So are you ready to make the move? You might be if you:
- Are familiar with the market. If you've been paying attention to how much houses are listed for in the neighborhoods you're eyeing and have a realistic view of how much a house will cost you, you're in good shape. But if you're dreaming about that big corner house with no clue about it’s asking price, you may want to spend some more time becoming familiar with the market and how much houses are going for.
- Have the money for a down payment and closing costs. The down payment is a percentage of the value of the property. Freddie Mac says the percentage will be determined by the type of mortgage you select. Down payments usually range from 3 to 20 percent of the property value. Also, you may be required to have Private Mortgage Insurance (PMI or MI) if your down payment is less than 20 percent. Closing costs include points, taxes, title insurance, financing costs and items that must be prepaid or escrowed and other settlement costs. You can expect to pay between from 2 to 7 percent of the property value. Generally, buyers will receive an estimate of these costs from your lender after you apply for a mortgage.
- Know how much you can afford. Freddie Mac says that as a general guide, your monthly mortgage payment should be less than or equal to a percentage of your income, usually about a quarter of your gross monthly income. Also, your income, debt and credit history go into determining how much you can borrow. As a general rule, your debt -credit card bills, car loans, housing expenses, alimony and child support -- should not be more than about 30 to 40 percent of your gross income.
- Know what additional expenses will come with owning a home. This includes homeowners insurance, utility bills, maintenance costs -- roofing, plumbing, heating and cooling.
- Have your credit in good shape and make sure your credit report is accurate. Potential lenders will view your credit history -- how much debt you've accrued, how many accounts you have open, whether your payments are made on time, etc. -- to determine whether they'll give you a loan. You should get a report from each of the three credit reporting companies: Equifax, Experian, and Trans Union.
- You haven't made any recent major purchases, particularly a vehicle. If you do, you may have a harder time getting a loan -- or it could potentially lower the amount you'll be approved for.
Once you decide you're ready, you'll need to be prepared to move quickly if you're aiming to buy in a sellers' market.
Properties in the lower price ranges that are priced correctly are selling quickly, as buyers are armed with still low interest rates.
The next steps involve hiring a real estate professional and getting pre-approved for a mortgage loan. This way you'll know if you can get approved and how much you can spend on a house. It also puts you in a stronger position when you ultimately make an offer on a house.
Review Your Credit History
Since most people will need to get a mortgage to buy a house, make sure your credit history is in tip-top shape. A few months before you begin looking for your new home, obtain copies of your credit history. Review the reports to make sure the data is correct and fix any discrepancies before you apply for a pre-approval on your loan.
Research The Sales Trend In The Neighborhood
Before you make an opening bid, you should consider sales of homes in the area during the past few months. If neighboring homes have sold for 5% less than the asking price, your bid should be between 8% and 10% lower than the asking price.
Why School Districts Matter
When looking for your new home, it's wise to consider the school district even if you don't have school-age children. Why? Because if you should ever decide to resell your home, a quality school district is a top priority for most home buyers, which will boost your property value.
Get Pre-Approval On Your Mortgage Loan
Applying for pre-approval will put you on the right path to finding a home you can afford and save time and grief of looking at houses that are above your price range. You're also in the position to make a quick, serious offer on a house should the opportunity arise. Don't confuse pre-approval with pre-qualification, which is only based on a review of your finances. Pre-approval is based on your credit history and actual income and debt.
Hire A Home Inspector
Before you purchase a home, your lender will require a home appraisal to determine if the house is worth the price. In addition, you should separately hire your own home inspector with experience in performing home surveys in the area you are buying. This could save you costly repairs and headaches down the road.