Buying a home is a huge investment—probably the most significant purchase of your life. It’s not something you should do without preparation.
Before you start on the road to homeownership, make sure you’re ready. The first step is to determine if you qualify for a mortgage, a lender can help you with this however, to identify a reputable lender who offers competitive rates and fees you’ll want to speak with a top local real estate agent. Your real estate agent will have a network of trusted professionals, including lenders they work with who offer the best rates and terms and are most likely to close your loan in the time your contract permits. These trusted professionals will assist you in not only determining if you qualify for financing, but also offer advice on steps you can take to secure the best possible mortgage interest rate, and assist in providing a mortgage pre-approval letter. For more information on this topic see our Complete Guide to Buying a Home.
Improve your credit score.
The higher your credit score, the better the terms you will be offered, ie. lower mortgage interest rate and possibly lower fees. A score of 700 to 720 can get you a good deal, and 750 and above can garner the best rates on the market. Below 660 or 680, you’re either going to have to pay sizable fees or provide a larger down payment.
Pull your credit reports, and make sure you’re not penalized for old, paid or settled debts.
Stop applying for new credit a year before you apply for a mortgage. Keep the moratorium in place until after you close on your home.
Figure out what you can afford.
There are various ways to determine how much house you can afford. If you’re using an FHA loan, your monthly payment can not exceed 31% of your monthly income. The Federal Housing Authority will let you go higher under some circumstances.
For conventional loans, home expenses should not exceed 28% of your gross monthly income.
Save for a down payment and closing costs.
You’ll need to save between 3 to 20% of the home price for a down payment. Your credit history and loan terms help determine how much you’ll need to come up with.
For example, with an FHA loan, the down payment requirement can be as low as 3.5%. You’ll need a credit score of at least 580. Home loans backed by the Department of Veterans Affairs, or VA, require no down payment. Click here for additional information on Down Payments.
Another cash expense will be closing costs. The national average for closing costs for a $200,000 mortgage is $2,084. These closing costs can be factored into your loan, or in slower markets (Buyer’s Markets) you may be able to get away with asking the seller to cover all, or a portion of this expense.
If a big down payment is a hardship, look for down payment assistance. Search online using the city name, the county name and key word combinations such as “down payment assistance,” “first-time homebuyers” or “homebuyer’s assistance” or talk to your Realtor or lender.
Down payment assistance often is based on location or reserved for particular buyers, such as first-time buyers.
Build a healthy savings account.
Building up your savings—is very important. Your lender wants to know that you’re not living paycheck to paycheck. If you have three to five months’ worth of mortgage payments set aside, you’re a much better loan candidate. Some lenders and backers, like the FHA, will give you more latitude on other criteria if they see that you have a cash cushion.
That money will also help pay for maintenance and repairs of the home. Most repairs are sporadic, but big-ticket fixes such as a new roof or water heater can come up suddenly and drain your budget.
A good rule of thumb is to assume that you’ll spend 2.5 to 3 percent of your home’s value each year on upkeep and repairs. If you buy a $250,000 home, aim to save $520 to $625 per month.
Get preapproved for a mortgage.
Before you start your home search and begin the process of shopping for your home, you should get your financing in place.
You should get a mortgage preapproval before you walk through the first house. Otherwise, how do you know if you qualify for a loan or how much you can afford?
Find and buy a home that fits your lifestyle now and for the next few years.
Short-term home ownership can be expensive, and depending on how much you put down, what it cost you to sell your old house and move it’s recommended that you plan on being in the home for at least 3 years (on average the cost associated with selling a home costs approximately 9% of the the home’s value, in Columbus and Central Ohio homes tend to appreciate at rates of 3-4% per year, however, they re presently appreciating at over 5% and thus you should plan on being in the home for at least 3 years to ensure you have sufficient equity and avoid the need to come out of pocket when you sell).
Do not count on a quick purchase, in this market homes are selling fast and it is quite common to lose a home or two to other buyers who are simply willing to pay more. It’s important that you step back and make certain the house you’re considering is one that will fit the needs of you and your family in the short, as well as the longer term.
For information on the local housing market check out our Monthly Columbus and Central Ohio Housing Reports.
The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in; Bexley 43209 Columbus 43201 43206 43214 43215 Delaware 43015 Dublin 43016 43017 Gahanna 43219 43230 Grandview Heights 43212 Hilliard 43026 Lewis Center 43035 Marysville 43040 43041 New Albany 43054 Pickerington 43147 Powell 43065 Upper Arlington 43220 43221 Westerville 43081 43082 Worthington 43235