If you watch the news, read the paper, or talk to just about anyone you have probably heard that now is the time to buy, but is it really?
With June being the National Homeownership month it is important to remember that the process of buying and selling a home is different for everyone. If now is the time to buy for you the following five steps will be helpful in your quest to be a homeowner.
1. Get Educated. A little mortgage know-how goes a long way toward ensuring you get an affordable mortgage.
Before you hire an agent or find a lender, get educated on the loan process and key factors that make a loan affordable. You'll want to know about loan types - fixed-rate mortgages, adjustable-rate mortgages, FHA and VA loans - and the full range of line items that contribute to the total cost of securing the loan, including discount points, appraisals, etc.
2. Get Your Finances in Order. Given today's stronger lending guidelines, it's more important than ever to get your finances in order.
First, get a copy of your credit report(make sure that is includes all three bureaus) and check your credit score. If your credit score is low (anything below 620), take the time to improve it. If you find errors on the report, take the time to correct them. This may put your home buying plans on hold (creditors typically look for a two-year history of consistent, on-time bill payment to establish good credit), but it could result in a better loan and more affordable rates.
3. Establish a Budget. Before you start searching for your home, make sure you know what you can afford.
Lenders will evaluate all your debts and take into account your full financial situation when qualifying you for a mortgage. A key factor is how much income you bring in versus how much you will pay out each month. Here's a good guideline to check where you are:Your housing expense (the mortgage payments on the house you are buying) should generally not exceed 28 to 33 percent of your total monthly gross income. All revolving debt (including car payments, credit cards payments, and your mortgage payment) should not exceed 36 to 40 percent of your total monthly gross income.
It's always helpful to create a monthly budget, itemizing all your recurring expenses, including estimated maintenance costs, taxes, utility bills, and condo or homeowners' association dues. Then, test your budget. If you can pay all these debts and continue to add to savings, you may be ready to buy a home. If not, you may have to revise your plans.
4. Start Saving. Having savings in reserve helps ensure you can afford the upfront costs of homeownership.
Upfront costs of homeownership include:
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Down Payment- Five to twenty percent of the purchase price. Keep in mind, a lower down payment means you'll have to qualify for a higher loan amount and pay for mortgage insurance(PMI) - adding to your monthly mortgage payment.
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Deposit - Typically One percent of the purchase price followed by an additional four percent when the offer is accepted. If your offer is accepted, the deposit or earnest money will be applied towards the down payment. If your offer is rejected, the down payment will be returned to you.
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Closing Costs - These costs include all fees required to execute the sale, including attorney fees, title insurance, appraisals, and points.
5. Get Pre-Approved. In today's competitive market, home buyers should get pre-approved for a mortgage before they begin their house hunt
To be pre-approved for a loan, your lender will gather information about your job, assets, income, and debts and then determine how much financing you're qualified to receive. If you are pre-approved, you will receive a pre-approval letter from the lender. When you're ready to make an offer on a home, this pre-approval letter will tell the seller you're a serious and qualified buyer. Keep in mind, pre-qualification doesn't mean you have an approved loan. You'll still need to apply for a loan if your offer is accepted.
Buying a home is a major life decision and only you can determine if you are financially prepared to do so. If you missed the take credit you can still take advantage of the low housing prices and interest rates, Freddie Mac quotes rates at 4.69 for 30 year fixed rate and 4.13 for 15 year fixed rate.
Still have questions? Contact The Kasey Group for more information.
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