Whether its your first home purchase or your 20th, buying a home is a massive moment in your life. The markets change on a daily basis as well as best practices so it is important to know what to expect and prepare yourself in the best way possible. Many folks say it is a stressful time but it certainly does not have to be. It is a big moment for you and your future. You can enjoy the process if you come to the table prepared. Here are some easy steps to follow to get you ready for your home purchase!
1. Get Your Finances in Order
Know your credit score and what that means in terms of mortgage rates and down payments. Typically, credit scores of 660 or lower will have to pay large fees or more cash down. There are certainly programs and packages to aid you if this is the case such as the use of an FHA loan if you qualify. The best rates on the market generally go to credit scores of 750 or higher. If you are still building your credit and you are not quite there yet, rest assured there are options for you. Even a score of 700 will get you a good deal.
2. Build your savings
Now, what does the lender like to see while vetting home buyers? The answer is a solid savings account. They like to see that you are not just living pay check to pay check and you have solid financial spending habits. By saving, you show the lender that you will be able to pay on the loan for the extended life of it.
3. Know what you can afford
The specific numbers vary per individual and your monthly income. For instance, if you are using an FHA loan, generally your monthly payment cannot exceed 31% of your monthly income. On conventional loans, your home expenses should not exceed 28% of your gross monthly income. Don't forget about property taxes which are based in Arizona off assessed value. Also things such as insurance, utilities, and HOA expenses can be a heavy factor. Take time while you shop around for your mortgage to find the best rates. Don't just pick the first place you see. Before you apply, make sure to have your W-2, pay stubs, bank statements, and tax returns for the past two years on the ready.
4. Find an Agent
An agent can be your ultimate source of wisdom, guidance, and support during this process. Make sure to interview potential agents who would like to represent you. By having an agent who understands the entire process and negotiations, you can literally save thousands on closing day. Here's the deal, everyone knows someone who is a Realtor. Family member, friend, etc. Do not feel obligated to use that person just because of the close ties. Many people are Realtors, tens of thousands here in the valley alone... but not everyone are Real Estate professionals. A Real Estate Professional can also aid you in finding a lender that will finance you for the best rates possible. Find an agent that will fight for you.
5. Figure out your WANTS - NEEDS
Find out what truly matters to you beyond price. Is a certain location a must? Certain school district? Neighborhood or subdivision? Maybe you care most about amenities. Large bedrooms and a massive master bath? Open floor plan? Ample square footage? Pool? Make a list of things that you would WANT and a list of things you absolutely can't live without or NEED.
6. GET PRE-APPROVED
Before enjoying the fun stuff... going out and looking at prospective homes, it is important to get your loan pre-approved. The housing market is crazy right now in the east valley with some areas having an average day on the market (DOM) of only 3 days! Having your loan pre-approved shows the home owner you are serious and ready to make a move. Most sellers won't even consider offers without an accompanying pre-approval letter.
7. Get a Home Inspector
After you have found your dream home and you have started the purchasing process, it is time to hire an home inspector. Unfortunately, some homes can cost more than it would be worth to buy. Having a thorough inspector will pay dividends as you move forward with the purchase. They will identify issues so you can be better informed on what you would like the seller to fix before purchasing. The home inspector cannot tell you if it is wise to buy or not. Take their report into strong consideration and ask for guidance from your agent on how to proceed.
I can guarantee the bank will not finance a home for more than its worth. Getting your loan depends heavily on the appraisal. This is why it is extremely important to have an agent that knows value extremely well to make this process a little less stressful. You should go into this phase of the purchasing process confident that you are getting a good deal. If this appraisal comes back at or over the price you offered to pay, its time to party! If the appraisal comes back lower than your offer, you may need to come up with extra cash to cover the difference, renegotiate the price, or say bye to that particular home.
9. THE CLOSING
You finally made it and its time to discuss the final costs of closing the transaction. "Closing Costs". Closing costs are a different animal. The national average dollar amount for closing costs vary state to state but expect to pay at least 2% of your purchase price in closing cost. For example, if you are buying a home for $250,000 ... expect to pay at least $5,000 in closing costs. These fees generally include attorney fees, you down payment, homeowner's insurance, appraisal fees, and property taxes. Having an agent with great negotiation skills can help you with closing costs. Negotiating with the seller to cover some of the costs. You will pay these at your closing where you sign all of the paperwork and walk away with the keys!
Phew, you made it to the end of the line. CONGRATS! You can now walk away a proud home owner! For any questions, concerns, or inquiries, please email me at firstname.lastname@example.org. Please refer back to this or shoot me an email if you need anything else!