Buying your first house is one of the most exhilarating experiences of a lifetime. Home ownership signifies so many things in society: independence, success, stability. You’ve dreamed of this for a mighty long time; now it’s time to get your feet wet. Be patient, stay the course, and enjoy the journey. Here are the six steps to buying a house.
Laying the Financial Foundation
Step One: Credit Score
Don’t call a real estate agent or peruse houses online. It’s not time for that yet. Instead, order a copy of your credit reports. Thoroughly investigate the makings of your credit score. Your credit score should be 640 or higher if you’re thinking of buying. If you’re serious about buying, you may feel better about a credit score in the range of 680-719. And if you’ve got a credit score of 720-850, pat yourself on the back; you’ve done an excellent job preparing. If your credit score is lacking, discover which accounts are holding you back, and then contact those account holders.
Step Two: Debt-to-Income Ratio
How much do you pay out each month in bills, including car payments, utilities, mortgage, insurance, groceries, gas, and credit card payments? Compare that number to the amount of money you have coming in from paychecks, child support, alimony, or other sources. When you compare your debt to your income, you are practicing measuring your debt-to-income ratio.
There are two aspects to debt-to-income ratio. On the front end, your complete housing expenses (P.I.T.I. – Principal, Interest, Taxes, Insurance) should not consume beyond 28% of your monthly income. On the back end, your total debt – including car payments, student loans, minimum credit card payments, and all your housing expenses accumulatively should not exceed 36% of your income. The equation is debt divided by income equals ratio. Debt / income = ratio. If your numbers aren’t quite aligned with these, take some time to square them up before you apply for your home mortgage loan.
Step Three: Savings
Traditionally, buyers put forth a twenty percent deposit toward the home they’re buying. Additionally, the person purchasing the home is responsible for closing costs, which you can figure at one to eight percent. Furthermore, there are property taxes and other expenses associated with your move. Best practice suggests you’d also have a three-to-six month nest egg for emergencies.
There are first-time homebuyer programs to assist with down payments, but any amount less than twenty-percent garners higher interest rates as well as required private mortgage insurance, both of which escalate your monthly mortgage payment.
Step Four: Pre-Approval for Your Home Mortgage Loan
With your credit score, debt-to-income ratio, and your savings in order, you are prepared to shop for a home mortgage loan. Lenders have different terms and rates, so do your homework and find the lender that’s best for you. File your application, cooperate with any requests or requirements set forth by the lender, and when you’ve got the pre-approval, you’re ready to move forward.
The Fun Bits | House Hunting
Step Five: Find the Right Agent
Don’t settle for less than the perfect agent for your needs. Ask for referrals and recommendations. Read ratings and reviews. Interview agents. Discuss your wish list with your agent, but don’t be surprised to realize your money doesn’t stretch as far as you imagine. You may have to compromise. When browsing houses, use proper etiquette. Your agent will help you submit and negotiate offers when the time is right.
Step Six: Technicalities
When the seller accepts your offer, you’re well on your way to home ownership. Be patient. The house must be inspected, appraised, surveyed, and the title has to be checked and transferred. This part takes time; there are a lot of service providers involved.
Don’t emotionally attach to a property until you’ve got the keys in your hand. Along any one of these six steps something could happen to spoil the deal. Keeping your heart in your chest and off your sleeve, get your credit score in good shape. Perfect your debt-to-income ratio. Establish savings and get pre-approved. Enjoy shopping for houses with your agent, and be patient with the process.
Your real estate agent is the best source of information about the local community and real estate topics. Give Brock Realty a call today at 941-313-1234 to learn more about local areas, discuss selling a house, or tour available homes for sale.