Buying a Home?
Whether you are in a seller's or a buyer's market, there are some vital steps you should take when buying a home, whether your first or your fifth, to make a smarter purchase.
Purchasing your home will probably be the largest investment you will ever make. Being prepared will lead to a better purchase for you. Here are some great tips and best practices for buying your new home.
Know your buying power
What do I mean by “buying power?” It is a combination of the amount you can realistically pay for your new house when you are buying a home along with what is your credit-worthiness.
Even before that, though, it's vital to understand all of the hidden costs when buying a home. In addition to saving for the down payment of your house (this is usually between 10-20% of the house price), you usually also need to save for a variety of additional transaction fees, such as the transfer tax, PMI (private mortgage insurance), title insurance, and, in some cases, legal fees. (There are some exceptions to this – such as with a VA loan closing costs. 🙂 )
Next it's time to calculate how much you can realistically afford to pay every month. This will help you figure out how much house you can buy. You should contact your lender as early as possible in the process to find out what mortgage rate you can be approved for. That mortgage rate depends on your creditworthiness. In other words, if you have a high credit score, your lender will probably approve you for a lower mortgage rate. And that can save you hundreds, or even thousands of dollars in interest per year!
Are you wondering how much of your monthly budget should go to your monthly home expenses? SmartAsset recommends that follow the rough guideline of 36%. If so, that means that your monthly obligation should not be more than 36% of your monthly gross income.
A good lender or other loan professional can assist you in figuring out how much you can spend on a house.
Fix your credit with the help of an experienced lender or other loan professional
According to ReadyForZeroBlog, a credit score of 720 used to be a good score for getting great interest rates but times have changed. Now it is considered better to have a credit score of at least 740 or more to qualify for the best rates. And the least you can likely have for an acceptable credit score for a conventional loan (though your interest rates will be higher), is about 620. If your scores are in that 600 range you’ll probably pay about 1 percent more (or more) than those with the higher credit scores. That may not sound like a lot but it can literally save you thousands of dollars over the life of your home loan and well worth working on when you are buying a home. Investopedia has an interesting article on this topic that includes info on how your age plays into it and types of loans for the various credit scores. The bottom line is, you can qualify for a home with a wide variety of credit scores, but the higher the score, the less interest you are likely to pay. Thus, if you have any issues with your credit, you definitely want to get them cleared up as soon as possible. Ideally, you don't want to go to a lender for a loan pre-approval until it's done. But then again, a good lender might actually be able to help you with some tips for getting your credit cleaned up. I work with a great lender who often shares words of wisdom in that area.
When you do officially apply for your loan pre-approval, it's best if you don’t have anything to hide on your application. Be careful that you don't accidentally lower your credit score by doing anything that will initiate more inquiries into your credit. For example, once you realize you are seriously thinking of buying a house, be sure that you do not open any new credit card accounts. Also, when you are filling out the loan application, don’t leave out any debts or loans! If the loan officer discovers them in the application process (and they usually do), that could lead to your NOT getting a pre-approval.
Ask a good lender / loan professional to check on what your credit score is. They should be able to give you a clearer idea if your score is ‘good’ or if you will need to do some cleaning up of your credit before you will be able to qualify for a loan pre-approval.
Work with a knowledgeable buyer’s agent
Do you understand the real estate market in your area? Even within the city limits of a single city – whether huge like Sacramento or smaller like Roseville, there can be micro-markets or “pockets” that are going up or down in value. We are definitely seeing plenty of that in this area as well as across the country.
That’s why, when you are buying a home, it’s vital to work with a knowledgeable REALTOR who knows our specific area markets. You want to ensure that the real estate agent you are working with can really help you find just the right home for you.
Make sure that your REALTOR provides you with a good neighborhood market analysis along with current market trends and statistics. Having these figures at your fingertips will help you know if a house you are interested in has a list price that is above comparable properties. That will protect you from overpaying for your new home.
Don’t try to time the market…
There is never a perfect time for buying a home, regardless of whether it is a hot or cold market. Buying a house takes time. Time to figure out exactly what you like. Time to look at plenty of homes to help you recognize what suits your life and lifestyle the best. While you are house hunting, be sure to take photos of your favorites and the details that you liked best about each home to help you remember what you liked. I like to provide my clients with printouts of each home we look at together that includes a 5 star rating and space to write notes. My clients have consistently commented how handy that is when they are thinking back at the 10-20 homes they've looked at. Another good technique I appreciate is to rate a home from 1-10 (10 being highest) and discard any that are 6 or lower.
