Prepare to Buy

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Buying a home is one of life's biggest - and expensive - decisions and shouldn't be taken lightly.  There are many steps before, during, and after deciding to make the move.  Because of this, many folks can find it daunting to take the first steps.

 

Real estate is a great investment.  I hope these considerations will help you decide when you're ready and to help prepare all those tedious information you will need before embarking on your home-buying journey.

CONSIDERATION 1:  ARE YOU READY TO MAKE THE MOVE?

  • Have you had a stable job for at least 2 years? (Mortgage lenders like to see at least two years of consistent income history when pre-approving a loan. Changing jobs while you’re under contract on a property can create a big issue in the eyes of the lender.)

  • Is your credit score strong? (Most lenders require 600+ scores – Watch this video on why credit score is important)

  • Do you plan to live in the same location for at least the next 5-10 years (or at least 2 years before making it a rental)?  Check out realtor.com's Rent vs. Buy tool to explore further.

  • Are you prepared to accept the responsibilities of homeownership?

  • Do you fit the requirements for any down payment assistance and home-buying programs that could help?

CONSIDERATION 2:  DO YOU KNOW YOUR FINANCIAL STATUS?

  • Lenders look closely at your credit score when you apply for a mortgage loan.  Request your credit report from all three credit bureaus (Equifax, Experian and   TransUnion).  Correct any credit errors ASAP.  You can get free credit reports from all three bureaus at www.annualcreditreport.com.

  • Capture your monthly finances and have them ready to share with the lenders.  What is your gross income?  What do you spend each month (bills, obligations, housing costs, car and transportation costs)?  Do you have credit card debt?  How much do you have in savings?

 

CONSIDERATION 3:  DO YOU KNOW HOW MUCH YOU CAN AFFORD?

  • To get a rough estimate of what you can afford, most lenders suggest that you should spend no more than 28% of your monthly gross (pre-tax) income on your mortgage payment, including principal, interest, taxes and insurance.  Check out realtor.com's mortgage calculator tool to explore further.

  • Estimate your down payment based on purchase price.  You’ll have to make a down payment of at least 3% with most loans requiring 5 and 20%.  A 20% down payment is ideal to avoid paying private mortgage insurance.

  • Buying a home comes with costs, i.e. closing costs.  Estimate 2-5% of the purchase price for these costs and services during the transaction, which include escrow and title services, appraisal and inspection fees, lender fees, and mortgage and tax prepayments.

  • To plan even more, calculate approximately 3-6 months worth of emergency funds for unexpected maintenance.