April 1st is historically the beginning of real estate's busy season with both buyers and sellers beginning to flood the market. We're sure you've heard time and time again that interest rates are at an-all time low, but will be rising in the very near future. That means that now is the best time to get the home buying process started!
Here are 5 of our best tips to help 1st time home-buyers get started on the road to financial stability:
1. Evaluate your financial health.
First things first, run a credit report on yourself, and anyone else who will be on your mortgage with you. Generally speaking, lenders are looking to see a credit score of at least 600 which indicates that you have a track record of being responsible with your money. While you're looking at your credit report, be sure to take note of any ongoing liabilities and make sure that 1) they are all accurate and 2) check to see if there are any which you could pay off right away. The fewer monthly bills you have (car payment, student loans etc.) the higher your buying power will be!
Next, make an honest budget of your monthly income and expenses; don't forget to factor in the "extra" things like entertainment and dining out! Once you have an accurate assessment of your monthly funds, decide on how much you're comfortable allocating for housing. Keep in mind that the bank will most likely require your monthly housing costs to be at or below 30% of your gross income.
2. Talk to a lender.
Once you've evaluated your credit and budget, it's time to seek out a knowledgeable lender in your area to determine your borrowing power. We recommend speaking to someone local and accessible as it can make your entire home buying process much less stressful. Your lender will ask for a list of documents in order to complete your pre-approval application, so be prepared to provide things like your most recent pay-stub, bank account information and tax information. The pre-approval process is very quick and relatively simple. Within a day or two you'll know the maximum amount that the bank would be willing to lend to you based on your financial situation.
Your lender will also be able to discuss their current mortgage programs with you, and help you to decide on the one that will be most viable for your personal situation. Be sure to keep in mind that certain programs will only be available for certain properties, so be sure to discuss your preferred lending program with your realtor.
3. Find a knowledgeable realtor.
Speaking of realtors, the next task to tackle is finding a knowledgeable, trusted realtor to assist you. Keep in mind that as the home buyer, you do not pay commission to the realtor, the seller of the home does (there are certain circumstances where that is not the case, but they are very rare). It is of your best interest to have someone on your side negotiating for you and fighting for your best interests.
We suggest researching testimonials from past clients to get a feel for each realtor's individual style and specialty. Once you've decided on someone you'd work well with, they will ask you to sign a few routine documents, talk to you about your individual needs, preferences and price range, and set to work finding homes to show you.
Your realtor will be your go-to person during the entire home-buying process. An experienced realtor will be able to field any question you may have and either answer it themselves, or provide you with the resources you need. The process can be stressful, but a good agent will communicate all details and deadlines with you and work to ensure that everything is handled seamlessly.
4. Decide on your comfort zone.
Now that you know your borrowing power, and you've found a qualified agent to help you, it's time to get down to the details. You'll need to decide first and foremost what you're comfortable spending each month on your home. Share that with your realtor who will help you determine what that means in terms of your down payment and the overall price range of homes you'll be looking at. Remember, just because you're pre-qualified for a certain amount doesn't mean you have to actually spend that much. It's a personal decision, but often times people would rather buy below their maximum and feel more comfortable with their cash flow each month, instead of feeling pinched for cash.
With your budget in mind, it's time to talk about your preferred locations. Be flexible here; you may start out having your heart set on a certain neighborhood, but see a house across town that meets all of your criteria. Prepare a list of areas that would interest you, and likewise, a list of areas that are out of the question. The more information your realtor has, the more efficient they'll be at finding you something you love!
5. Remain calm and trust the process.
Once you've found a home, made an offer, and begun the purchase process, your lender will need to turn your pre-approval into a mortgage application. They will set up a meeting with you and give you a list of items that they'll need to get the ball rolling. This may seem intimidating, but hang in there, stay organized, and make sure to ask questions if you have any. Your lender and realtor are working on your behalf, toward a common goal, so be sure to utilize their expertise when needed!
You will, most likely, opt to have your prospective home inspected. This will uncover any abnormalities and give you a solid idea of the home's condition. Next, the bank will require that the home is appraised to ensure that they are making a good investment. The home will be expected to "meet value" meaning it must appraise for at least the amount that you are borrowing. For example, say you're purchasing a $200,000 home and lending $180,000 from the bank, the appraisal must state that the home is valued at $180,000 or above.
Most importantly, try your best to stay calm during the process. It can be stressful, but keep in mind that 9 times out of 10, any hiccups can be resolved - just keep the lines of communication open. Most purchases take 4-6 weeks from contract to closing day, so just hang in there and focus on the end goal of owning your chosen home!