While everyone looks forward to searching for their dream home there are several steps that need to be completed in a somewhat sequential order to make the process efficient and as easy as possible. Following the steps below will help avoid problems and delays.
A good credit score is essential to buying a home, as it proves you have a good track record of paying off past debts (such as credit card bills and loans). The higher your credit score, the lower the interest rate you will receive. Usually, a credit score of 720 or higher will get you the lowest interest rate on a conventional mortgage and a score above 760 will obtain the lowest interest rate on a jumbo mortgage. The minimum credit score for an FHA mortgage is 600.
You can request a free copy from all three credit reporting bureaus: TransUnion, Equifax, and Experian. Alternatively, you can complete a mortgage application and have your credit run as part of that process.
GET A DOWN PAYMENT
The very first step for every home buyer should be to figure out their finances. Unless paying cash, buyers will need to get a mortgage. There are various types of mortgages (a discussion which is beyond the scope of this article) and each has different down payment requirements that range from zero down payment for a VA loan, up to 20% down for a jumbo mortgage. Conventional and FHA mortgages allow for down payments as low as 3%.
The source of the down payment can be bank accounts, investment accounts, retirement accounts, the sale of assets and gifts from relatives. Two sources of funds that cannot be used for the down payment are cash and crypto currency.
Before you head out looking at homes to buy, getting pre-qualified is a critical first step. Contact a qualified loan officer who is knowledgeable and who can help you through the process. Asking friends and family for a referral is better than cold calling a company. The pre-qualification process should guide you in determining how much you qualify for and what your budget is from the purchase price standpoint and monthly payment. You should have most of your questions answered during this process.
Credit, employment history and assets will also be evaluated. Typically, you will not be able to start looking at house until you know you are pre-qualified.
ATTEND A SEMINAR OR TAKE CLASSES ON BUYING A HOME
While potentially beneficial for anyone, a first-time homebuyer may benefit from taking a home buying class that also talks about budgeting and overall costs of home ownership. Community organizations and many local government and nonprofit agencies also offer classes that can help you prepare for the financial responsibility of owning a home.
Once you have a budget in mind, make a list of your must-have home features. Your price point will likely dictate the size, location, and amenities of your future home. Among the factors to consider are:
- Number of bedrooms and bathrooms
- Square footage
- Outdoor space
- Preferred location
- Type of home
- School district
- Work commute
HIRE A REAL ESTATE AGENT
Most buyers find it helpful to have a real estate agent on their side to guide them through the process. It is a good idea to interview real estate agents to find one you can trust to have your best interests in mind. Again, asking friends and family for referrals is often the best way to find a realtor. Typically, sellers fund the buyer’s agent commission, which makes using an agent a cost-effective option for buyers. Here are some areas where a buyer’s agent can help:
- Knowledge of the market
- Negotiating both price and inspection repairs
- Professional recommendations
- Start the home search
By following these steps, you have a much better chance to make the home buying process efficient, enjoyable, and successful.