So, you’re thinking about buying your next home. Whether you’re just getting started or well on your way, these seven tips can help make the process go as smoothly as possible. Even if you're not a first-time home buyer, it’s always a good idea to do your research and be prepared before making any major financial decision. The market is constantly shifting, and a few things may have changed since your last purchase.
The down payment on a home is the money a homebuyer pays upfront for their home loan. The down payment is a percentage of the purchase price and can vary from as little 3% to as much as 20% and is determined by multiple factors. If you qualify, there are loans for first-time homebuyers that require a smaller down payment such as FHA and VA loans.
Saving for a down payment can require discipline and patience, but with careful planning, you can set yourself up for success. Start by setting a realistic goal and timeline for when you would need the down payment available. Then create a budget that includes your income, expenses, and how much you will dedicate to savings. With dedication and commitment, you can reach your goal.
In addition to the down payment, you will need to have money set aside for the closing costs. Closing costs are a variety of fees charged by different parties involved in the mortgage transaction, including the lender, the title company, and the government and can range between 2% and 4% of the mortgage amount.
You can expect to pay for the following fees at closing:
Government recording, transfer, and mortgage recording fees: These fees are charged by the government to record the mortgage with the county recorder and to transfer the title to your home.
Title insurance: This is an insurance policy that protects the lender in case there are any problems with the title to your home.
Flood insurance: If your home is in a flood zone, you will be required to purchase flood insurance.
Homeowners insurance: This is an insurance policy that protects your home from damage caused by fire, theft, and other perils.
In addition to these fees, there may be other fees associated with your mortgage refinance, such as a VA funding fee, an FHA upfront mortgage insurance premium, or a USDA guarantee fee.
An important factor that goes into determining your loan eligibility and interest rate is your credit score. However, don’t just look at your score, but understand what goes into calculating it – things like late payments, the length of your credit history and credit inquiries. Where possible, address and correct any issues to help improve your score.
A useful tool is a comparison chart from myFico.com that shows the effect your credit score has on the interest rate you’ll pay on your mortgage. By continuing to pay your bills on time and not opening new lines of credit before applying for a mortgage, can help you secure a lower interest rate.
And remember when you’re in the process of being reviewed for your new home loan, the same logic applies. Don’t make any major purchases, apply for any large lines of credit, or co-sign anything while in review for your home loan approval.
A mortgage Pre-Approval allows you know exactly how much home you can afford, the interest rate you may qualify for, and the estimated closing costs. During the Pre-Approval process, your mortgage lender will pull your credit to verify your income, assets, and debt based on bank statements and pay stubs that you may need to provide.
Once Pre-Approved, your lender will provide a Mortgage Pre-Approval letter detailing the type of home loan and how much home you could afford. The Pre-Approval offer that comes from PHH Mortgage will expire after 90 days.
Important to note: A mortgage Pre-Approval is not full approval from your mortgage lender. Once you find your home, your lender will still need to approve certain property details to guarantee your home loan.
Get Pre-Approved with a PHH Loan Officer today.
Real estate agents have years of experience and are up to date on the latest market trends. They can help you understand, if you are also selling, what your home is worth and what you can afford to spend. They can help you find homes that are in your price range and that meet your needs.
Real estate agents have access to the Multiple Listing Service (MLS), which is a database of all homes for sale in a particular area. This gives you access to a wider range of homes than you would be able to find on your own.
They are also legally obligated to represent your best interests in the transaction. This means that they will work hard to get you the best possible deal and that they will protect your interests throughout the process.
As skilled negotiators, they can help you get the best possible price on your home. And when the time comes, they can help you negotiate the terms of your financing and closing costs.
Don’t pass on the home inspection. The money you pay for a home inspection might be the best money spent in the entire home buying process. A thorough home inspection will alert you to the exact condition of the property and will give you an opportunity to identify any significant flaws in the home. You then have your realtor negotiate with the seller to make the repairs before closing.
Having a home inspection could save you from paying thousands of dollars after the closing. Once you close on your home loan, repairs will be solely your responsibility.
It’s common to want to buy at the top of your price range. Maybe the expectation is your financial situation will improve, but that doesn’t always happen and can create a condition known as being house poor. You have your dream home, but there’s not much money left over for anything else. It’s better to buy a house that is not at the top of your price range and leave some wiggle room in your budget.
Considering your overall financial picture is essential when buying a new home and will help ensure that your quality of life is not negatively impacted by the purchase. Do your research and budget mindfully. Have a plan and a buffer for any unexpected costs that may arise.