June 5th, 2022 3:49 PM by Jackie A. Graves
These days, the real estate market can seem quite literally all over the map—still super-hot in some areas while cooling off in others. Regardless of where you live, first-time home ownership can be an attainable goal with the right research and advance planning. Here are some smart money moves and home-buying tips you can make today to put you on the path to homeownership.
Tips for first-time homebuyers, 12+ months out
1. Check your credit (and work on it)
The higher your credit score, the better the interest rate on your mortgage.
Pull your reports
Thoroughly understand where your credit stands—and why—by pulling free reports from all three agencies (Equifax, Experian and TransUnion). “Look for any errors or past-due accounts that might have gone to collections,” says Ralph DiBugnara, president of New York City-based Home Qualified, an online resource for homebuyers. “These liabilities can create roadblocks when you apply for a home loan. If anything is amiss, contact the creditor to see if you can sort it out.”
Fix and then monitor your credit
Your credit score is largely based on your amount of available credit—credit card limits, overdraft-protection amounts and any other lines of credit you have—and how much of that you’re currently using. “Ideally, your credit utilization ratio should be 30 percent or less,” says Lindsey Shores, assistant manager of Real Estate Originations with SchoolsFirst Federal Credit Union in Sacramento. “For many people, this is something they have to plan for and work to pay down to achieve that 30 percent number.”
A great place to start if you need to improve your credit is to focus on paying down your debt and keeping credit card balances low. You also want to make sure you’re paying all your bills on time, as late payments will also impact your credit score.
Keep periodic tabs on your credit through any number of free services, including those offered by many banks as well as Bankrate. And if you’re not already signed up for a credit monitoring service, you might consider doing so. “You’ll get notified if your credit score changes, or if there’s suspicious activity on your report,” DiBugnara says.
Tips for first-time homebuyers, 6-8 months out
2. Nail down your budget
Think about not just how much house you can afford, but how much you can take on in recurring costs once you’ve purchased your home.
Mortgage, insurance and property taxes are the three primary monthly expenses of homeownership, but you’ll also need to cover utilities and possibly HOA fees, plus it’s a good idea to put aside a bit of money on a regular basis to account for maintenance and unexpected repairs.
“As a rule of thumb, I tell clients to prepare to spend 1 percent to 3 percent of the value of their homes each year on house [expenses],” says Steve Sivak, a certified financial planner and managing partner of Innovate Wealth in Pittsburgh. You might need to set aside more if the home you end up buying is older, bigger or has maintenance-heavy amenities, such as a pool.
“One lesson from the [housing] crash: Just because the bank approves you for a certain amount, it doesn’t mean you can afford it,” says Lauren Lindsay, a Houston-based independent financial planner.
Another thing to consider: If you shop for houses below your budget, you’ll actually have some leverage to go above asking price in the event of a bidding war, a not-uncommon occurrence in the current market.
3. Consider your needs and wants
Finding the ideal location and address can take a lot more time than you expect, so begin scouting neighborhoods early in the process.
“Drive and walk around that area at different times of the day and night,” says Bill Golden, a Realtor and associate broker with RE/MAX Around Atlanta. “This will help you get a feel for what you like and don’t like.”
Along with pinpointing the neighborhood, now is a good time to narrow down your preferences for the home itself. What type of house are you looking for? What can you compromise on? What are the dealbreakers? Think about what you like about where you currently live — that can help inform your list of needs and wants.
Tips for first-time homebuyers, 3-4 months out
4. Get assets in place
Regardless of level of income, you should be able to document to potential lenders that you have a stable source of earnings. “Your income and how much you earn monthly will be scrutinized by lenders, who will look for a two-year employment history and want to see consistent income — whether you’re receiving a salary, hourly pay or are self-employed,” explains Tom Hecker, a loan officer with Cherry Creek Mortgage in Greenwood Village, Colorado.
In terms of your liquid funds and overall financial health, in addition to reviewing your credit report, mortgage lenders typically look at your bank statements from the last two months when assessing your application. If you plan to make any deposits into your checking or savings accounts from other assets — such as a down payment gift — do it before that 60-day window. This gives the funds time to “season.”
And it’s best to avoid opening new credit accounts or loans, or racking up more debt, at this stage, DiBugnara adds. All those activities could possibly ding your credit report.
