- Is my income stable?
- Is my credit score good enough to qualify for a mortgage?
- Have I saved enough money for a down payment, closing costs and home repairs?
- Will I live in this home for at least 3-5 years?
- Does my emergency fund cover at least 3 months of expenses?
If you answered “no” to any of these questions, you may want to delay buying a home, keep saving and working to improve your credit.
Credit scores affect your mortgage terms and down payment requirements. Many home buyers take several months to find a home, so make your credit score your first priority before beginning a home search. Taking time up front to correct credit reporting errors and reduce account balances can save you a significant amount of money over the life of your home loan.
If you don’t already have one, create a monthly household budget that includes all your expenditures. Make sure to plan for homeowner’s insurance (required by many mortgage lenders), property taxes, and home repairs and maintenance (typically 1% of a home’s value annually).
You may qualify for a larger mortgage than you can afford. Resist the temptation to overspend on a home and look for a home that fits your budget.
For conventional mortgage loans, a minimum 3% down payment is typically required. A 20% down payment eliminates the requirement for private mortgage insurance (PMI). First-time home buyers may qualify for down payment assistance loans and grants. A higher down payment means a lower monthly payment, and will allow you to build equity faster.
Closing costs are paid up front to your lender for arranging loan services. Your Closing Disclosure document will show the exact closing costs, which are typically about 2-5% of your total loan amount. First-time home buyers may qualify for government grants or loans to help with closing costs. As part of the negotiations, you can ask the seller to help cover closing costs. Common closing costs might include:
- Appraisal fees
- Escrow fees
- Attorney fees
- Homeowners insurance
- Title insurance
- Discount points
- Property taxes
Finding the right house will be easier if you’re well-prepared. Sit with your family and determine your home needs vs. wants, including price range, number of bedrooms and bathrooms, square footage, lot size, location, school district, features, etc. List them in order of priority so you can compare properties more effectively.
Qualified local real estate agents and REALTORS® are local professionals with the expertise to guide you through the home-buying process. Don’t rely on the seller’s agent to represent you in a home purchase.
Find the perfect real estate agent for you. Your agent is your resource and advocate through the entire home-buying process, so interview more than one. A good agent knows your target neighborhoods well, answers your questions, explains everything thoroughly, and is responsive and professional.
A good lender is easy to work with, keeps you informed, answers your questions, and knows the area where you’re home shopping. Ask about rates and fees, which can differ between lenders, and make sure you account for them in your budget.
There are numerous types of mortgage loans with different buyer qualifications, interest rates, and down payment requirements. First-time home buyers may qualify for government-backed programs with lower interest rates and down payment requirements.
Pre-qualification is not the same as a pre-approval. Pre-qualification is an estimate of the loan amount you might qualify for based on an informal review of your income and other information. A mortgage pre-approval is for a specific loan amount, provided by your lender based on an official review of your financial information, including your credit history and scores, assets, proof of income, and bank statements. A pre-approval letter lets you make a stronger offer to a seller, and you’re less likely to run into surprises or delays at closing.
If part of the contract does not meet your needs, you can work with your buyer’s agent to negotiate changes when you submit an offer. Pay particular attention to time-sensitive details like the types of inspections and negotiations that can be done and what the deadlines are.
It is applied to your down payment, and is typically about 1-3% of the home’s sale price. Your earnest money deposit is not refundable if you back out of the sale for any reason not specifically listed in your offer to purchase documentation.
Don’t skip this even if you’re competing with other buyers. An experienced, licensed home inspector will provide a detailed, unbiased inspection report describing the condition of the home and identifying any existing and potential problems. The results of your inspection can be used to negotiate concessions from the seller or even back out of the offer if significant repairs are needed.
A home inspection is not the same as an appraisal. An appraiser evaluates the features, location and condition of your home to provide you and your lender an estimate of your home’s value based on comparable properties (comps). An appraisal is required for most mortgage loans.
Don’t open any new line of credit, such as a credit card or a personal loan. Your lender will pull your credit report for a pre-approval and again before you close on a mortgage. If your credit balance increases, it could jeopardize your final approval. Keep paying your bills on time and avoid big purchases. Your lender wants to see consistent spending patterns so they know you are reliable for future payments.
Keep a physical copy of all of your mortgage documents, deed, Closing Disclosure and other paperwork in a secure, fireproof safe or file cabinet. Every person who is named on your loan should know how to access these documents in the event of an emergency.