Believe it or not, you might find a better deal if you slow down the buying process a bit. For example, you might want to have your real estate agent help you look at recently expired listings. They may have gone off the market because they didn’t get any offers at the listed price, so you may be able to underbid the original listing price. Generally speaking though, it may not be worth your time to look at FSBOs (for sale by owner) listings. Since they are not represented by a professional REALTOR, they are often overpriced.
When it's time for you to start looking at homes to buy, it's wise to have a one-hour initial consultation with your REALTOR. Give them every single detail that you know about your lifestyle; your needs, wants, and desires for your new house; your buying power, and anything else you can thing of. The more detail you can provide, the easier it will be for your real estate agent to help you find your future home. Your agent may also know of exclusive listings coming soon that aren't yet available to the general public.
… But make the offer as soon as you find the right home
If you love it, make the offer. Otherwise, that beautiful dream home may be gone quicker than you would ever expect. This is especially true if you’re buying in a hot sellers' market which we are currently experiencing in the Roseville Sacramento area.
Your buying agent should contact the listing agent even before you submit your offer so they can decide what’s vital to include in your offer. If you are serious about a house, you definitely want to do all you can to increase the chances that your offer is accepted. Especially in our current sellers' market that many markets across the country are experiencing, as those often lead to multiple offers and many sad offerors.
Show the seller that you are, indeed, serious about purchasing their home by creating a buyer’s offer packet. This should include your lender’s preapproval letter, a screenshot of your down payment money in your bank account, and comparable homes in the immediate area that can support the amount of the offer you are presenting. Many buyers also include a personal letter explaining why they would love to buy the house – and those often include a photo of the buyers and any family members that may be moving in. These can often be a big help in the purchase.
Get a home inspection
Once your offer has been accepted, you are on your way to buying a home. Now it is vital to get a well-qualified third-party home inspector to come and perform a thorough home inspection. He will be looking for major structural issues, including serious problems with the foundation, electrical and plumbing systems. You do want your inspector to be very careful and even picky about the list of items to be fixed, including pointing out the most minor of faults. And be sure the inspection is conducted while you are still able to back out of the contract. If he finds any major structural issues, you may be able to request that the seller repair them as a contingency to solidifying your offer. Realize that minor issues, especially in a seller's market, probably will not be repaired but they may offer options for negotiating a lower price.
Protect your credit before you close
It's just as vital now as earlier. Do not raise ANY red flags with your creditworthiness in the weeks before your escrow closes. Any one of the following could mean that you will be denied home home loan and your deal will totally fall apart! This is true EVEN if you already have a preapproval!
- Don't make any major purchases before the close of escrow. In fact, keep all your spending to the bare minimum! Yes, that includes buying new furniture, or a vehicle, or any other excessive charges on your credit card.
- Make sure to keep your bank accounts stable. In other words, don't change your bank. Don't spend any of the money you have set aside for your closing. And don't even make any large deposits to your bank accounts without first talking to your lender!
- Keep your employment situation the same — ideally, do not change your job, quit your job, or become self-employed. Any sudden change in your income or your job can have that preapproval offer rescinded. IF there is a chance you may change jobs during the process, tell your lender before you begin. Depending on the job (especially if it's to a similar position to what you currently hold), it might not be a problem. But an unexpected change definitely could be.
- Do not cosign a loan for anyone. Doing so will open an inquiry into your credit as well as adding to your debt. That can raise your mortgage rate and cost you thousands of dollars over the life of the loan. For that matter, it could also lead to not getting the loan at all.
House Hunting In our Neck of the Woods?
Are you ready to start buying a home in our area of Roseville and Sacramento? We would love to help you find the home of your dreams. We are well versed in our local real estate market and we can provide you with a buyer’s market analysis to help you find the right neighborhood for you. Contact us today by calling 916-768-0127 or emailing us at Kaye@KayeSwain.com.
P.S. If you live outside our area, I'd be glad to find you an excellent REALTOR in your future neck of the woods.
P.P.S. Here's a handy booklet with even more great info for you. Just CLICK HERE or on the picture. 🙂
Just starting and want to see what's currently available in our area? Here's a great way to search:
And here are some of the many homes to get you started. These are both set for homes with 2 or more bedrooms, $100,000 – $300,000. Once you click on one, you will see NEW SEARCH in the top right corner. Click that and you will be on a page where you can change the criteria to meet your specific needs. 🙂
Placer County
Sacramento CA
