Preparing to buy a house for the first time may seem overwhelming. If you’re getting ready to buy your first home, it helps to plan before you shop. The following blog will help you get things in order and start your home search in the best position possible.
Pre-approval is the first step in preparing to buy a home. Some buyers wonder if pre-approval is worth their time. Others may question whether a pre-approval letter is needed when the market is changing or when rates are low. Yes, home buyers should apply for pre-approval before they start shopping.
In any market, pre-approval is beneficial because it lets you and your agent know what you can afford and how much your payment will be. A pre-approval letter also shows sellers and their agents that your offer has substance. Pre-approvals last 60 to 90 days. If your pre-approval expires, your lender will need updated documentation and an additional credit pull.
The most important factor when it comes to timing is to get pre-approved before you start looking for a home and certainly before you make an offer. The experienced loan team at www.ruoff.com can help you get started.
Get to Know the Loan Application
Mortgage loans are underwritten using the Uniform Residential Loan Application (URLA). You’ll be asked all the basics: Name, address, where you work, your monthly income, how much money you have in the bank, and how much money you owe to others. The URLA also asks about properties you own, your address history, and the funds you plan to use for a down payment. You will then answer some questions about demographics and military service.
For a pre-approval, much of what you disclose on the URLA will be assumed true. Documentation, such as bank statements and tax forms, will be required before the final approval is issued. You will need to provide your social security number so the lender can pull your credit report. In most cases, a credit score is required before a pre-approval letter can be issued.
Plan for a Down Payment and Other Expenses
How much should you save before buying a home? The amount of your down payment depends on the loan product and the price of the home you plan to buy. Discuss this and other expenses with your loan officer before you make an offer on a property. You will also need to show proof of funds (usually by providing bank statements) before a final loan approval can be issued.
Develop a Household Budget
Budgeting monthly expenses is not glamourous, but it’s essential to building wealth. If you want to save for a down payment, closing costs, and any other expenses associated with your upcoming home purchase, start with a budget.
The process is relatively simple. Most basic budgets are line-item spreadsheets. Start by listing all of your monthly expenses in one column. Examples of monthly expenses include utilities, car payments, entertainment, groceries, restaurant dinners, and credit card payments. Your monthly savings goal should also be entered as an expense. Some budgeters use apps like Mint. Others use a program like Microsoft Excel or Google Sheets. Budgets can also be handwritten. At the end of the month, enter your actual expenses into the next column and compare them to the projected amounts from the first column. This is called “reconciling.”
Work With an Experienced Realtor
Find a Realtor you want to work with and contact him or her before you see your first prospective home. If you have never worked with a Realtor, ask friends and family for referrals. Online reviews can also be helpful. Plus, experience matters. A good rule of thumb is to seek an agent or team with at least four years of experience in brokering residential real estate.
Keep your Credit Tidy
The loan terms in your pre-approval letter are dependent on the maintenance of your existing credit score. If your score decreases before final approval, or if you take out new loans or incur collections or judgments, your loan will need to be re-underwritten. This could result in new loan terms that are less desirable, like a higher interest rate. Worse, if your loan-to-value ratio increases or if your credit score falls below the acceptable threshold for your mortgage product, your loan could be denied. Keep your credit clean and avoid major purchases and/or new debt while you shop for a home.
Are you curious about your credit? You can go to www.annualcreditreport.com any time to request a free copy of your report from one or all three of the credit bureaus (Equifax, Experian, and TransUnion).
Stay Flexible in a Seller’s Market
The real estate market has favored sellers in recent years. When demand is high and supply is low, buyers should remain flexible regarding home size and details. While the location is sometimes a non-negotiable, other “dealbreakers” may have to be overlooked. Yes, it helps to know what you want before you start shopping, but some real estate markets require an open mind. Adjust as necessary to find the home that fits your wants and needs at the monthly payment that is right for you.