Purchasing a home is a huge undertaking and complex process. Finding a new home starts as just an idea or dream. Eventually, that idea morphs into something that seems like a real possibility. Once the pros and cons have been weighed we determine that it’s no longer just a dream, it’s possible! We can buy a home! It’s hard not to dive right into the home buying process. It’s important, however, to stop and think about how the process will work.
Buying a home is one of the largest purchases you will make in your life. It makes a lot of sense to be prepared. Today I want to share with you some of the more unconventional aspects of home hunting that can make or break your experience. These tips will help you set forth a realistic time-frame and a logical path to your new home. For first time home buyers, they can help forge a smoother path to ownership.
Here are 10 things to know before you start the home buying process.
1) 6 months before you begin check your credit score
This will give you a clear picture of your credit worthiness. It will also give you the chance to see if your debts are hindering your purchasing power. To qualify for a mortgage, most lenders will look for a minimum score of 640-660. A score of 700-720 is considered to be a good score and 750+ is usually considered a great score, qualifying you for the best and lowest interest rates.
2) Know your current and potential DTI
DTI stands for debt-to-income. In other words, what you owe versus what you acquire. Most lenders will want you to keep monthly expenses below 28% of your monthly gross income (pre-tax income).
To qualify for an FHA loan your expenses mustn’t exceed 38% whereas with conventional loans 48% is usually the maximum expense limit.
3) Remember it’s not just about your down payment
Closing costs are just as important to factor into your budget as a down payment. Closing costs are 2-4% of the home purchase on average. For example, closing costs on a $250,000 house can be anywhere between $2,500-$4,000 on top of your down payment (average down payments range from 3%-20% or $7,500-$50,000 for a $250,000 house)
4) Get pre-approved for a loan before you start your initial search
Get pre-approved for a mortgage. Once you’re approved it’s worth it to check with multiple lenders. Ask your buyer specialist for recommended companies. Getting at least two quotes would be wise because it gives you at least two different options to choose from. Comparing different offers will help you better determine the best value for you.
5) Buy as much house as you need, not as much as you want
There is a big difference between how much house you really need and how much house you think you want. You can unearth a wonderful home by shopping both economically and emotionally.
6) Know your market, or work with a buyer specialist
If you don’t have your finger on the pulse of the market and don’t have an education in real estate, it is in your best interest to find a professional buyer specialist. They will have the data you need to know what’s current in your desired neighborhood.
7) Your friends and family can be helpful, but they don’t know everything
We trust our friends and family for a lot in our lives. We frequently accept their advice on everything from dining choices to career tips . While the people in our lives do have knowledge to share, when it comes to real estate it’s best to find a trusted professional. Find a buyer specialist without bias to help you navigate the ins and outs of the market.
8) Use your head as well as your heart
Finding a home is both logical and emotional. Don’t underestimate either side. A qualified agent that is trustworthy will listen to both your head and your heart to help you find a balance between the two.
9) The search for your home might take longer than you think
A common mistake made by home buyers is to believe they can purchase and move into a home quickly. If you want to be moved into your new home by July 1st, June 1st isn’t the appropriate time to begin your search. The loan process alone can take 60 days from the date of mutual acceptance to the closing date. Homes have been sought and bought in a day, but realistically it could take 2 months or longer.
10) Ownership has excellent (tax) benefits
When you buy a home you are welcomed into a world of new tax savings. There are mortgage tax benefits, Mortgage insurance breaks (FHA) and much more.
Also of note- If you’re planning to purchase a property as an investment don’t forget you can keep some of your profits in the form of capital gains. You won’t be taxed on profits up to $250,000 for an individual or $500,000 for a family (within a 24 month period). That means if you sell a home you can keep your profits tax free (up to those caps) every 2 years. *Again, make sure you speak with your tax adviser for details.
Now that you have read these 10 tips are you still thinking of buying? Let’s talk!