Home Buyers Guide

Preparing to Buy a House: What Do You Need to Buy a House?

Mortgage pre-qualification requirements will vary from bank to bank. When looking for a mortgage loan, you may be looking at a national or local level, and you may be looking at both banks or credit unions. In general, the following criteria will be considered:

• Your gross income. Your lender will look at your income for the past few years, which includes both pay stubs and tax returns. If you have any type of variable income, such as bonuses or overtime hours, you may be required to get a letter from your employer stating that you are expected to get this income in the future.
• Your debt-to-income ratio. If you bring in $5,000 a month and have debt payments of $1,000 a month, you have a debt-to-income ratio of 20%. Your debt is 20% of your income. Most mortgage loans require a debt-to-income ratio of 43% or less.
• Your credit score. To qualify for a mortgage loan, you will generally need a credit score of 620 for a conventional loan. Your required credit score can be as low as 580 for an FHA loan and there is no minimum requirement for a VA loan.

If you do not meet any of these requirements, you may be able to add a co-signer. A co-signer is also going to be responsible for the debt being paid on time. If you’ve recently gotten a new job or radically changed your financial situation, preparing to buy a house may take some time.

How Do You Apply for a Mortgage?

It’s always best to have a pre-qualification in hand before making an offer on a home, as the pre-qualification gives you additional bargaining power. You will need to give additional information to the bank, but this can also reduce the amount of time it takes to get your mortgage approved later on. You may even be able to lock in a low interest rate early in the purchase process.

• Pre-approval. A pre-approval is a preliminary judgment based on a person’s income and current debts. This is a good way to get an idea of how much you can borrow.
• Pre-qualification. A pre-qualification is a more rigorous judgment that is very likely to be approved by the bank unless something significant changes about your financial situation.

It’s always best to have a pre-qualification in hand before making an offer on a home, as the pre-qualification gives you additional bargaining power. You will need to give additional information to the bank, but this can also reduce the amount of time it takes to get your mortgage approved later on. You may even be able to lock in a low interest rate early in the purchase process.

How Much of a Down Payment Do You Need When Buying a House?

Conventional loans require a 20% down payment, but there are many programs that go as low as 3.5%. If you pay less than 20% down, you may need to pay an additional mortgage insurance surcharge, up until the point that the “full” down payment has been made. There are programs, such as the Fannie Mae program, that does not require private mortgage insurance. This guide to buying a house cannot cover all mortgage programs, but your lenders may be able to give you more information.

The lower your down payment is, the more you will pay over the life of the loan — and the more substantial your monthly payment will be. However, there are advantages to purchasing a home early, if you’re trying to avoid rental payments or build equity. For investors, down payments are generally higher.

How to Find a Good Realtor: When Should You Begin Finding a Realtor?

When you have a good lender, you need to figure out how to find a good realtor. During a home purchase, realtors work in two roles: as the buyer’s agent and the seller’s agent. When possible, you do not want to work directly with the seller’s agent; their primary goal is to serve their first customer, the seller. While they will still work to ensure that you get what you want, you may not have the negotiating power that you would when working with a buyer’s agent.

It does not cost you money to use a real estate agent when purchasing a home. The seller will assume all of the real estate costs. Thus, there’s little downside associated with working with a real estate agent when you’re purchasing a property. A real estate agent can walk you through everything from how to make an offer on a house to the local neighborhood market appreciation.

You can find a realtor through the local realtor’s board for your area, through local listing agencies, or word-of-mouth. When trying to find a good realtor, you should look for testimonials and online reviews, as they will tell you a lot about how the realtor works. Look for the realtor’s own information, such as their personal guide to buying a house, to see whether their personality meshes with yours.

Ideally, you should find a realtor once you have actively started to consider buying a house. Realtors may know about homes that have not yet been listed. They can additionally advise you on the best areas to look and the features that you should be looking for in a home purchase.

Should You Buy a “Short Sale” or a “Foreclosure”?

When looking for homes, you may see homes that are listed as short sales or foreclosures. Short sales and foreclosures are often sold at below-market rates. The catch is that these properties may not be in move-in condition; they may be damaged in ways that you cannot anticipate and that could be expensive.

With short sales, the process of a home purchase can take much longer than a conventional sale. Not only will you need to deal with the seller, but you’ll also need to deal with their bank. The bank will have to approve the offer before the sale can be completed.

