You feel like you are in a great spot financially. Home ownership is just a few steps away, right? How do you know what steps to take in order to achieve your dream? Because you have the buyers checklist! This info and checklist is a great way to stay on top of the process. Never worry that you are missing a step, just look at the Home Buyer Checklist
Check Your Credit Score
It sounds so simple, but this is a vital first step. Your credit score will affect your interest rate. If your interest rate is too high, it may mean putting your dream on hold for a while. Think about it, you want as much of your payment to go towards your mortgage and not interest. Your credit score also determines whether you are ‘creditworthy’ according to banks, lenders, and mortgage companies. Pulling your score and identifying any issues up front will save time in the long run.
Clean up any Blemishes
If you are reviewing your credit history and find an inconsistency, report it to the credit agency. Clearing up any misreported information can result in an immediate boost to your score. You will also want to pay down balances on as many credit cards, vehicle and student loans as possible. Ideally, lenders will want balances no larger than 30% of your total credit line. Make sure your bills are current. Any past due balances that are on your credit history need to be resolved. If you need additional available credit, open another line of credit. Pay off the balance in full every month.
Figure Out How Much Home You Can Afford
We have the advantage of technology, so use it! Download a mortgage calculator onto your smartphone or tablet. Play around with the numbers and see where you end up. Ask neighbors, friends or family for estimates on their utility bills and insurance rates so you can create a household budget (download a template online for a timesaver). Take your downpayment, mortgage type and estimated interest rate into consideration. Just because you can afford a higher mortgage doesn’t mean you should spend your max. Make sure you have enough for savings and can comfortably pay all of your bills every month. Utilities like a/c can run higher in the summer months so always leave a little extra.
Shop For Mortgage Lenders
Download a loan comparison spreadsheet and start interviewing mortgage lenders. By comparing interest rates, terms, and monthly amounts on a spreadsheet, you can visually see which lender may have the advantage. Also, make sure that the lender you choose is responsive. You don’t want to spend your time having to chase someone for answers. Ask if you qualify for different mortgage programs like First Time Home Buyer or SHIP. Some mortgage companies and banks will offer select programs that are not available by other lenders. Ask around and see who can best fill your needs when it comes to a home loan.
Secure Your Pre-Approval
Once you choose a lender, they will ask for specific information to pre-qualify you for a loan. That letter, known as a pre-qual, will open the doors to the real estate market. Not only does it show that you are interested in purchasing a property, but that you mean business. By submitting your pre-qual along with an offer, you alleviate any concerns a seller may have regarding your financing. Once the pre-approval is complete, ask your lender to send a couple different letters in different amounts. For example, if you are approved for $200,000, ask your lender for pre-quals at $190,000 and $180,000. If the home you love is available at $183,000, you don’t want to send an offer with a pre-qual of $200,000.
This is also the time you will want to start gathering your documents for a loan. Most lenders require W-2’s, pay stubs for the last 30 days and proof of any other income. You’ll also need your latest tax returns, bank statements for the most recent 3 months and front and back copies or your photo id. If you have any long term debts like vehicles or student loans, make sure you document those as well.
Set aside the money for your downpayment. Based on your mortgage type, the down payment, or escrow, can vary widely. Conventional loans can range from a 3% downpayment to a 20% down payment. Make sure you know which before moving forward with an offer. FHA loans are very common and only require 3% down. There are additional requirements for an FHA vs a conventional loan, but usually these are not an issue. A VA loan may be available to active or veteran military personnel. A huge advantage for the VA loan is the lack of downpayment. With a VA loan, you can also request that the seller contribute all closing costs.
Once you are pre-appoved and have a financial plan, do not make any financial changes. Any large purchase can be made after you close, but not during the process. New cars, student loans, or personal lines of credit should wait until after your mortgage is final. Large purchases or credit checks can damage your score and income to debt ratio putting your dream on hold. So save the money, don’t spend it during the mortgage process.
Shop Real Estate Agents
Agent fees are deducted from the seller so you have the benefit of working with an agent without the cost. Real estate agents have knowledge and neighborhood expertise that can make all the difference. Want to know about schools, local hot spots, delivery or shopping near by? Ask a realtor. They are plugged in to areas like a professional community representative. And the best part, they handle all the paperwork. The amount of addendums, riders, verifications, clauses, and disclosures is enough to make anyone crazy.
In addition to the paperwork, they also coordinate the title, lenders, inspectors and sellers agents / vendors to make for a seamless transaction. Once you have paired with a realtor, make sure to get on their mailing list. This is an email list that will send you all relevant listings daily. You can check out pictures, community amenities and see previous taxes and schools.
Browse on Your Own
Search the internet on your own as well. You may find an area you didn’t realize would fit your lifestyle so well. Another advantage to browsing on your own; want lists. Take the time to make a list of what you like and what you don’t like. Many communities are established by the same builder. The floor plans are similar and the exteriors can be as well. If you have a list of specifics, you can weed out the things you don’t like quicker. Review the list with your agent so they can adjust their search parameters.
Location, Location, Location
Have you hear the saying, Your Vibe is Your Tribe? That’s exactly what you are purchasing when you buy a home, a tribe. Not only does the house come with the deal, but so does a part of the neighborhood. So make sure you are happy with the surrounding area. If family is the main drive, is there a park nearby or wide sidewalks? Maybe you’d rather be closer to shopping and art galleries for a little more culture. If you are into gardening, a community with a gardening club may suite your needs perfectly. The point is, get out and drive by your favorite listings so you can see the neighborhood. Make sure that it fits your vibe.
One you find the home for you, calculate any obvious repairs or updates prior to submitting an offer. Like we mentioned before, it’s always a good idea to have a little left over for unforeseen expenses. Have your mortgage company estimate the monthly payment. If it fits into your budget, then your realtor can get busy with the paperwork! If you are making a reasonable offer, see if the seller will contribute towards your closing costs. The more money you can keep in your pocket, the better. If your offer is accepted, have a licensed contractor or licensed inspector do a home inspection. A licensed inspector is normally a single payment and they review the entire home testing or observing specific items. They will create a report that can be reviewed by your and the mortgage company.
Or, a licensed contractor can be hired for each part of the home you want inspected. Make sure to check with your mortgage company as they require specific inspections based on the mortgage type. The advantage to a licensed contractor is they can normally provide an estimate if any repairs need to be made. If there are repairs, you can negotiate with the seller to complete them prior to closing.
If repairs and paperwork is complete, you are ready for closing! Bring your photo ID and check if any other paperwork is requirement.
We hope this helps during the buying process! Don’t let you dream turn into a nightmare. Make sure you hit all the main points of the process by printing our checklist. Of course, if you are in the market for a new home, contact Action Realty! Our agents are community experts and ready to help you find your perfect piece of paradise.