The most common thing I hear from hopeful homebuyers is “I’ve been looking at houses online, and I found one I really like!” House hunting should be fun, and buying your first home is an exciting time, but there is a very specific order of operations when it comes to home buying that most home buyers know little about. While Zillow, Trulia, and Realtor.com have changed the way the everyday homebuyer shop, there are still important rules of the game to follow. This three part blog will break down three key factors in home buying that play a major roll in getting to that settlement table!
PART 1-FINDING FINANCING:
Before you even think about looking at a home either online or in person, a smart realtor will insist you are pre-approved. This probably sounds like a hassle, but if you don’t know where you stand prior to shopping, you risk falling in love with something that simply isn’t in the budget leading to tragic disappointments and wasted time. The good news is that the pre-approval process is far less difficult than most people think. Most loan officers can tell you where you are and issue a basic pre-approval in fifteen to twenty minutes. They will look at four main factors:
- Credit score and history
- Assets (cash available to close)
- Your monthly obligations (for example, car payment, student loan debt)
With just this small amount of information and a few minutes of your time you can get out and shop with confidence, so that when you find “the one” you are ready to do proceed without delay.
I always suggest that my new buyers ask their lender of choice to work their numbers in reverse…what does this mean? Ask them to take your monthly payment and base your price point off a comfortable payment for you.
In many cases homebuyers can be approved for more house than they really want to pay for monthly and this can land you eating ramen noodles in the dark after you buy, aka being “house poor.” In other words, you better love your new home because you can’t afford to leave it and live your life!
A good lender will base your pre-approval off your comfortable monthly budget and not push you into more than you can comfortably afford. It is important to mention here that your monthly payment isn’t just your mortgage (the ever popular zestamite is an example of this) but should also include your estimated home owners’ insurance and your property taxes.
While there is a great myth that you have to have 20% to put down when you buy a home a lender will want to talk to you about what your out of pocket comfort is for down payment and closing costs. You might be pleasantly surprised with how little cash you have to cough up at close!
Finally, a good lender will help you with these steps, give you a competitive interest rate, and good loan terms. A great lender will help you with both state and city incentives and grant programs you may qualify for that can help keep the out of pocket costs more manageable. If you are interested in exploring financing or learning what if any first time home buyer incentives you may qualify for please reach out to me at MeighanMoves@gmail.com