June 14th, 2017 6:08 AM by Jackie A. Graves, President
So you're ready to take the leap from
renter to homeowner -- but where exactly do you start?
Many first-time homebuyers across
the country are facing brutally competitive markets that favor sellers. That
means buyers need to bring their A game to snag a pad of their own. Especially
if you're a newbie.
The road to homeownership can be
long and daunting, but here's where experts say you should start.
How much have you saved for a
down payment? Nothing? You might want to start there.
Lenders usually like to see a 20%
down payment before they'll give you a loan. But it's not a requirement. There
are also a bunch of low down payment loans available, including government-backed
FHA loans that only
require a 3.5% down payment.
Either way, you're gonna need
So now's the time to start
evaluating your spending habits and finding areas to cut back and sock that
Note that anything less than 20%
down means you'll pay more every month -- not only will you be borrowing more
money, but you'll also likely be charged private mortgage insurance fees on top
of your mortgage payments. Smaller down payments also make it tougher to
compete in a hot real estate market filled with all-cash buyers who often win
out in bidding wars.
Lenders use a three-digit number
called a credit score to decide whether to lend you money, so you need to know
what yours is before you start house-hunting.
The higher your score, the more
likely you are to get to get a loan and a lower interest rate.
There are three major credit
reporting companies, and federal
law mandates they each
give one free report, once a year. You can check your
reports for free here. You can also order your credit score while
you review your report, though there could be fees. Many credit card companies
offer free credit scores, so check with your bank first.
to review the reports carefully and get any mistakes fixed. If your score isn't
where you want it to be, start taking steps
to fix it.
Along with your credit score,
lenders also review your debt-to-income ratio (monthly debts divided by monthly
income). Many lenders want
to see this number no higher than 43%.
with your bank
House hunting is fun, but it
helps to know how much home you can afford before you start looking. If you're
not sure, asking the bank what they're willing to lend you is a good place to
"Too many first-time clients
will fall in love with a home before they are qualified and they try to back
into it," said Bob McLaughlin, senior vice president and director of
mortgage at Bryn Mawr Trust. "Get the qualification first."
To get pre-qualified, lenders
will take a quick look at your financial picture and come up with a ballpark
figure of how much you can afford to borrow.
Some buyers choose to go one step
further and get pre-approved for a loan to help them better compete against
other bidders. This review process is more involved and results in an approved
Be prepared to hand over a stack
of paperwork that will likely include at least one month of pay stubs, two
years of tax returns and two months of banks statements from all your accounts.
Just because you got approved for
a loan, doesn't mean you should
spend that much.
"On paper you might be able
to afford a $2,500 monthly payment," said McLaughlin. "But it might
be better to go with what you feel your budget can hold."
When figuring out what you can
afford, add up your mandatory expenses like student loan and car payments,
health care costs, groceries, cell phone and utility bills. But don't forget to
factor in the extra money you need for fun things like entertainment, shopping
Getting saddled with a huge
mortgage payment can leave you "house poor" -- or unable to spend
money on other things you enjoy because you're struggling to afford housing.
Now comes the fun part: house
First start looking at online
listings where you want to live to get an idea of what homes cost and figure out
what you can expect to get within your budget.
It helps to make a list of which
features you definitely want the home to have, and which ones would be nice,
but aren't deal breakers.
Now it's time to get up close and
personal with some actual homes. You don't have to have a real estate agent to visit
and make offers on a home, but having a professional in your cornercan help
make navigating the process easier. And since they're usually paid for by the
seller's commissions after a sale, you shouldn't have to pay for their
Experts recommend asking friends
and family members to recommend somebody they've worked with personally, and
then interviewing them.
Kathryn Vasel - To view the original article click here