What You Need to Know to Buy a Home

If you’re in the market to buy a home there are a few things you need to know to have success.

In this article we’re going to explain some of the things you need to do before you start the home buying process.

Have Money Saved for the Down Payment

Gone are the days that you need a 20% down payment to get a mortgage. With the introduction of FHA loans you can now buy a home with just a 3.5% down payment. There are other Government mortgage programs that offer low and no down payment home loan options such as, VA and USDA loans.

Know Your Credit Score

For most types of mortgage loans will you need a credit score of at least 620 to qualify. FHA loans have the lowest credit requirements of all types of home loans. They require a 500 credit score with a 10% down payment, and a 580 credit score with a 3.5% down payment.

You can get your free credit score from websites such as Credit Karma or Credit Sesame. Go through your report to make sure there are no errors. If you do find errors you can contact the credit bureaus directly and have them correct it.

Have Money in Reserves

Lenders will not approve your mortgage if you’re spending every last dime you have coming up with the downpayment. Typically lenders want to see about 2-3 months worth of mortgage payments in reserves.

Remember there are other costs associated with buying a home such as, the home appraisal and inspection. Budget about $1,000 for both the inspection and appraisal.

Get Pre-Approved

Before you start house hunting you’ll need to get a pre approval letter from a lender first. The fact is that most realtors won’t even start taking you to look until you’re approved. Get pre-approved for a mortgage is a relatively simple process, and can usually be completed in one phone call with a loan officer.

A lender will first pull your credit report to make sure your credit is sufficient. Then they will verify your income and assets with tax returns, pay stubs, and bank statements. Typically you can have a pre-approval letter in your hand within an hour.

Work with an Experienced Real Estate Agent

Don’t skip having a realtor trying to save the commission, it always backfires. Realtors are experts that know how to negotiate a great deal and is paid to pay attention to the details. In fact, you don’t even pay the agent’s commission, its built into the contract, the seller pays the commission, not the buyer.

Compare Rates with Multiple Lenders

Don’t stop talking to mortgage companies once one approves you. Mortgage rates, origination fees, and other fees vary from lender to lender. It’s recommended you compare rates and loan offers from at least 3-4 mortgage lenders.

You can also use these loan offers to help you negotiate lower fees and rates. It will also give you a chance to speak to a few different loan officers to see which one you feel the most comfortable with.