As you step into the market, consider these great tips to make sure that you are making the most of your valuable time.
Step 1: Spiff up your credit
Good credit can lower your mortgage interest rates, potentially saving you hundreds of dollar a month. Order a credit report (usually free online or available through your local loan officer, or ask your Soria Real Estate Agent to help!). You can dispute any mistakes, but the most important thing is to build up good credit from here out.
Lenders want clients who can pay bills on time and who do not owe too much to anybody else. Automated bill-paying services help. Stop applying for credit cards just for a free T-shirt, savings on your bill (apply for store credit card & get 20% off your bill – say NO) or shuffling your debt around. Consider closing some of your accounts, but that’s tricky.
Step 2: Start saving for a down payment and closing costs
Home buyers traditionally had to put up a 20% down payment. Now it’s more like 5-10%. Some don’t put anything down (USDA), or if you qualify for an FHA loan, it may be as little as 3.5% down.
You’ll always get a better deal if you make a down payment. Until you’ve paid for 20% of your home, your lender will probably want you to buy insurance on your mortgage.
The buyer also has to come up with closing costs, about 1-4% of the price.
Step 3: Calculate how much house you can afford
Housing eats up more of everyone’s paycheck these days, but as a rule of thumb buyers spend 25-30% of their pre-tax pay on housing. That translates roughly to a mortgage of 3 to 4 times your salary. Consider your entire budget: How is your credit card bill, student loan or kids? tuition? How much will your new palace cost to maintain? Will you get a big break on your taxes from the mortgage interest rate deduction?
Step 4: Shop for a mortgage
New loan offerings make it easier to buy a home, but harder to pick which mortgage is right for you. The standard 30-year fixed rate mortgage allows predictable payments. If you’re planning on moving quickly, consider an adjustable rate mortgage, which has low interest and payments for the first few years. Buyers have really low starting payments with interest-only loans, but they don’t build up any equity in their homes.
Compare terms and rates from several sources. A pre-approved mortgage will let you pounce on the right house. Your lender usually calculates your monthly expenses including principal, interest, taxes and insurance. You’ll pay a monthly bill into an escrow account instead of getting clobbered by annual taxes.
Step 5: Shop for a home
Make a list of the features you want or don’t want. A realtor can be a great help, so much so that some start planning here months or years before they’re ready to buy.
The buyer pays the sale commission, which typically runs 5-7%, split between the seller’s agent and buyer’s agent. So – especially first time buyers – get the service basically for free. Some also shop from people who are selling their own homes, figuring the lack of a commission means a lower price.
Some agents specialize in buyers. To put customers at ease about potential conflicts of interest, some go as far as not working at firms that take any listings.
Step 6: Make an offer
How much did similar homes sell for nearby? How long has this house been on the market? (Weary sellers may be more flexible.) Your realtor can evaluate market conditions and help you make a reasonable offer.
Step 7: Sign a contract
You sign and pay a deposit that is held by a neutral third party. In some states, you will want a real estate lawyer to go over the deal. Typically buyers can back out if the home inspector finds big trouble or if they can’t find financing or, in a new twist, like homeowner’s insurance.
Step 8: Take a Close Look at Your House
Make sure your contract is contingent on a home inspection for a detailed, objective evaluation of your home’s infrastructure. After, negotiate with the seller over needed repairs. Be sure the title of the house is free of any liens. Your bank will appraise the house, too.
Step 9: Shop for homeowners insurance
Shop around, but your own car or life insurer will probably give you a good package deal. As always, a higher deductible saves you money.
Step 10: Sign papers
You will most likely meet at a title company or attorney’s office (or some other third party), sign a big stack of papers and receive the keys to your new home.