A lot of new home buyers entering the market are excited to start scouring the internet for homes they would like to see, but don’t really know HOW to buy a house. Hint: It starts with a lender. Oh, you just hit it big on a scratch off and you’re buying cash? Then this article isn’t for you.
If you’re still reading, that means that you are of the many of us that are in need of a mortgage if we want to own a home, but don’t fret, that just means we get to go shopping! A good place to start is with the people already holding your money- your bank or credit union. I’ll bet you have an app for them on your phone, which you’re PROBABLY reading this article on right now. You can reach out to the mortgage team at your bank via your app or you can actually go into the bank building like it’s 1995 and speak with Todd in the cubicle.
What is your new cubicle friend going to do exactly? They’re going to provide you with three key services- credit review, budget, and getting you a pre-approved for a loan.
Why is it important to be pre-approved? It shows Realtors and sellers that you are serious about buying a house and not just a looky-loo (aka nosy neighbor Gladys just poking around).
They’re going to start with a view of your credit. Typically lenders are going to require a credit score of 580 or above to be able to offer you financing. (This depends on the type of loan you will qualify for, more on that later) If your current score is below that, don’t toss your device across the room just yet. Most reputable lenders offer free credit repair services. They can work as your advocate, providing you with counsel and also work to improve your credit score on your behalf, usually by negotiating with creditors and credit bureaus to remove negative marks and resolve issues.
If you are having some credit issues, there are a few easy steps to help you raise your credit score fast.
- Pay your bills on time. It sounds like an easy one, but life gets busy and bills slip through the cracks. Most utility companies offer an auto pay option.
- Keep your credit card balance low, as in, don’t book that all inclusive resort in New Zealand on your credit card just yet.
- Pay down existing debt. Paying more than the minimum on your credit card(s) helps you chip away at your overall balance and every little bit helps.
- Keep established accounts active and in good standing by paying attention to due dates on your current loans.
- Do not, I repeat, DO NOT apply for new credit. Your lender will face palm if the next time you talk you tell them about the new truck you just drove off the lot.
Now that your credit is in order, they’re going to look at your debt to income ratio, which is just a fancy way of saying how much of what’s coming in is already going out, and determine how much home you can afford. This is why speaking with a lender is so important before walking neighborhoods looking for Open House signs. You don’t want to fall for a home that doesn’t fit your budget. “House Poor” is not a reality show you want to star in. Financial guru, Dave Ramsey, recommends your housing payment, including property taxes and insurance, to be no more than 25% of your take-home income.
Remember how we said we’re shopping for a lender? Ask your friends and family for recommendations, maybe you have a cousin Melvin who works for a lender, and of course, there’s always our best friend, Google. The point is, you’re not going to hurt Todd in the bank cubicles feelings- take your time and get a few quotes. Did I mention there’s no charge for any of this? 😍
Then it happens..the stars have aligned, your credit is on fleek, and all the numbers have been calculated. TADA! You become (drum roll please) Pre-Approved- sound the trumpets! A pre-approval letter is like having ninja stars in your back pocket, you can strike with an offer at any minute!
Time to go find your dream home, follow me! What do we want? (Our dream home!) When do we want it? (Now!) How are we going to find it? (A Buyer’s Agent!)
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Hiring a Buyer's Agent
A real estate agent is your teacher, your tour guide, your authority on how to buy a house. They bring a lot to the table, to name a few things:
- Education. Have you ever tried to read a legal document and it looked like a lawyer just started making up words? This is the largest investment you will make and it is a legal contract. An educated agent will make sure you understand what you are agreeing to.
- Experience. Realtors do this every day. They’re not pulling out their copy of ‘Real Estate for Dummies ‘ or throwing darts at a board. They are trained experts at negotiating and the process itself.
- Resources. Just how a mechanic has all the fancy tools, so does an agent. Realtors have access and memberships to tools that are not available to the general public.
Did I mention, when you find “The One”, they may be able to provide with you cash back at closing through a buyer agent commission rebate?
Now that your offer has been accepted, it’s your turn to do some homework on this house, aka, a home inspection. In the dream world, the seller disclosure would mention the hot glue keeping the shingles on the roof or the duct tape holding the floor down but the only way to be sure this house is structurally sound? The Inspection..Dun Dun DUN.
How do you go about finding a reputable home inspector? The first place to start is your handy dandy buyer’s agent. They’ve definitely got a business card or two for you to check out, and let’s not forget the magic word: Shopping. Just like our lenders, we want to get a few quotes. While you’re shopping inspectors, here are some questions to ask.
Depending on the square footage of the home, a home inspection costs between $200-400.This charge is usually the responsibility of you, the buyer, and honestly, a very small price to pay to make sure your possible investment is structurally sound. They’re going to be examining the house from head to toe (or roof to foundation).
When the inspection report comes back, don’t panic if the home did not pass with flying colors. The inspector’s job is to list every little thing they find and your agent will help you navigate what to do with the findings.
Appraisal time! (An Appra-what-a?) Let’s say it together- A-Praise-ul. In order for the lender to make sure they are making a good investment, they hire an Appraiser who will give an unbiased estimate of the home’s actual value by looking at the condition of the home itself and the surroundings. The listing price that the seller is asking for was based off what THEY thought the home was worth.
Keep in mind, an appraiser is not an interior decorator. They are not looking at things such as dishes in the sink or crooked art. They want to know about similar homes in the area, updates the current owner has made to the permanent fixtures that bring more value to the home. This means the floor to ceiling pink tiled bathrooms with matching commode will probably lose you points, along with pests, sloppy hedges, and water stains on the ceiling.
A typical appraisal will cost a couple hundred dollars, and it is most commonly at the expense of the buyer. However, this can be worked into the closing costs so you don’t have to pay up front.
- a future event or circumstance which is possible but cannot be predicted with certainty.
Your buyer agent did you a solid. They wrote into the contract you have on this home that you are only expected to go through with the purchase if certain contingencies are met. Buyer’s agents are awesome like that.
The four most common contingencies are regarding the Inspection, Appraisal, Financing and Title. The long and short of it being, if any of these things do not go well, you don’t have to buy this house.
The final chapter of “Let’s Make a Deal” Home Buyer Edition. You’ll meet your agent at the title company you agreed upon. You’ll sign some papers, get some keys, and take your Instagram selfie #HomeOwner.
OK, “some” papers may have been an understatement. The closer slaps down a paper stack equal to Mt. Everest, but each paper is important. The closer will walk you through them and if you have any questions, now is the time. There are no dumb questions at the closing table! Unless it’s something like “Will it hurt my eyes if I look at a picture of the sun?”
Let’s talk about the math, as this is a sale, you’ll hear them say closing costs. Closing costs wrap up pre-paid costs, lender fees and title fees. Prepaid includes yearly fees such as homeowners insurance, property taxes and HOA fees for the year. Paid to the lender at closing, are fees associated with the appraisal that we mentioned earlier, loan origination and mortgage insurance. Lastly, title fees, meaning the paperwork that transferred the deed of the home to you from its current owner. You can use a number of tools online to calculate your estimated closing costs.
Congratulations, Homeowner! You bought a house! You’ve got your keys and hopefully a bottle of wine, but above all else, a place to call home.