Likewise, a foreclosure can take a long time both due to the red tape involved and because there may be current tenants who need to be evicted or who need time to move out.

How to Begin the Home Purchase Process

Next, you need to find out how to make an offer on a house. You and your realtor will discuss how much the home is worth and how much you should bid. If you’re buying a house in cash, you may be able to get a discount on the purchase price. If you’re making an offer with a mortgage, you will often need to show at least a pre-qualification letter at this stage. Your real estate agent will submit an offer letter for the house, which the sellers will review.

This is also when you can ask for certain contingencies. As the buyer, you may be able to ask for things such as upgrading appliances before the purchase, painting the walls, or ripping out old flooring. Buyers quite frequently get some amount of concessions during this process.

The seller of the home will consider the offer letter for the house over a reasonable amount of time and then will come back either with a counter-offer or a denial. There may be multiple offers on a single property, at which time it may become necessary to bid higher on the home. You may also find yourself on a waiting list; in extremely desirable markets, it is commonplace to have an “offer” and a “back up offer” if the initial offer falls through.

If your offer is accepted, you will need to pay down “earnest money” as the next step of the home purchase process. Earnest money is generally a few thousand dollars and indicates that you’re serious about following through with the contract. If you later cancel the contract through no fault of the seller or fault of the property, the seller will keep the earnest money. If the seller fails to close the transaction, you will get your earnest money back.

How Much Should You Offer on a House?

At this step, you may be wondering how much to offer on a house. The amount to offer on a house depends on two factors: practical and emotional. On a practical level, properties should generally be valued based on their historical sale value, recent appraisals, and neighbors. It can be difficult to sell a home for more money than the neighboring properties are worth. On the other end of the spectrum, a home that is very affordable in an expensive area may appreciate in value over time.

On an emotional level, it’s also up to a buyer to determine exactly how much they want a home. A home may have unique aspects to them, such as being in the perfect location, or being in exactly the style that they like. Home buyers do need to consider their personal happiness when they are purchasing a house that will be their home. At the same time, a mortgage lender isn’t going to approve a loan that is significantly over the appraised value of the property, regardless. Neither practical nor emotional concerns should completely dominate the process of determining how much to offer on a house.

Making an offer on a house should take into consideration any improvements that need to be made to the house. When comparing two similar properties that are similarly priced, one might have an improvement (such as a fence) that would be costly to install in the other. These aspects should be factored in.

What Is the Process of Purchasing a Home?

When your offer has been accepted, you move into the process of purchasing a home. This process often begins by scheduling a home inspection. A home inspection involves a professional third-party who will look through the property for any potential and obvious issues. Home inspections should not be skipped; in fact, they’re often required by your mortgage lender.

There are different levels of home inspection and the home inspector’s fee can often be paid through the purchase transaction itself. If the home inspector does find any issues, it’s up to you whether you want to ask the seller to fix these problems, whether you want to renegotiate the contract, or whether you want to back out of the contract entirely.

After the home, inspection has been completed and any issues have been resolved, the mortgage company will wire money to an escrow company. You will also send your down payment to the escrow company. The escrow company collects the total amount of the purchase from all parties and releases these funds to the seller at the same time you sign your final documents and get the keys.

What to Expect on Closing Day

Your escrow company will tell you exactly how to close on a house, step by step. Generally, you will get the keys to your house at the signing. However, there are exceptions; you may be able to get the keys early if the mortgage process is taking a long time. You should not get the keys any later than the signing. Once you take possession of the property, you will need to secure it and ensure that the utilities remain turned on or are turned on.  You will also need to ensure that your property has homeowner’s insurance.

When Is the First Mortgage Payment Due?

The first mortgage payment will generally be due the month after the closing. If you’re concerned, you can ask your company directly when is first mortgage payment due. You will need to look at your mortgage paperwork for the exact date, and there is some negotiating power regarding the day that you want your mortgage payment to fall on. If you want, many mortgage companies also offer to split mortgage payments up into two payments a month. This leads to an additional payment over the course of the year and also falls in line with regular paycheck schedules.

Whether it’s for the purposes of investment or a first-time residence, buying a home can be both stressful and rewarding. By doing as much research as possible beforehand, such as through the above home buyers guide, you can get a better idea of the type of home that you would like and qualify for.