The current estimate for homeowners in the United States is roughly 127 million and if you’re in the market for a home of your very own then there are a few things you’re going to need in place in order to join their ranks. Achieving homeownership is within the grasp of many of us and these 10 steps can help expedite the process.
Check Up On Your Credit Score
It’s no secret that lenders use your FICO scores as one of the main determining factors when it comes time to figure out how much interest they’ll charge you. The better your score, the less risk you pose to the lender which means the less you ultimately pay.
Above is an example chart courtesy of MyFico.com which illustrates what one can expect their interest rates to be on a $300,000 home, depending on your FICO score.
Every twelve months you’re able to check on your credit report for free from each of the three major reporting agencies- Equifax, Experian and TransUnion. Upon checking your reports, if you happen to notice any errors then it would be a great time to sort them out, the sooner the better as these matters can sometimes take a short bit of legwork and time to clear things up. The idea here is to raise your overall credit score by mending any errors so your score is precisely where it should be. If you notice any issues which may be are not in error but rather old debts that need to be taken care of then your best bet is to get it all sorted as best you can, the better your score is the lower your mortgage rate tends to be.
There are different schools of thought when it comes to taking care of old credit card debt but among them are some commonalities.
- Pay off old debt wherever possible
- Don’t close those old accounts once paid but also do not use them any longer
- The more mature the accounts the better it looks on your score provided no outstanding balances are glaringly evident
There is something called the “debt to income ratio” and aiming for a figure of 36% is optimal in this case. Your DTI is how much debt you’ve accumulated vs your overall income. This accounts for bills such as student loans, car payments and of course credit cards. Typical cost of living stuff like utility bills are not counted toward your DTI.
It’s important to note that this first step usually takes the longest as it may require a lot of phone calls and possibly a few letters being exchanges in order to get all your affairs squared away. It’s also one of the most important of all steps covered in this article.
Make A Budget For Yourself
This is a topic we cover a lot on this website and that’s for good reason, it’s important! If you haven’t already begun saving for a downpayment on your home then it’s time to start. The general rule of thumb is that you really shouldn’t spend more than 30% of your gross income on housing. That figure includes not just your mortgage payment but your property taxes and insurance as well, provided you spring for insurance.
There’s something called PMI, or private mortgage insurance and folks who have less than 20% of their mortgage saved for a downpayment. Now, if you can manage this 20% figure then you may be able to skip PMI which could give you a nice bit of savings. PMI can cost up to 1% of the entire loan on a yearly basis so again, the sooner you start saving to cover a sizeable down payment the better off your payments will become.
Your budget is the blueprint to landing your desired home. Hunting for a desired location which is surrounded by all the things you want, or the reverse, not surrounded… it all comes down to what you can afford and of course saving up for this ahead of time is going to expedite the process of actually buying once all the idea-scenarios have been listed and considered.
Hire A Real Estate Agent
Picking the right agent is very important as they’re the one who can do things for you such as refer lenders, appraisers, title companies and the obvious one… buyers. Before you run off hiring the first real estate agent who manages to charm you with a handshake and a smile you need to do some homework and find out what their sales track record is. You have to know the number of houses they can show you on a weekly basis, it’s also important to figure out how they’re going to handle multiple offers should things need to be juggled.
You want an agent who is familiar with the area you’re looking to purchase as well as making sure they’re well networked in that area as this will lend itself to getting you into a showing first rather than at the tail end after other potential buyers have already made their rounds of the place.
Shop Around For Your Mortgage
You’re going to need a prequalification letter in hand before you go looking for a house as this is your proof that a lender will loan you a certain amount of money. It’s essentially your ticket to putting in an offer on a house. If you happen to have an excellent credit score then that’s great, you’ll have your run of the various lenders and be offered the most competitive rates. If your score falls somewhere in the middle you’re going to need to expect to pay a bit more and may have to do some shopping around to find the best possible rate for you.
A borrower with low credit scores might find themselves in a situation where their only means of getting into a home is to get an FHA or VA loan. These types of loans do work for some folks but they come with restrictions and extra costs so always make sure all of your options are considered before making a final decision.
Show Up For The Open House
This can be a bit tricky for some of us but the more open you’re able to keep your schedule in order to go view homes for sale, the better chance you’ll have of getting into one which is within your budget. It’s important to not bother viewing homes outside your desired budget, being house rich but cash poor never helped anyone.
If you get word that a viewing just became available in an area you’ve had your eye on then you might need to drop what you’re doing or plan to squeeze it into your schedule as soon as absolutely possible.
Sign That Contract
Once a price is agreed upon by the seller and yourself it’s now time for the seller’s agent to draft a purchase agreement. This is a legally binding contract which includes the agreed upon terms such as estimated closing date and price. It is also at this time that the buyer will put what’s commonly referred to as “good faith” or earnest money. The amount of this money is typically around 2% of the purchase price so you can figure on a $300,000 house that the buyer would put down up to $6,000 in earnest money. If the buyer happens to break the contract then the seller keeps the money and the house goes right back up for sale or is sometimes offered to the next buyer in line if they’re still interested.
Interview Your Home Inspector
While it’s common for the real estate agent to find a home inspector it’s a good idea to do a bit of investigation into their credentials for yourself. Make sure the inspector is bonded or insured and always ask for referrals from them so you can find out what others have to say on their experiences with the particular inspector.
Review The Home Inspection Report Carefully
Some instances might require your inspector to specialize in certain something such as chimneys, sewers, pools, mold, termites and asbestos. It’s a good idea to get a second opinion in the event questions come up by your inspector. Remember that the big-ticket items like roofs, structural integrity and HVAC systems are all things to look at carefully. If problems arise during the inspection process it’s probably time to negotiate new terms into the price to cover repair costs, be sure to talk to your sales agent about this.
Close The Deal On Your New Home
Once the repairs are negotiated and a final walk through is completed it’s time to go through the process of closing on the sale. The closing process is the last step before you have the transfer from seller to buyer.
A date should be set for the meeting where all respective requirements for seller and buyer are met. During this meeting you may meet the escrow or closing agent, the attorney who might also be the escrow agent, a representative for the title company and of course the mortgage lender and real estate agents. During this meeting you will be required to sign a variety of legal documents, this is also the time when you’ll be expected to pay all of your closing costs and escrow fees. There are cases where you can roll your closing fees into the mortgage but if that wasn’t work into the terms then you will need to cover these costs at the meeting.
You’ll be expected to provide proper identification such as a driver’s license or passport and any other id which was required of you during any prior negotiations.