February 22nd, 2019 9:23 AM by Jackie A. Graves
FREEHomePurchaseAnalysis FREEFHAHomePurchaseAnalysis FREEVAHomePurchaseAnalysis
There are 127
million homeowners in the country, according to the U.S. Census. To join their
ranks, here are 11 steps you should follow that will help you achieve homeownership:
Check your credit score
A good credit
score will get you a good interest rate. A great credit score will get you a
great one. Lenders use credit, or FICO, scores as one factor to determine how
much interest they charge borrowers. Borrowers who have excellent credit pose
less risk of defaulting on the mortgage, so their reward is paying a lower
mortgage interest rate.
interest charged on a $300,000 home, depending on your FICO score
TOTAL INTEREST PAID
To begin, check your credit report to make sure
there are no errors on it. Credit reports from each of the three major credit
reporting agencies: Equifax, Experian and TransUnion, are available for free once
every 12 months. If there are errors, then contact each agency and report the
mistake. You can also check your credit score for free with Bankrate. The goal is to raise your credit
score before you shop for mortgages.
Some other things home buyers can do to turbocharge their scores
is to bring any past-due credit card balances current and stop using credit
cards altogether — but don’t close the accounts once you pay off the balance.
It looks good for you to have established and available credit, as long as you
don’t use it. That means keep that Old Navy card and Visa gas card open, even
if you no longer use them. The longer you’ve had the account, the more it
enhances your score.
for a 36% debt-to-income
ratio, or DTI. This is how much debt you have versus income. Bills
that are counted in your DTI include debt like student loans, car payments and
credit cards. Utility bills, for example, are not included in the DTI.
might take the longest (it’s up there with saving for a down payment), so get
started on improving your credit before you do anything else.
Create a budget
This is the
part where dream house meets reality. It’s time to figure what your needs are
and what your budget can afford. The general rule of thumb is that you
shouldn’t spend more than 30 percent of your gross income on housing. This not
only includes your mortgage payment,
but your insurance and property taxes, as well.
If you don’t
already have a down payment,
now’s the time to start saving up. For folks with less than 20% saved, they
will have to get private mortgage
insurance, or PMI. If you can save up enough to skirt the PMI
requirement, you’ll save big bucks. Generally, PMI costs 0.5% to 1% of the
entire loan on a yearly basis.
Keep in mind,
there are programs that require as little as 3% down and some programs, like VA and
USDA, require no money down. Navy Federal offers a loan with no money down and
no PMI, but charges a 1.75 percent funding fee.
Part of your
house budget is knowing what kind of house you can
afford. Create two lists, one for features you must have, for
example: walking distance to school or three bedrooms, and the second list
should outline the features you would like to have, but can live without.
wish lists are complete, you can begin researching what’s on the market. You
might find that your market is reasonable enough that you can afford your dream
house. The opposite could also be true: a modest house in your desired area is
unaffordable, so you have to adjust where you look or the type of house you
case, your budget is your blueprint for making a decision you won’t regret
Hire a real estate agent
A good real
estate agent is like a skeleton key that can unlock the door to the multiple
resources you need to buy a house. An agent can refer you to lenders,
appraisers, title companies and, of course, buyers.
hire an agent, make sure you find out what their sales track record is, how
many houses they can show you each week (some agents are overscheduled), and
how they’ll handle multiple offers.
Find out how
familiar the agent is with the areas you want to look at. If they have little
expertise and no network in the neighborhood, then you won’t get the agent
advantage of being the first to see a house (sometimes even before it’s listed)
or getting expert advice on price. Plus, neighborhood knowledge saves the buyer
time because an agent will likely know exactly where to look and what houses to
show based on your needs.
Shop for a mortgage
start looking for a house, you need to have a prequalification letter in hand.
This letter is basically proof that a lender will loan you a certain amount of
money. This is your ticket to putting an offer on a house. People with
excellent credit scores, can have their pick of lenders and the most competitive
rates. If your score is somewhere in the middle, you might have to
spend more time shopping around to get the lowest rate.
with lower credit scores and smaller down payments might have to get an FHA or VA loan. These loans can be the best way to
get into a house for some folks, but they do come with restrictions and extra
costs, so be sure you weigh your options carefully.
Make time for open houses
If you want
to find a house quickly, the best thing you can do is to keep your schedule
open. A proactive real estate agent might ask you to see a house that just hit
the market within the next hour. To get an edge on other buyers, you’ll
probably want to drop everything and see it.
options open. Some homes might be listed as a two-bedroom, but if the square
footage is in the same range as three-bedrooms you’ve been looking at. This
could be a sign that it’s a hidden gem with a “secret” third bedroom. Secret
bedrooms are often sunrooms that can be easily converted into a bedroom or an
extra-large master that could be divided with some drywall.
