Buying a home is one of life’s biggest moments. For most people, it’s the biggest purchase they’ll ever make, and every penny is worth it when all goes well. But how can you increase your odds of landing the perfect, affordable home without too much stress along the way? Well, follow this guide and we’ll help you get there.
DETERMINING WHAT YOU CAN AFFORD
Before you even start thinking about the home itself, it’s a good idea to figure out how much home you can afford in the first place. When lenders are considering what you can afford and what interest rate you’ll pay, most look at one of three factors:
- Maximum mortgage payment. Your monthly mortgage payment should not exceed 28% of your gross monthly income (your income before taxes).
- Total housing payment. Your mortgage, homeowner’s insurance, private mortgage insurance, association fees and property taxes should not total more than 32% of your gross monthly income.
- Total debt payments. Debt payments, including other loans and minimum credit card payments, shouldn’t be more than 43% of your gross monthly income.
Lenders will also consider your credit score when determining the interest rate on your mortgage, with scores of about 760 and higher qualifying for the lowest rates. If you’re applying as a couple, both of your scores will be evaluated. If one person’s score is low, that could be enough to disqualify both of you. That person will either need to improve their credit, or the person with good credit will need enough income that they can qualify for the loan themselves.
To get a rough idea of the mortgage amount you will be able to afford, try using our a mortgage calculator, like the one on my website https://garrettpotz.com/about.html . But while it’s a good estimate, you won’t have a better idea of what you actually qualify for until you speak with a mortgage specialist, like me. They can help you determine which mortgages you qualify for and how much of a down payment you’ll need. You can start the process at www.GarrettPotz.com.
PREPARING FOR YOUR HOME SEARCH
After submitting your application, you’ll want to secure a preapproval for a home loan. Preapproval lets sellers and your real estate agent know how much you’re qualified to borrow, the loan type you’ll have and the amount you plan to have as down payment. A preapproval letter in hand will also make you a more serious contender once you start placing offers for homes.
To help make the home search and purchase process go more smoothly, it’s wise to spend time looking for a quality real estate agent. You’ll want somebody with plenty of experience and who is familiar with the area. I work with some of the best real estate agents in our area and would love to give you a short list of great ones.
MAKING AN OFFER AND DOWN PAYMENT 101
After you’ve fallen in love with a home, it’s time to make an offer. Get help from your agent to determine what a competitive offer would be. You should include offer price, a deadline to respond and any contingencies (such as a passing home inspection and repairs if anything is found).
This is also the time when you’ll want to have your down payment readily available for your lender. Many people see the down payment as their biggest barrier to buying a home. But down payment requirements can vary widely depending on the loan type and price of the home — plus, some mortgages allow you to fund the down payment via a gift from a family member.
Traditionally, it was expected that 20% of the home’s cost be paid as a down payment. This was a way for the lender to offset their risk. Today, many mortgage types still require a 20% down payment, unless you pay for mortgage insurance. Mortgage insurance increases your monthly mortgage payment and helps protect the lender in the event that you can no longer afford your mortgage.
Choosing whether to make a 20% down payment or a smaller down payment with mortgage insurance can be a tricky decision. A bigger down payment could mean a smaller monthly payment, a lower interest rate and less money spent over the life of the loan. But a small down payment would leave you with more money at the onset of the mortgage. Fortunately, at Affinity Home Lending, we are now offering a Conventional loan product as low as 3% down.
Keep in mind that regardless of your down payment amount, you’ll still need funds for closing costs (usually about 2-3% of the purchase price) and earnest money, which is a type of security deposit (usually between 1% and 3%).
GET AN INSPECTION AND SEAL THE DEAL
Once the seller accepts your offer, you’ll need to do a few final things before the home is yours. One of the most important is getting an inspection done on the house by a certified professional. The inspector will check the home’s structure, roof, heating, plumbing and electrical systems for any potential issues. If anything serious is found, you could ask for the issue to be fixed based on your offer’s contingency.
After the inspection process is finished and you review any repairs made, you’ll be able to close the deal. You’ll sign a stack of paperwork alongside your real estate agent and lender. And with that, you’ll be handed the keys and be the proud new owner of a home. Congratulations!
THERE’S NO PLACE LIKE (A NEW) HOME
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