre-mortgage qualification and pre-mortgage approval can speed up the buying process. Although both steps sound similar, they are very different.
Pre-qualification is a preparatory step in which you provide the mortgage lender with basic information about your financial situation using an online form. The lender does not review this information, but uses it to determine if you could qualify for funding.
Pre-approval, on the other hand, involves submitting a mortgage application and providing evidence to your lender. This includes tax returns, pay slips, W2s, financial statements and a credit check.
Pre-approval is the most important step before looking for an apartment … Some brokers and sellers only work with pre-approved buyers.
The underwriter reviews this information and determines how much you can afford to spend on a property.
Pre-approval does not guarantee funding, but it is the way a lender says they are likely to approve you unless you meet other loan terms.
Pre-approval is the most important step before looking for an apartment.
You will know what you can afford before looking for a house. In addition, some brokers and sellers only work with pre-approved buyers.
3. Find a real estate agent
Buying a home can be a complicated, intimidating process. You therefore need a specialist at your side who will answer questions and take care of your interests.
Do not rely on the seller's representative for advice and guidance. It is their job to advise their customers, not you.
To find a good real estate agent, get recommendations from friends and family. You should also read online reviews and interview two or three agents before making a final decision.
4. Be ready to make a serious cash deposit
Make sure you have liquid money for your serious money deposit. Once you have found a property, you must submit a serious money check with your offer. This is bona fide money that says, "I am a serious buyer."
Earnest cash deposits vary, but are typically between 1% and 2% of the purchase price – typically between $ 500 and $ 1,000.
However, the seller does not pocket the money. The credit will be held in an escrow account and will either be refunded to you at the time of closing or will be credited against your closing costs and / or down payment.
Home purchases are progressing quickly, so don't hurry to prepare
Buying a house is a big decision, so it is important that you do not hurry.
Some eager buyers act too quickly and skip important steps like house inspection and comparison shopping.
In the worst case scenario, you could get a fixer upper if you thought you were buying a turnkey house, or spend thousands of additional mortgage rates.
On the other hand, a little skill can save you tens of thousands over your mortgage term and even increase your budget for home purchases.
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