Buying a home is a major investment a lot of people will make at some point their life. For this reason, it is a good idea to prepare for the process adequately. Before you even begin looking at houses to buy, there are a few things you should put in order. One of the first questions you may be asking yourself, is what do I need to prepare in order to buy a home? In this article, we highlight the main things every soon-to-be home buyer should have on hand and how to go about preparing them accordingly.
Your credit score will first determine whether you’ll be approved for financing, as well as how much you can access to buy a house. The average score to qualify for a mortgage is 580, but most lenders prefer their borrowers to be at 660 and above. A higher credit score can decrease both your down payment and monthly payments, as well as ensure higher levels of trust with the corresponding higher amounts of money involved in the transaction.
You should obtain your credit report from a credit agency at least several months before you start shopping for a home. This gives you the time to correct any errors and also improve your score. Paying off some of your credit cards and not applying for any new lines of credit during this period can help to improve or at least maintain your current credit score. Preparing proactively can save you time and money you might lose due to a lower score when you try to get the best financing options for yourself later. If you are buying a home with your partner, both your credit scores will be assessed by the lender accordingly. It is, therefore, advisable to work on your credit reports together before house hunting. This is something a knowledgeable realtor will be able to help you understand further, or advise you on a best practice going forward.
Figuring out how much you can afford narrows down your property search. A mortgage pre-approval can be a free and useful way to find out how much financing you are eligible for. It also gives you a chance to identify lenders with good offers and shop around for the best options. Typically, a knowledgeable realtor will already have someone that can offer you the best value.
Home buyers with pre-approved financing are every realtor’s priority as they have a higher potential of closing on properties and will go through the entire process of buying a home faster. Getting pre-approved for a mortgage can also save you the agony of losing out on your dream home due to delays with down payments or any issues that could arise.
For your mortgage approval, you need to prepare your recent pay stubs, bank statements, credit report, W-2s and occasionally your last couple tax returns.
To close on a home, there will be a required down payment of between 3.5% and 20% of the total value. Once you figure out your budget range, you should start saving for the down payment accordingly. If your down payment is less than 20%, you will incur additional monthly charges in private mortgage insurance. This is to protect the lender if you default on the loan or your home’s value falls suddenly. While it could initially be more costly to put down 20% on a home, you will end up saving more money long term. This is also something a realtor can assist you in understanding what the best option for you is.
In addition to the down payment, there are other expenses you will incur when closing. These include inspection fees, attorney’s fees, loan fees and appraisal fees. These costs typically add up to about 5% of the mortgage account. A great realtor will be able to negotiate the best financial terms for you when it comes to these costs.
A Knowledgeable Realtor
Once you have your finances and paperwork in order, the next crucial step is to find a reliable and knowledgeable realtor. This person is the connection between you and the best properties available in the market for your price range.
A professional realtor will do much more than show you available houses. They are your chief adviser on the legal and financial aspects of buying a home. They should also be knowledgeable on the neighborhood’s amenities including schools, hospitals, business and even entertainment hotspots. This knowledge will help you in finding the best areas in your city, and in making the best real estate decisions for you and your family. Lastly, they will be great negotiators when it comes to landing you the best deals for your budget and price range.
Getting your paperwork and financing ready way in advance will improve your chances of closing on your dream home without any hiccups. Being prepared and aware can help you save so much money, time, and stress throughout this process.