7 steps to Homebuying

I love Spring in the US.  The Temperature rises, the leaves and flower buds come out and bloom and the new homebuying season heats up too!  If you are figuring out where to start in the search for new home here are 7 (seven) steps to a more productive homebuying experience. 

1. What do you need?  What you need in your next home is not just about amenities you desire.  Think in terms of space for your family and location for your work and your kids’ school district. 
   1. How big is your family?
   1. Which school district are you trying to be in or keep your kids in?
   1. Is work easily accessible?
   1. Can you easily get to the services, or sports etc. that you or your family is involved in?

• What can you afford?  There are many online calculators, but it is important for you to know your own limits.  Affordability of a new home is based on your income, your debts and your down payment.   Before you talk to an originator, make your budget and remember to leave wiggle room for emergencies or R&R.   If you pay rent today, are you looking at houses that would have similar mortgage payments? Or will there be a big jump in housing costs when you buy a home?

Your mortgage payment (Principal & Interest), plus escrows, or Taxes, homeowner’s Insurance and Association dues if any, or PITIA should not be higher than 36 percent (%) of your gross household income.  That number is based on Fannie Mae’s conforming loans maximum DTI rules.  You can sometimes be approved at a higher debt to income percent, but you need to understand that the cap on housing costs is meant to protect you as well as the lender, not to limit your options.

Other than your current and proposed housing costs, what bills do you currently owe each month?  The total monthly debt to gross income should not exceed 43 percent (%).  Bills included in the 43% consist of consumer loans such as car loans, credit card payments, and payment arrangements on collections accounts.  Usually, utilities like electric and water and groceries are not included in the 45%.  Take a look at all your normal expenditures anyway so you know how you spend your money.  Once you have figured out what you can afford, it is a good idea to talk to your loan officer or lender and find out what you are approved to borrow.  Making an offer on a house as an approved (Not prequalified) borrower may give you an edge over other possible buyers.

If there are credit issues that the bureau will not fix, write a BRIEF letter of explanation and include proof if needed.

• How is your credit?  You should know about any credit issues on your credit before you apply for a mortgage.  The FTC says you are entitled to one free copy of each of the three credit bureau reports each year so you can check them for accuracy.  So, download the reports and see if the items listed on your credit report are yours, and that the payment histories are correct. If The information is wrong, you can request that it be corrected.  Contact the creditor too of any erroneous information, to make them aware of the problem before contacting the bureau.  The bureau will contact the creditor too and if you can’t prove the error, the bureau will often go with what the creditor states.

• Save for down payment.  There are programs that require little or no down payment, but if you haven’t already, start saving money anyway.  If you can put money down on your next home purchase, you can borrow less, and may qualify for a better mortgage loan program.  There are down payment assistance programs, and there are loan programs that do not require down payment, but if you have it, you have more homebuying options.  Also, if you are not putting money down on the home purchase, the savings is counted as “reserves”.  Mortgage loan approvals use “reserves” to mitigate lending risk, and that means better mortgage loan approvals for you.

• Find a realtor.  The realtor listing the homes you find represent the seller of the property, not you.  If you want someone to protect your interests, talk to different realtors and figure out who you are comfortable with.  Signing a buyer’s agent agreement will lock you in to either the realtor or the realty company.  Check out a few before you take that step.  There are some great realtors out there who get what you are trying to accomplish in your home search, and they can help you weed out the non-starters from the good options. 

• Talk to friends and family members who bought their homes in a similar area.  Sometimes you learn about things to look for when buying a home.  For instance, that freshly waterproofed basement looks great, but does it mean there was a water problem?  Has it been solved, or is it being covered?  How much damage to the roof did that tree do before they just recently cut it down?  It is surprising how much you can learn from others’ experiences.

• Enjoy!  Buying a next home is exciting!  We hope your experience is a great one!  Let us know if you have questions or feedback!