Buying a home doesn’t have to be stressful or scary. Most of the time these feelings show up when you aren’t quite sure where to start or maybe when you don’t really know what to do along the way. Keep reading for a step-by-step guide to getting prepared to buy.
LOOKING AT HOMES IS NOT THE FIRST STEP:
You have made the decision to buy a home and you know what type of home you are looking for, now what? It often seems as though the first step should be to jump onto Zillow and start searching for that home that fits your needs but wait, before you look, you need to know how much you can afford.
The three things you need to focus on in determining your budget are your credit, debt, and savings.
In order to qualify for a conventional home loan your credit score needs to be 620 or higher although it is still possible to get a loan with a lower credit score by choosing a different type of loan.
You should begin by getting a free credit report from each of the three credit bureaus ( Experian, TransUnion, and Equifax ) to give you an understanding of where you are at right now. Your credit score determines whether you are eligible for a mortgage, and it influences your mortgage rate. Having a good credit score shows the lender that you are likely to repay your loan on time.
The higher your credit score, the lower your rate
Debt can be overwhelming and embarrassing but it is also completely possible to get rid of when you take the right steps. First, you need to know how much debt you actually have. This is a key first step in eliminating your debt. Sit yourself down with your bills and create a spreadsheet to keep track of what you are spending. If you aren’t sure how to create one or don’t know what to put on it then feel free to download and use the one I created below. Start a new habit of keeping all of your receipts then input those directly into the spreadsheet and allow it to do the math for you. If you ever lose your formulas, just send me a message and I will help you get them back.
Once you know how much debt you currently have, you can set some goals to work towards eliminating that debt. Having goals in place really helps you stick to your plan when you are deciding what to spend your money on.
The final step in determining your budget will be establishing a savings. When you buy a home you can go to the bank to obtain a loan for the majority of the purchase, however there is still a pretty significant amount of cash you will need to bring to the table on your own. When making a savings plan, here are a few of the things to keep in mind:
Earnest Money– A typical earnest money deposit is between 1% and 5% of the purchase price. So, if you are interested in purchasing a $250,000 home, you can expect to put down anywhere from $2,500 to $12,500
Down Payment– When you get a conventional loan from the bank you will need to put some money towards your loan as a down payment. This amount will typically be between 3% and 20% of your loan. Using our $250,000 home example, you would need to save between $7,500 and $50,000 towards your down payment.
Closing Costs– These typically range between 1% and 5% of the purchase price. Again using our $250,000 home example, you would need to be prepared to pay around $1,500 and $12,000 in closing costs on closing day.
Once your offer has been accepted, you will need show evidence of these funds to the seller and where the money will be coming from whether its your own personal savings, a gift from a loved one, or stocks etc.
Knowing what steps to take can make your dream of owning your own home a lot easier and closer than you might think. You can work on preparing your budget on your own or you can work with a lender to help you through each step in this process. That brings me to my next topic….
HIRE A LOCAL LENDER:
Your lender is a very key part of the home buying process. If you are getting a loan, this deal will not go through unless your lender says that it can. I highly, highly recommend that you hire a LOCAL lender to guide you through one of the biggest purchases of your life. When your lender is local, they already know the market you are purchasing in. They work directly with the appraisers and underwriters to make sure that everything is scheduled and turned in on time. Another important reason….? They don’t get paid unless your sale closes. These are members of our own community, our neighbors and friends and they need our support in order to keep their businesses running. I have personally worked with many different lenders and the transactions that are the most stressful with the most things that we have to work through are the ones with out of area lenders. *Just something to keep in mind.
When you work with a lender they will run your credit and look over all of your paperwork to determine your debt to income ratio. This lets them and you know how much you can truly afford. The lender will typically ask you for documents such as bank statements, pay stubs and tax returns so gathering these items ahead of time will save you a lot of hassle in the long run.
Be honest with your lender about your finances. They are not going to judge you, they are there to help you determine and set your budget and guide you along the entire process. If you don’t tell them about all of your debt, it could come up later on and de-rail the loan.
FIND YOUR NEW HOME:
Now that you have taken the time to figure out how much it will actually cost you to buy a home, you can begin your home search with confidence. You know your budget and have your savings set aside and when you write your offer, all of that preparation will show.
Begin your home search by downloading the JLS app at JLSAPP.com/MButler to get the most accurate and up-to-date list of what is available in your price range. This is also a very good time to give me, your local Walla Walla Realtor® a call and talk with me about your plans. I am currently accepting new clients and I love helping people along their home buying journey. I can help you schedule home tours, help you write up your offer and communicate with your lender, the home inspector and the seller’s agent to help you make sure the transaction goes smoothly. BONUS* It doesn’t cost you anything to hire me, my commission is paid by the seller at closing.
Buying a home is easier than it seems when you know the steps and have the right tools in hand. If you have any questions about any part of this process send me a message and lets talk about it.
Molly Butler, Realtor®
John L. Scott Walla Walla
Phone: (509) 200-0342
Email: [email protected]