Buying a home is a huge accomplishment, but the housing market is competitive. That’s especially true when it comes to mid-priced, affordable houses. So how do you get ahead in a hot market? The key is preparation. The sooner you prepare to buy a house, the easier it’ll be to beat the competition. Wish this step by step guide can improve your home buying prospects.
1. Check your Credit
Once you decide to buy a new home, the first thing you’ll need to do is to check your credit history. Contact each of the three bureaus separately (Experian, TransUnion, and Equifax), or order all three copies from AnnualCreditReport.com. Each year you’re entitled to one free credit report from each of the bureaus. Your credit score determines whether you’re eligible for a mortgage, and it influences your mortgage rate. The higher your score, the lower your rate. Ideally, you should check your credit history at least 6-12 months before applying for a mortgage loan. This allows time to improve a low credit score, if necessary. You should also check your credit reports for accuracy and dispute any errors, especially negative errors that decrease your score.
2. Figure out your DTI
Your debt-to income ratio (DTI) is the percent of your monthly debt repayment to gross income. Generally, lenders prefer a DTI ratio that’s no higher than 36% to 43%, depending on the mortgage program. To improve your DTI ratio, pay off as much debt as possible before applying for a mortgage. This includes credit cards, auto loans, student loans, and other loans. You don’t have to be debt-free to purchase a home, but less debt can increase purchasing power.
3. Save for down payment
Typically, a conventional loan requires a minimum of 3% to 5% down payment, FHA loans require a minimum 3.5%. A down payment isn’t required with a VA loan or a USDA loan. however, for conventional loan, if you purchase a new home with less than a 20% down payment, you’ll likely pay private mortgage insurance (PMI). This adds to your monthly payments. FHA loans also require an upfront mortgage insurance premium (UFMI) fee in addition to the premium of mortgage insurance (PMI). When applying for a mortgage loan, your lender will ask for copies of your bank statement to confirm you have enough cash reserves for your down payment and closing costs.
4. Get pre-qualified/pre-approved letter
When you are ready to buy a house, Please talk with us about your financial situation, we will do the analysis to let you know what your home purchase price range will be, how much will be your down payment, the loan program fit to your situation and the potential rate. we will write a pre-approval letter for your house-searching. Getting a pre-approval letter is the most important step before house-hunting. Some Realtors and sellers will only work with pre-approved buyers.
5. Hiring A Real Estate Agent
Buying a home can be a complicated, so you’ll need a professional on your side to answer questions and look out for your best interests. To find a good real estate agent, get recommendations from friends and family. You should also read online reviews, and interview two or three agents before making a final decision.
A good real estate agent doesn’t just help you find your dream home. They also advocate for you throughout the buying process. They can suggest a reasonable starting offer and help you build a competitive offer in a hot market. Your real estate agent will also negotiate the purchase price, as well as details like who will make certain repairs and whether the seller will help with closing costs (which can be up to 5% of your mortgage).
In short, you need a real estate agent you can trust. That’s why your search should actually start in-person, rather than online.
6. Finding The Right Home
Every home is unique. In general, though, they break down into several categories:
- Single-family homes (including manufactured houses, modular homes and PUDs): This is the sort of home a little kid is likely to paint if you ask her for a picture of a house. That’s no surprise. Because of all the different types of homes, this is by far the most popular. In 2000, more than 60 percent of all homes in the U.S. were detached residences, each intended for a single family. The biggest benefit of a single family residence is the freedom. Your ownership is usually “free hold/fee simple,” meaning it’s all yours to do with what you will. you have your yards with more privacy
- Condominiums, co-ops or townhomes: A condominium (condo) is a residential unit that you own within a larger property. In other words, you are typically the legal owner of your unit, someone else owns the common areas in your building, the structure itself and any surrounding land. With a co-op, you don’t own your unit at all. In fact, you and the other residents between you typically own the company that owns the larger property. What you actually own and control are shares in the company, and a board runs the whole show. Someone else is going to clean, repair and maintain the common areas, including the grounds. Many condos and co-ops provide extra amenities, including pools, gyms and 24-hour security/door staff. But You need to pay your share of all those cleaning, repair and maintenance costs — and for those amenities. Sometimes, noisy, messy and inconsiderate neighbors can be an especially troubling issue in some buildings. Condos and co-ops are often a lifestyle choice for those who don’t want to spend time on home maintenance and yard work.
