It’s finally happening! You’ve evaluated your options, and it’s time to start preparing for a home. Becoming a homeowner is one of life’s biggest milestones. It’s a commonly stress-filled adventure that doesn’t need to be! Taking the time to understand every step associated with homeownership will help you stay excited about your new investment rather than worried every step of the way. The Wendy Thompson Team is made up of experienced real estate professionals who want you to find the best fit. Figuring out the best way to navigate your home buying journey can be a daunting task when completed by yourself, but our team is here to guide you along the way. Our first contribution is an easy-to-follow guide on what you should prepare when looking to purchase a home.
First Things First: Check Your Finances
Even before you begin looking at prospective homes, take a step back to review your financial situation. This step is the most important, and it will determine the direction you go for the rest of the home buying process. What does your income look like? How much do you have saved already? Do you have any debts, and if so, what is your debt-to-income ratio (DTI)? Depending on your answers to the above, you’ll need to set specific financial goals to make sure you’re on track to qualify for a home loan. There are other factors that will determine your loan amount and duration, such as your credit score. As a rule of thumb, it’s best practice to have a hefty chunk of your payment in cash. We know that isn’t always possible. However, saving up as much as you can for your down payment will make a difference when it comes to your mortgage. Paying more up front can help save you money from interest and private mortgage insurance (PMI) later.
Additional items to consider:
- Is your potential house a fixer-upper?
- Do you have an emergency fund set aside for repairs or other unexpected bills?
- Do you have money for closing costs and moving expenses?
- Do you have any upgrades in mind that will cost additional money?
Time To Find the Right Mortgage
Depending on the results of your financial analysis, you may qualify for a few different types of mortgages. Buyers usually apply for one of two types of loans: conventional or unconventional. You should review the pros and cons of each loan type with a financial expert (our team is available for guidance) and get pre-approved before searching for your home.
Conventional Loans
- A credit score of 620 or higher
- Typically, a 3% or more down payment
- Debt to income ratio 36% or lower (or 50% for some Fannie Mae and Freddie Mac loans)
- Fixed and low rate of interest (dependent on credit score and down payment)
- Higher loan limits (some up to 100%)
- Flexibility (down payment and term length)
Government Backed Loans
There are a few different types of government backed loans, each with their own set of requirements, pros and cons. The most common unconventional loans include:
FHA Loans
These loans are backed by the Federal Housing Administration (FHA) and are generally meant for potential borrowers with lower credit and down payments. This type of loan is very common for first time home buyers. You can expect:
- 580 credit for a 3.5% down payment
- 500 credit score for a 10% down payment
- DTI less than 43%
- Home is required to be your primary residence
- Will have mandatory PMI upfront for down payments less than 10%
VA Loans
This type of unconventional loan is backed by the Veteran’s Administration (VA) and are available for veterans, reservists, and active-duty service members. You can expect:
- Roughly 620 credit score (depending on lender) or no credit history (depending on lender)
- No PMI required
- No down payment required
- A “funding fee” will be charged, but it can be included in your loan
- Available for primary residences only
USDA Loans
A USDA loan is backed by the United States Department of Agriculture and is available for income borrowers that are at moderate to low earnings levels. They are useful for bringing in homeowners to traditionally rural areas of the US. You can expect:
- Minimum 620 credit score (depending on lender)
- Income restrictions in place
- Home must be within a USDA-designated rural area
- No down payment
- PMI is required
It’s important to speak with multiple lenders prior to settling on any given loan. Keep in mind that you’re able to get pre-approved through several different loan providers, and pre-approval does not affect your credit! Having a few different lender offers will give you options to choose from rather than going with the first application that is accepted. Many homeowners make the mistake of searching for their new home prior to discussing mortgage options with a professional– it’s better to do things the other way around. If you do find your dream home but aren’t already pre-approved for purchase, you could end up losing out to someone who already has their finances in order.
Add a Local Real Estate Agent to Your Team
Having an experienced professional on your team can help you find your dream home faster. Real estate agents have access to a variety of tools that can aid you in your home buying journey. It’s comforting and encouraging to have someone on your side who has walked the path before! The Wendy Thompson team wants to help anyone preparing for homeownership with tips and tricks to make the process smoother. Having a local real estate agent on your side will be helpful when determining the area you would like to relocate to. You might have an idea of what you’re wanting, but no clue which side of town matches your checklist. Local agents can help make your wish list a reality – they know the neighborhoods inside and out and are more than willing to share that knowledge. After finding potential neighborhoods for you, agents can set up tours and coordinate walkthroughs for homes in the area. They can offer inside information, such as what school systems or nightlife are like. Reach out to the Wendy Thompson Team today for a specialized home buying experience and expert advice! To discuss your options, give us a call at 901-461-8858.