Don’t look at
houses outside of your budget. The last thing you want to do is be house rich
and cash poor. If you max out your budget and push your paycheck to the limit,
you could risk your house and financial well-being if your income falls.
Sign a contract
you’ve found a home you want to buy, it’s time to agree on a price and sign a
contract. Depending on the market you’re in, you might be able to negotiate
with the seller on the price or extras, like appliances and other goodies. If
there are multiple offers on the house, then your negotiating powers are all
but nil. This is where you can rely on a trusted, knowledgeable real estate
agent to guide you.
Once you and
the seller agree on a price, then the seller’s agent will draft a purchase
agreement, which is a legally binding contract that includes agreed-upon terms,
such as the estimated closing date and the price.
point, the buyer will also put up earnest or “good faith” money. This is
usually around 2% of the purchase price. So on a $300,000 house, a buyer would
put up $6,000 in earnest money. If the buyer breaks the contract, the seller
could keep the money.
This is where
contingency clauses come in; these are important conditions designed to protect
contingency clauses include appraisal, financing and home inspection. For
example, if the appraisal comes in lower than the sale
price, the appraisal contingency allows the buyer to back out of the contract.
The same goes for financing and home appraisal. In the event the buyer’s loan
doesn’t go through or the inspection report shows significant problems, the buyer
can get out of the contract without losing their earnest money.
Interview your home inspector
often rely on their real estate agent to appoint a home inspector. While this
can be helpful, buyers should also check the inspector’s credentials and read
reviews themselves. Since this is the person responsible for ensuring your
investment is sound, you want to make sure they’re thorough and have solid
Make sure the
inspector is bonded or insured, ask for referrals, find out what the inspection
includes and whether they have any specialties (such as chimney or HVAC
If there are
special considerations, such as for historic homes or homes in flood plains,
find out how the inspector will approach that scenario.
Review your home inspection report carefully
items like roofs, HVAC systems, and structural integrity, are things you want
to look at carefully. If your inspector hast a question about any of them, it’s
worthwhile to get a second opinion by a specialist. If major problems do
surface, this is when you have to talk to your agent about negotiating repairs
or the sale price.
problems that might require home inspectors who specialize in those areas are:
chimneys, sewers (chronic plumbing problems can come from poor installation of
sewer pipes), pools, asbestos, mold and termites.
Negotiate any repairs
your home inspection report will turn up some problems with the home — but,
keep in mind, not all repairs are created equal. There are major issues that
will likely need to be dealt with before a lender will honor a home loan, such
as structural problems and building code violations. In these cases, the
homeowner is responsible for repairs before the sale can go through.
In a seller’s
market, experts advise buyers to overlook cosmetic issues, such as loose
fixtures, water stains (as long as it’s not the symptom of a larger problem),
failed window seals and cracked tiles. However, some buyers might be in the
position to negotiate these repairs with the seller. One option is to ask for a
cash-back credit at the close of escrow. This will save you some money and you
can oversee the repairs yourself.
Do a final walk through
walk through is your last chance to see the property before you buy it. This is
an important step, so don’t dial it in. Come prepared with your checklist —
which should include repairs the owner agreed to make, post-inspection report.
It’s a good
idea to do the walk-through with your agent, who can act as witness and help
answer any questions you might have. Make sure you document any problems with a
camera and time-stamped notes.
issues like mold (which can appear within a matter of days) and plumbing
issues. Make sure sinks drain properly and verify that electrical outlets as
well as the heater and air conditioning are working.
Close on your house
The closing process is the last lap before
you reach the finish line. At closing, the home is transferred from the seller
to the buyer.
actually close on the house, you’ll have a chance to do
a final walkthrough to make sure all the agreed-upon repairs were made and that
the seller has vacated the property.
made sure the property is in the agreed-upon condition, you’ll set a date to
meet with the required parties. Different areas have different requirements as
to who must be present, so you might meet one or all of the following: the
escrow or closing agent, the attorney — who could also be the escrow agent,
someone from the title company, the mortgage lender, and the real estate
meeting, you’ll be required to sign a variety of legal documents (which can be
provided to you to review before closing). This is also when you’ll pay all of
your closing costs and escrow fees. In some
instances, you can roll the closing fees into the mortgage, but this should be
arranged before closing.
bring all the required identification such as a driver’s license or passport
and any other identification required.
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