- Townhome: A townhome often two or more stories high, but their defining characteristic is that they share at least one wall with a neighboring property. That’s not a yard wall; it’s one that holds up the house. These are often built where land is at a premium. So they may be close to downtown, provide waterfront views and access, adjoin a golf course or be handy for some other desirable amenity. They often provide you with your own backyard, though this may be smaller and perhaps less private than typically found with a single family residence
- Multi-unit housing (duplexes, triplexes and fourplexes): Multi-unit homes come with two-to-four units on one property. They may share walls or be completely detached. Multi-unit housing can be a great option for multi-generational families who want to live together, but not right on top of each other. You also can live in one unit and get rental income for the others. Most lenders allow you to finance them as primary homes as long as you live in one unit.
7. Making An Offer
Once you’ve locked down your preapproval letter and real estate agent and found your dream home, the next thing is the actual process of making an offer. Here’s what you’ll need to do once you’ve decided you’re serious about a house:
- Before you approach the seller, you’ll need to decide how much to offer, what contingencies you want and how much earnest money you’ll deposit. Real estate agents are particularly useful in assessing the current market and housing costs. Your agent will complete a comparative market analysis, which considers the most recent sales in the area in order to help you assess how the house you are interested in compares to what the others sold for. Be sure to ask questions about recent sales that might not yet have gone to closing, which can help you decide if it’s a seller’s market, a buyer’s market or if it’s transitioning from one to the other.
- You’ll make your offer via a letter that you and your real estate agent work on together. One thing that’s helpful to keep in mind is that sellers want certainty, your offer may be more likely to get accepted if you have fewer contingencies.You or your real estate agent will finalize the letter and submit it to the seller or the seller’s agent. Then, all you can do is wait for a positive response.
- Once the seller has received your offer, they can either accept it, reject it or request changes. If they make a counter offer, your agent can act as a go-between during negotiations.
8. Ordering A Home Inspection
Before you finalize your house purchase, be sure the house is in good condition. The best way is to have a professional inspection. You’ll likely want to hire at least one and possibly more professionals to check out the building’s structure, systems, and physical components, such as the roof, plumbing, electrical and heating/cooling systems, major appliances, floor surfaces and paint, windows and doors, and foundation, and detect pest infestations or dry rot and similar damage. The inspector should also examine the land around the house for issues concerning grading, drainage, retaining walls, and plants affecting the house.
If the inspection reports show that the house is in good shape, you can proceed with the purchase, knowing that you’re getting what you paid for. If the inspections bring problems to light, such as an antiquated plumbing system or major termite damage, you can negotiate to have the seller pay for necessary repairs or to lower the purchase price. Or, you can back out of the deal, assuming your contract is written to allow you to do so
9. Choose a mortgage lender
Now that you’ve found a home and your offer has been accepted, it’s time to make a final decision about your lender. You can stick with the lender you used during the pre-approval process or you can choose another lender. When shopping for a mortgage, remember your rate doesn’t depend on your application alone. It also depends on the type of loan you get. Of the four major loan programs, VA mortgage rates are often the cheapest, typically beating conventional mortgage rates. USDA and FHA loan rates also look low at face value, but remember these loans come with obligatory mortgage insurance that will increase your monthly mortgage payment.
Conventional loans also have PMI, but only if you put less than 20% down. So look at a few different lenders’ rates and fees, but also ask what types of loans you qualify for.