Tips for first-time homebuyers, 2 months out
5. Shop multiple lenders
Things are getting real. At this point, you should know what monthly payment you’re comfortable with, what areas you can afford and how much you can put down. Now it’s time to shop for a mortgage.
Compare mortgage rates from different types of lenders, as well as different types of mortgages, to help you decide whether this is a good time to lock in your rate. Consider your experience with the lender, as well.
“In this market, you can find competitive rates and service, but you want to pay close attention to lenders’ responsiveness and communication,” DiBugnara says.
It’s also a good idea to focus not just on the rates you’re being quoted, but all the terms of the mortgage. What are the late fees? What are the estimated closing costs? Is there a prepayment penalty? If you’re able to get a mortgage with the bank where you already have accounts, will you get a better deal? Sometimes it makes sense to choose a loan with a slightly higher rate if the other terms are more favorable overall.
6. Get preapproved
Once you settle on a lender, get preapproved for a mortgage. Unlike prequalification, which is a projection of the possible loan size you’ll be able to get, a preapproval is an official letter from a lender stating exactly how much they will loan to you. A pre-approval will put you in a much stronger position when you’re making an offer on a house and it will ease the process once your offer has been accepted and you’re actually applying for your loan.
Preapprovals usually expire after 90 days, DiBugnara says — ask your lender how long yours will be good for. If you’re a first-time homebuyer with significant debt or so-so credit, you might want to apply for a pre-approval as soon as possible to zero in on issues to fix.
“Once you have a pre-approval in place, keep sticking to your budget and savings plan and continue to pay all debts on time,” Hecker says. “Try not to make any extraordinary purchases or take on extra debt, either.”
7. Look for down payment assistance
There are many first-time homebuyer and down payment assistance programs, including at the local, regional and national level, that can help cover your down payment or closing costs. These programs are typically limited to borrowers with an income below a certain level (based on location), and can impose a cap on the home’s price, too. Talk to your loan officer and explore your options to see what you might be able to pair with your mortgage:
8. Work with a real estate agent
After you have your financing squared away and a preapproval letter in hand, your next step as a first-time homebuyer is to hire a real estate agent.
An experienced real estate agent who knows the area you’re looking to buy in especially well can advise you on market conditions and whether homes you want to make offers on are priced properly. Your agent can also identify potential issues with a home or neighborhood you’re unaware of and go to bat for you to negotiate pricing and terms.
“As a buyer, it costs you nothing to work with a Realtor, but they can save a lot of time and hassle [in your search],” Lindsay says.
You can start by asking friends, relatives or co-workers for referrals.
“Don’t just pick [an agent] blindly — make sure it’s someone who works in the general area you’re looking in and whom you feel comfortable with,” Golden says, adding that, despite the competitive market, “new listings come up every day, and a good Realtor will be on top of that and get you to see new listings as soon as they become available.”
Tips for first-time homebuyers, 1 month out
9. Put contingencies in writing
When you find a contender and prepare to make an offer, be clear about any contingencies that’ll allow you to walk away from the deal. These can include the home inspection revealing costly issues or your mortgage approval falling through. If these terms are spelled out in writing with deadlines, you’ll have an out if the transaction doesn’t go as planned — and get your earnest deposit back, too.
If there is a problem with the home, get estimates from contractors on any repairs or upgrades it might need before you close, DiBugnara says. Doing this research can help you plan for those expenses and buy you time to have the work done before moving in.
It’s also a good idea at this stage of the game to enlist a real estate attorney to review your purchase contract and protect your interests.
10. Keep the status quo
A mortgage preapproval doesn’t mean things are set. Lenders recheck your credit, bank statements, income and employment just before closing to make sure you’re still able to handle the repayment. Making big purchases, taking out new loans or lines of credit or even closing accounts can delay the closing or kill your loan altogether, DiBugnara says.
“Any skeletons you have in your financial closet will be found, so it’s best to be as honest and upfront as you can,” DiBugnara says.
“You don’t want to risk having your loan declined at the last minute,” agrees Shores, “so don’t make any large purchases, like a new car, before closing on your loan, don’t get talked into applying for new retail store credit cards and avoid making any new charges once you have been preapproved for your mortgage.”
Source: To view the original article click here