From browsing home listings to picking the right décor, purchasing a home is an exciting time. Yet, the home-buying process requires many decisions that can quickly turn to stress and frustration if financial hurdles get in the way. There are 10 essential things to keep in mind to ensure a smoother process as you navigate the journey home.
1. Get Pre-Qualified or Pre-Approved
It is critical to know your price range before you begin searching for a home. Reviewing your credit profile and financial status with your lender will enable you to determine what type of loans you are qualified to receive. With this comes a pre-qualification or a pre-approval letter that notifies sellers you can obtain financing. In a competitive market this can potentially put you ahead of other offers.
2. Work with a Buyer’s Agent
When buying a home, you’ll need someone on your side who can guide you through the real estate transaction. A Buyer’s Agent will help you find a home, prepare your offer, provide you with research on comparable homes recently sold, negotiate with the seller on your behalf, and ensure that you are protected along the way from any pitfalls of the complex process.
3. Bring in a Professional Inspector
A professional inspection is one cost that you never want to skip because it can prevent big financial headaches down the road. An inspector can reveal any defects that may not be apparent such as gas leaks, termites, foundation problems, roof damage, and more. Plus, with an expert opinion and seal of approval, you’ll gain peace of mind that the home you’re buying is in good condition.
4. Consider the Other Homes in Your Neighborhood
Finding the right neighborhood can be as important as finding the right house, especially if you’re planning to sell your home in the future. Research the market value of other homes in the neighborhood to get a sense for how much you should spend on yours. If you purchase the most expensive home on the block, the surrounding homes could drag your value down rather than help it appreciate, which could hurt your investment.
5. Don’t Apply for or Open New Lines of Credit
One of the biggest mistakes new home buyers make is opening lines of credit to make big purchases, like refrigerators and TVs for their new home. Even applying for new credit cards can negatively affect your credit score. New debt not only negatively affects your monthly debt-to-income ratio, which is a critical factor in the lending process. But applying for credit also adds hard inquiries on your credit report that could lower your credit score. These new inquiries and lines of credit could negatively affect your interest rate or potentially keep you out of qualifying range for the loan all-together. It’s best to wait until after move in to buy that new appliance or car.
6. Hold Off on the Job Hunt
Reliable, stable income is critical when applying for a loan. Your lender will need to verify your employment and you’ll need to provide your paystubs to prove your income. Lenders evaluate your annual and monthly income ratio as part of your overall portfolio to determine your loan amount and whether you have the means to make your mortgage payment. Therefore, wait until after you close on your new home to change jobs or job status, such as going from full time to part time employment.
7. Keep Accounts Open & Monitor Closely
Closing credit accounts may seem like a good idea when you’re trying to get your finances in order, but it can actually hurt your credit score. Before you visit with a lender, pull your credit reports to check for mistakes or old debts. Also, it’s a good idea in the months before you buy a home to monitor your checking and savings accounts, as well as credit cards and loans. Lenders will often ask for itemized bank statements of at least two or three months. To avoid delays, make sure you can account for your banking history, such as verifying large deposits or withdrawals.
8. Hold on to Your Savings
Keep in mind that you’ll need liquid assets to make your down payment and cover closing costs. One of the shocks of buying a new home is closing costs, which typically make up two to five percent of your home’s purchase price. Ensure you have considered both your down payment and the closing costs during this time and have set these funds aside for your closing.
9. Factor in Hidden Costs
Buying a home comes with extra costs besides the down payment, mortgage payments, and closing costs. Budgeting for things like homeowners insurance, HOA fees, and appliance maintenance can keep you from scrambling to cover surprise expenses. Consider budgeting one to three percent of the purchase price for operating costs, which can be up to $9,000 a year for a $300,000 house.
10. Budget for DIY
Once you’ve moved into your new home, it will be tempting to make it your own. Keep a rainy day fund for any projects that you might tackle during your first year such as building a new deck, repainting a bright purple living room, or replacing the floors. One option for new homeowners is taking out a Homeowner Express Loan to provide you with the funds you need for these projects, ultimately leading to a return on investment.
Most importantly, remember that you are not alone in this process. Mortgage advisors help buyers navigate these challenges every day and are available to answer questions, provide advice, and guide you in the right direction to find your new home.
Read more about how a Real Estate Agent can help you with your home purchase.
Kristin Keller, AVP, Real Estate Operations with Amplify Credit Union, has been in the Mortgage Industry for over 20 years, working in various areas of the country, including Texas, Washington, DC, and Florida. She has worked for independent mortgage companies and national and international banks. Her experience in residential mortgages includes operations, credit, compliance, and risk management. She has her FHA Direct Endorsement and VA LAPP approvals.