Doing a little homework before your home purchase will help you feel more comfortable about the process.
1. Develop your wish list
Features you must have and those you'd like to. Handicap accessibility for a special needs child is a must. Granite counter tops and stainless steel appliances are a like. Come up with five things you must have first. Then come up with five things you would like to have next. This will help you focus your search and make logical, rather than emotional, choices when home shopping.
2. Decide how much home you can afford
As a rule of thumb you can afford a home priced 2 to 3 times your gross income. Remember to consider these costs too: property taxes, insurance, maintenance, utilities, and community association fees, if applicable.
3. Start saving
Have you saved enough money to qualify for a mortgage and cover your down payment? Ideally, you should have 20% of the purchase price set aside for a down payment, but some lenders allow as little as 5% down. A small down payment can preserve your savings for emergencies.
However, the lower your down payment, the higher the loan amount you'll need to qualify for and the higher your monthly payment. Your down payment size can also influence your interest rate and the type of loan you can get.
Usually if your down payment is less than 20%, you'll be required to purchase private mortgage insurance. Depending on the size of your loan, PMI can add substantially to your monthly payment.
4. Select where you want to live
Make a list of your top-five community priorities, such as commute time, schools, and recreational facilities. Ask your REALTOR® to help you identify three target neighborhoods based on your priorities.
5. Get your credit in orderA credit report details your borrowing history, including any late payments and bad debts, and typically includes a credit score. Lenders lean heavily on your credit report and credit score in determining whether, how much, and at what interest rate to lend for a home. Most require a minimum credit score of 640 for a home mortgage.
You're entitled to free copies of your credit report each year from the three major credit bureaus: Experian, Equifax and TransUnion. Order and then pore over them to ensure the information is accurate and try to correct any errors before you buy.
6. Get Pre Approved
Meet with a lender to get a pre approval letter that says how much house you're qualified to buy. Start gathering the paperwork your lender says they will need. Most want to see W-2 forms verifying your employment and income, copies of pay stubs, and two to four months of banking statements.
If you're self-employed, you'll need your current profit and loss statement, a current balance sheet, and personal and business income tax returns for the previous two years.
Consider your financing options. The longer the loan, the smaller your monthly payment. Fixed-rate mortgages offer payment certainty; an adjustable-rate mortgage offers a lower monthly payment. However, an adjustable-rate mortgage may adjust dramatically. Be sure to calculate your affordability at both the lowest and highest possible ARM rate.
7. Ask about all the costs before you sign
A down payment is just one home buying cost. Your REALTOR® can tell you what other costs buyers commonly pay in your area-including home inspections, attorneys' fees, and transfer fees. Tally up the extras you'll also want to buy after you move-in, such as patio furniture for your new deck.
All The Best,
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