So you’re ready to buy your first house? Owning a place of your own is an exciting – and wise – prospect! But the road leading to homeownership can seem daunting: twists and turns and mountains to climb before you’re comfortably settled into “home, sweet home!”
Here’s a roadmap for the savvy homebuyer:
1. Know Your Numbers
You probably know you have a score attached to your name through the three main credit bureaus: Experian, Equifax and TransUnion, but you may not understand what those numbers mean or how they can change according to your spending habits. These scores represent a composite of financial information including your credit history, employment, ability to save and other factors. Generally speaking, the higher your score, the better your chances are for securing a loan with a low interest rate.
Here’s the typical breakdown:
- 730 to 850 is regarded as excellent.
- 680 to 729 is rated as good.
- 620 to 679 is considered fair.
- 500 to 619 is ranked as poor.
- A score below 500 may not be high enough to receive a federally-secured loan.
Because the big three credit bureaus often assign different scores to the same person, a “tri-merge credit report” is used by lenders. This means that while they look at all three scores, they usually use the mid score as their starting point when determining loan eligibility.
Consulting with a knowledgeable mortgage loan officer early on in the homebuying process is key to fully understanding what impacts your credit score. Day 1 Mortgage has a great list of Mortgage Don’ts.
Mortgage Capability – and Pre-Qualification
Here’s where you’re going to really need to examine your current budget, expenses, and spending habits so that you’ll know how much you can afford to borrow. Lenders typically use the 28/36 debt-to-income (DTI) ratio: You shouldn’t spend more than 28% of your monthly income on housing-related expenses and you shouldn’t spend more than 36% of your income against all debts – including your mortgage. Remember to factor in property taxes, homeowner’s insurance, private mortgage insurance, and homeowner’s association (HOA) dues.
You can get a quick overview of where you stand financially using Day 1 Mortgage’s online monthly payment calculator and affordability calculator. You can also start your application online. Their Mortgage Application Checklist includes what information and documentation you’ll need to complete your loan application. And if you’re overwhelmed and confused by complex financial terminology regarding mortgages, credit, etc., Day 1 has a helpful glossary of terms.
Typically, you should have 20% of the purchase price saved before you start looking. This will allow you to avoid having to pay for mortgage insurance because there is less risk for the lender. But keep in mind that when there’s a shortage of houses on the market, you may need extra cash for an escalation clause.
Your lender can also talk to you about FHA (Federal Housing Administration) loans – these loans have government backing and borrowers with credit scores as low as 500 can qualify for an FHA loan with a 10% down payment. Guidelines and policies will vary by lender. The better your credit score, the lower down payment.
2. Know the Art of the Deal
Here’s where a good real estate agent is essential. They not only understand your particular housing market and can help find you the type of house you want in the location you want in your price range, but they will be incredibly helpful when you decide to make an offer and during negotiations.
Our current competitive seller’s market has become a game changer in terms of quickly crafting an enticing offer and winning the bid. Escalation clauses, contingency waiving, substantial earnest deposits, speedy closings – an experienced REALTOR® can guide you through the process and paperwork. In this market, you have to go in fast and strong to get the house you want. A smart strategy is key to homeownership.
3. Know the House – Inside Out
It’s important to get a home inspection – even if you’re not making this contingent on the purchase. You need to be an informed buyer and if your new home is hiding something that could cost you money down the road, it’s important to know up front.
4. Know How to Settle
Your real estate agent should work closely with your settlement company. They can help you choose a company that will make clear what paperwork you need to bring with you (proof of homeowners insurance, your copy of the home inspection report, etc.). They should be prepared to explain the proceedings thoroughly and be willing to patiently answer any questions you have while signing papers.
CENTURY 21 Redwood Realty partners with Highland Title + Escrow, an established title company that provides a custom settlement experience that is flexible, transparent, and smoothly executed.
An added bonus: when you order your settlement with Highland, you can choose the traditional method of closing in person or remotely. A Designated Signing Agent Program allows you to approve and sign settlement documents without physically attending, by appointing a “signing agent.” Remote Online Notarizations are another way for you to sign settlement documents by using an e-Notary who will engage with you through video conferencing. You can then sign documents electronically.
5. Know How to Settle In
A CENTURY 21 Redwood Realty agent does not abandon you after the sale. Redwood partners with Home Concierge by MoveEasy, providing you support throughout your entire move. Your dedicated concierge will assist you with all moving and home maintenance needs.
Need help setting up your internet, cable, home security, utilities? They can help. How about advice on top-rated moving companies and self-storage providers? Yep – they can do that, too.
They can create a personalized week-by-week moving checklist and reminder emails for all sorts of details like how to easily forward your mail to your new address, how to update your driver’s license and vehicle registration, and what home professionals have a proven track record and good reviews. You can even use your Amazon Alexa to access your FREE “Concierge for Life.”
Congratulations on planning one of the most monumental moves of your life!
Download our First Time Homebuyer Checklist below: