7 Things You Need To Know Before Buying A Home
Are you ready to buy a house?
Buying a house is a top goal for most people. However, it’s not as easy as buying groceries in the supermarket—it’s one of the biggest financial decisions a person can make. Unless you have a lot of money in your bank account, you need to think long and hard before entering into this kind of financial commitment. Here are ten things you need to consider before you purchase a house:
1. Use a trusted realtor.
We all know that realtors get a cut of the sales price of a home which makes some buyers hesitant to use a realtor: they believe it drives up the overall cost. Keep in mind that a savvy realtor who works for you can protect your interests and guide you through the buying process – from negotiating a price to navigating home inspections.
2. Consider your finances.
Most people can get a home loan from most lenders as long as they provide at least a 5% down payment. If possible, you want to have at least a 20% down payment to avoid mortgage insurance and also hedge against future value fluctuation. If needing to sell unexpectedly, the equity position could be very helpful.
Other than the upfront costs of buying a home, you also need to make sure you can afford your mortgage loan payment. Thus, it’s important to evaluate your finances before you invest in a property. Do you have enough cash to make a down payment or can you afford to take on the cost of repaying your mortgage? You’ll also want to keep an eye on the interest rates. The impact of your mortgage interest rate will depend on the type of loan you get.
For instance, if you choose an adjustable-rate mortgage, the size of your monthly payments could fluctuate alongside the interest rates. Meanwhile, a fixed-rate mortgage means your rate is locked in, regardless of which direction the interest rates move. Any small differences in your mortgage interest rate can add up quickly, which might cause you to spend too much or save a lot.
Lastly, it’s better to talk to a Catlin Capital home loan specialist about your options and help you find out how much you can borrow.
3. Check your credit.
Once you decide to buy a new home, one of the first things you’ll need to do is check your credit history. Check out FreeCreditReport.com or join a credit monitoring plan to view your credit history and gain some protection for the future. Your credit score determines whether you’re eligible for a mortgage, and it influences your mortgage rate. The higher your score, the lower your rate.
Most mortgage programs require a minimum credit score of 640.
Ideally, you should check your credit history at least 6-12 months before applying for a mortgage loan. This allows time to improve a low credit score, if necessary. You should also check your credit reports for accuracy and dispute any errors, especially negative errors that decrease your score.
4. Remember that a house purchase involves a contract.
When you’re buying a house, there are papers to sign. And more papers to sign. Many of those papers look like “standard” home buying contracts with no room for negotiation. That isn’t true. Contracts are meant to be negotiated. You don’t have to sign a standard agreement. If you want more time to review your inspection, wish to waive a radon test, or want to make a purchase subject to mortgage approval, you can make that part of the deal. That’s where a savvy realtor can help.
5. Don't necessarily buy for the life you have today.
Chances are that buying a house will be one of the bigger financial commitments you’ll make in your lifetime. Before you agree to buy what you think might be your dream house, consider your long-term plans. Are you planning on staying at your current job? Getting married? Having kids? Depending on the market and the terms of your mortgage, you may not actually pay down any real equity for between five and seven years: if you aren’t sure that your house will be the house for you in a few years, you may want to keep looking.
6. Think about commitment.
When you get married, the laws of your state generally determine how your assets are treated – and ultimately how they’re distributed at divorce. The same rules don’t necessarily apply when you’re not married. That means you need to think long-term. When you buy a house with your significant other who is not your spouse, make sure you have an exit plan if things don’t go the way you hope. It’s a good idea to have an agreement in place with respect to titling, mortgage payments and liability, repairs, and the like: it’s best to get it in writing.
7. Buy the house you know that you can afford.
This can be different from the price that your mortgage company believes that you can afford. So what’s the best ratio to use? Some lenders suggest that you can afford mortgage payments totaling about 1/3 of your gross income but others suggest closer to 28% for housing-related costs including mortgage, insurance, and taxes. There are a number of factors including your projected income, interest rates, type of mortgage, and the market. Ask your mortgage broker to help you understand what’s in play.
You’ll also want to consider your total debt-to-income ratio (DTI) when determining how much house you can afford. Your DTI is the portion of your monthly gross income that goes toward monthly debt obligations — including housing costs — plus car, student loan, credit card, and other debt payments. A good DTI for qualifying for a mortgage is 36% or below. Lower is better for being able to budget for things like emergency expenses, and for comparison shopping for a home loan.
The Bottom Line
Are you ready to buy a house? In short, yes—if you can afford to do it. But “afford” isn’t as simple as what’s in your bank account right now. A host of other financial and lifestyle considerations should figure into your calculations.
When you factor in all these elements, “if you can afford to do it,” it starts looking more complicated than it first appears to be. But considering financial factors before you purchase can prevent costly mistakes and financial problems later.
Want to increase your chances of finding your dream home? Catlin Capital has you covered. It is crucial that you have home loan experts you can trust during this process. Once you’re ready, Catlin Capital can quickly go through the pre-approval process with you so you can shop confidently and close quickly. Plus, you can get pre-approved in just three minutes. Learn more about how Catlin Capital can help you move fast and apply now.