No matter if you’re in a buyer’s or seller’s market, there are a few critical steps you can take to make a smarter purchase. Since buying a home is likely the biggest single investment you will ever make, being prepared will help you make a better purchase. Here are my best tips to buying a home.
1. Know your buying power…
What is your buying power? It is the combination of your credit-worthiness and how much you can realistically pay for a home.
First, you need to understand the hidden costs of buying a home. You will need to save not only for the down payment of your home — which can be anywhere between 3% – 20% of the purchase price; depending on your mortgage program. But also for closing fees which can be an additional 3-4% of the purchase price.
Then you need to know what you can realistically afford each month to understand how much house you can buy. Your mortgage rate will depend on your creditworthiness — if you have a high credit score, your lender will likely approve you for a lower mortgage rate, which can save you thousands of dollars per year in interest.
How much of your budget should go to your monthly home costs? According to SmartAssets, you can use the 36% rule as a rough guideline. This means that your monthly obligation shouldn’t be more than 36% of your monthly gross income.
A loan professional can help you figure out how much house you can afford.
2. Fix your credit with the help of a loan professional…
According to CreditKarma, a good credit score is usually 720 or above. You want to clean up your credit as soon as you can, and definitely before you go to a lender for a loan pre-approval.
When you apply for your loan pre-approval, you don’t want to have anything to hide on your application. So don’t lower your credit score by doing anything that will originate more inquiries into your credit. For example, don’t open any new credit cards. Also, don’t omit any debts or loans when you apply. If the loan officer discovers them in the application process, they may deny you a pre-approval.
Get a loan professional to check your credit score for you. A professional can give you a clearer idea if your score is in the ‘good’ range, or if you need to do some credit cleanup before getting a loan pre-approval.
3. Work with a knowledgeable Realtor…
Do you understand what kind of market you are buying into? Even within each city there are several micro markets that act independently; some may be increasing in value whereas others may be stable or decreasing in value.
That’s why it’s important to hire a highly competent Realtor who knows your specific market. You want to make sure that the professional who you’re working with really understands what the market is like and will help you find the home that you desire.
4. Don’t try to time the market…
Even in a hot market, there’s never a perfect time to buy a home. It can take a while to know exactly what you like, and you may have to look at 10 or more homes before you can recognize what suits your lifestyle best. While you’re shopping, take photos of your favorite properties and the details that you liked the best so that you can remember what you liked.
When you start shopping, have a heart–to-heart chat with your Realtor. Give them every single detail that you know about your lifestyle, buying power, needs, wants and desires for your home. The more detail you can provide, the easier it will be for them to help you find your future home. And help guide you through the process in a more efficient and stress-free way.
5. Make an offer as soon as you find the right home…
If you love it, make the offer. Otherwise, that dream home may disappear faster than you think, especially if you’re buying in a hot market.
Your Realtor should contact the listing agent before you submit an offer so that they can decide what’s important to include in the offer. If you’re serious about it, you want to increase the chances that your offer is accepted.
Show that you’re serious about the purchase by creating a buyer’s offer packet. It should include your lender’s preapproval letter and proof of funds. A letter from the heart is always nice too…it introduces you to the seller in a more personal way. Most sellers love to know who is moving into their home.
6. Get a home inspection…
Once you’re in the negotiation process, it’s essential that you get a third-party inspector to do thorough home inspection. The inspector will be looking for major structural issues, including problems with the foundation, plumbing, and electrical systems. Your inspector should be extra picky, pointing out the most minor faults.
Make sure to have the inspection conducted within the contractual guidelines; your Realtor should help you navigate all this. If there are any major structural issues, you can request the seller to repair them. Most sellers are willing to repair major issues because if they don’t the issues follow them with the next buyer. And they are legally obligated to disclose them going forward so it’s always in everyone’s best interest to sort this out immediately.
7. Protect your credit before you close…
Super important!!! Don’t raise any red flags with your creditworthiness during the mortgage process. Any one of these moves could mean that you’re denied the loan and the deal falls through — even if you’ve already been preapproved!
● Keep your spending to a minimum and don’t make any major purchases before closing — that includes buying furniture, or a car, truck, or van, or any excessive charges on your credit card.
● Keep your bank accounts stable. Don’t change banks, spend any of the money you have set aside for closing, or make any large deposits to your accounts without checking with your loan officer first.
● Keep your employment situation stable — do not change jobs, quit your job, or become self-employed. Any sudden change in your income can have that preapproval offer rescinded.
● Do not cosign a loan for anyone. It will open an inquiry into your credit and add to your debt, which could raise your mortgage rate and cost you thousands of dollars over the life of the loan.
Utilizing all these tips will help you make a great buying decision. I can’t stress enough how important it is to partner with a Realtor who knows how to guide you through this process.
Please feel free to contact me with any questions. I’m always here to help!