The home purchase process does not have to be a complex or confusing endeavor. This is just as true for first-time investors as it is for those who have already owned homes before. It is simply a series of organized steps that will lead buyers to a desired end.
Start By Building Your Credit Score
The first and most important step in the home purchase process is to improve your FICO score. With an optimal credit rating, you’ll be qualified for a home loan with lower interest rates and better terms. Although you might be qualified to get a loan approval now, even a slight difference in the interest rate that you receive can make a world of difference throughout the lifetime of your mortgage. For instance, efforts to improve your score could put you closer to the 850 FICO maximum, giving you access to a loan that is .5% lower than what you’d get without making credit improvements. This can add up to tens of thousands of dollars in savings over the next several decades.
Determine Your Spending Abilities And Set Feasible Goals
Make sure that you’re ready for this process by talking with a financial counselor. There could be ownership expenses that you haven’t accounted for just yet. Too many home buyers are making their buying decisions based upon anticipated mortgage payments only. It is often the secondary costs of home ownership, however, that prove overwhelming.
Choose A Good Broker
Loan shopping is best done with the help of a reputable broker. Be mindful of the fact that there are two ways in which brokers can get paid. You can pay your broker an upfront fee for his or her services, or this individual can work for commissions that are paid out by lenders. In either instance, this individual will help you find lenders and funding products that are best-suited to your circumstances, goals and needs. Some brokers also act as financial counselors by making suggestions for credit repairs and helping consumers to plan for their forthcoming expenses.
Getting a pre-approval will make you more attractive to sellers. This increases the likelihood of having an offer reach Mutual Acceptance or the point at which both parties are in agreement over the terms of the sale. Pre-approvals are different from pre-qualification. With a pre-approval, the lender will review your financials and make a preliminary funding approval based upon these assessments. Pre-qualification is when lenders simply estimate how much they might be able to loan you and these carry far less weight.
Find A Real Estate Agent
Building a good home buying team is essential. In addition to a reputable broker and a trusted financial adviser, you should also have a seasoned real estate agent on board. This individual should maintain a modest territory, have ample ability to give timely attention to all prospective buyers and maintain a comprehensive understanding of the targeted neighborhoods.
Hash Out The Terms Of Your Loan
Take some time to research different loan options before locking into one and decide which terms and features are going to work best for you. Fixed rate loans tend to be preferable for most consumers given the long-term predictability of mortgage payments. Variable rate loans, however, do have their benefits, especially for those who intend to refinance in the near future. You also have to consider factors such as pre-payment penalties and whether or not you want your home insurance payments built directly into the loan.
Make An Offer And Establish Your Down Payment
After you have identified a home that you like, read up on comparable homes in the area. Find out how much these homes have sold for and how they differ from the property you are targeting. You can then make an offer based on these assessments and on any guidance you receive from your home buying team. Should your offer be accepted, you will need to be prepared to pay between 10% and 20% of the total purchasing price as a down payment.