Owning a home has long been considered the American dream. Having a place to call your own is a reason to celebrate. However, before you sign your name on the dotted line, you should make sure that you have done your homework. Since most mortgages are a 30-year commitment, you want to get the best deal possible.
The real estate market goes up and down. One minute it can be a buyer’s market with multiple homes to choose from. Consequently, things can change to a seller’s market on a dime. When you’re trying to purchase in a seller’s market, you need a knowledgeable realtor that knows the fine art of negotiations. It can make all the difference in the journey.
If you feel that you are at the stage in your life that you’re ready to dive into homeownership, then here are some tips to help you ensure you know what to expect and what to avoid.
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Before you start shopping for a home, you need to know your credit score. You must know what you can get before you begin the difficult task of finding the perfect place. If you have a FICO score under 650, then you should raise the score to 680 or above to get a better rate. Even a few points on your interest rate can increase your payment significantly. Buying too soon can be a costly mistake.
You can get a free credit report from www.annualcreditreport.com once a year. For an extra fee, you can have them add your credit score from the three bureaus on there. Go through the report and make sure that everything is accurate. If you see anything that is in error, take the time to get it fixed before you start the process of buying a home. You need to keep your score at a prime rate to get the best offerings on a mortgage.
If your credit is not stellar, it doesn’t mean that you cannot buy a home. Many programs will put a person with a 580 FICO score into a home. While it allows you to make a purchase, the monthly mortgage is often on a variable rate. If you can raise your score within a specific time, then you can refinance and get out of the variable rate and into a fixed-rate mortgage.
Variable mortgages fluctuate based on current interest rates. If you cannot raise your credit score and refinance promptly, then it could cost you big time. The housing market crash of 2008 had a lot of people that fell into this horrible situation. They couldn’t pay their mortgages because the payment rose to an unaffordable rate.
Another thing to consider is that prime banks don’t work with people who have low credit. These loans are usually done by predatory lenders who put substantial interest rates and tons of other fees on loans. The result is you have a monthly mortgage payment that is way above what you should pay. Still, if it’s your only option for homeownership, then there are ways to work these programs and refinance into a better rate later.
Since you have your credit report, it’s time to get a pre-approval. Did you know that many sellers won’t even allow people to look at their homes unless they are preapproved? It’s essential to take care of this step first because it helps to shorten the process for the buyer and seller when it comes to closing. That approval is a verification of what you can afford and what the bank is willing to back you on.
The standard down payment requested by most lenders is 20 percent. There are a few exceptions to the rule, such as those who use FHA, which has different requirements. If you don’t have the full down payment, then you will need to pay PMI.
PMI or private mortgage insurance is a safeguard to protect the lender. If you should default on your loan, they at least have a percentage of the loan paid in full. PMI is an extra payment that goes with your monthly mortgage amount. It allows you to make your down payment slowly over a period. The PMI premium can be removed once you reach the 20 percent down payment. Still, it’s best to have a suitable down payment to avoid the higher monthly mortgage amounts.
Numerous online calculators will tell you how much of a home you can afford with your budget. However, what these tools don’t consider are all the little extra things that aren’t considered part of your outgoing. For instance, if you need to pay $50 a month for your child’s band enrollment, $80 for sports, and $100 for a rideshare program, these are not considered expenses that mess with your debt-to-ratio.
Each family across this country has different spending habits. An online calculator can’t estimate accurately for everyone. These tools are just a general guide. Only you know what you can genuinely afford. Remember, your mortgage should be no more than 28 percent of your income.
Keep in mind; if you have vehicle payments that go above the 10-15 percent allotted, then it can mess with the percentage the bank will finance. Buy a home that you can genuinely afford, not one the bank says you qualify for as there is a big difference.
Many people try to avoid going with a realtor because they feel they can handle the journey alone. However, when you live in a market where homes go into a contract as soon as they go on the market, having that inside advantage is helpful.
A great realtor often knows of houses that are going to come on the market before anyone else. They may be able to give you inside tips and tricks to help you find your dream home. They also work with a wide variety of lenders, so they know what it takes to get you financed.
When it comes to negotiations between buyers and sellers, they are the expert. They act as a mediator between the two parties. Sure, they want to get the home sold or help their buyer make a purchase, but they know how to appease the two by using their shrewd negotiation tactics.
A realtor can show you any home regardless if they are the listing agent. They work hard to help you find the best home for your budget.
Depending on the area and the dollar amount of the home, you may not be required to have an inspection. However, the investigation is a vital part of the process. The inspector is well trained in spotting potential problems. You don’t want to pay full price for a home that has termites or a roof that is sagging in spots. The inspection gives your realtor negotiating material.
Additionally, if there are things wrong with the home that are costly to repair and could change your mind, like a cracked foundation, then you have the right to get out of the contract.
Few people don’t want to own a home. There’s something beautiful about putting down roots and being able to change the paint color without consulting a landlord. Still, you need to make sure you are well schooled in this process and don’t make any mistakes. Consequently, having a realtor walking alongside you is one way to ensure that the process is smooth.