Knowledge and experience are the keys to successful real estate transactions. One of the keys to making the home buying process easier and more understandable is planning. In doing so, you'll be able to anticipate requests from lenders, brokers and a host of other professionals. Furthermore, planning will help you discover valuable shortcuts in the home buying process.
Do You Know What You Want?
Whether you are a first-time homebuyer or entering the current market as a repeat buyer, you need to ask why you want to buy. Are you planning to move to a new community due to a lifestyle change or is buying an option and not a requirement? What would you like in terms of real estate that you do not have now? Do you have a purchasing timeframe? Do you prefer a single story or a multiple-story house? Do you want a large yard for children or pets to play in? Are schools or access to public transportation important? Separate the essentials from the items you could do without and put them on the "must have" list. Prioritize the rest of the items into a ranking of priority by assigning it a 1-10 ranking. Whatever your answers, the more you know about the real estate marketplace, the more likely you are to effectively define your goals. As an interesting exercise, it would be essential to review the questions above and to then discuss them in detail when meeting with one of our brokers so you can both work towards achieving your goals.
Do You Have The Money?
Homes and the financing of them are almost always intertwined. Financing is the difference between the purchase price and the down payment, commonly referred to as the loan or mortgage. Down payment amounts have varied over the years as we witnessed the coming and going of many no down payment loan programs over the last 10 years. As of now, if you're looking at a Conventional Loan you'll have to put 20% of the purchase price down to avoid having to pay PMI (Private Mortgage Insurance). Although if you are willing to pay PMI (either monthly or in the form of a slightly higher interest rate) you can put as little as 5% down depending on your credit scores and the type of property you're looking for. There are also special conventional loan programs for first time home buyers or those with lower incomes that only require a 3% minimum down payment. There are also government lending programs that offer lower down payment options with less income restrictions and lower credit scores than the 3% down conventional products. The FHA Loan program requires only a 3.5% down payment and can be used on most houses that do not have any major safety concerns. Both the VA Loan program for veterans or current military and the USDA Guaranteed Rural program allow for no down payment purchases if the borrower and property qualify.
Not everyone, however, elects to purchase with little or no money down. Less money down means higher monthly mortgage payments, so most home buyers often choose to buy with as much down payment as they can afford. In addition to a down payment, purchasers also need cash for closing costs (the final costs associated with closing the loan and purchase transaction). It may be possible to negotiate an offer for a home that requires the owner to pay some or all of the settlement expenses. Talk with one of our brokers for details or ways to set that up as part of your purchase agreement.
Is Your Financial House in Order?
The loans that are currently available do require one thing that the subprime loans available during the past several years did not- you need fairly good credit. In general a minimum credit score of 580 is needed for the Government loan programs and Conventional loan programs need higher scores than 640 to get good interest rates for them. For at least one year prior to purchasing a home, you should assure that every credit card bill, rent check, car payment and other debt is paid in full and on time.