Buying a house a big decision. It can be overwhelming when you’re not sure what to expect or what to prepare. Let’s check some essential steps to see if you qualify to buy your new home.
- Do you have a strong credit score?
- Do you have money saved for a down and closing payment?
It is imperative to calculate how much of a house you can afford. A lender, of course, will tell you how much you can realistically qualify for.
The rule of the thumb is to use the 28/36 technique. You should not spend more than 28% of your gross monthly income (before taxes) and 36% on your total monthly debt payments on house expenses.
Quicken Loans offer a Home Affordability Calculator to know how much home you can afford, or they suggest the following calculations that you do yourself:
Maximum Monthly Housing Expenses = (Gross Monthly Income X 28) / 100
Maximum Total Monthly Debt Payments = (Gross Monthly Income X 36) / 100
On Jamie Ayers’ List with Clever, he mentioned, “Down payment: For a conventional loan, you’ll need a down payment of at least 20%. Closing costs: Home buyers typically have to pay 2-5% of the home’s price in closing costs. Considering the average home value in Nevada is $320,203, that amounts to $6,404-16,010. These costs usually have to be paid out of pocket, so make sure you have savings to cover them.
Homeownership costs: In the U.S., homeowners typically spend $2,676 in maintenance costs annually, but this can vary widely based on the house. In general, you should save 1% of the house’s value each year for repairs,” he added.
Before plunging into a decision of getting a new home, weigh down your finances and have the proper source of your down payment.
Smart Asset gives a great overview of the Nevada Housing Market, and if you’re not sure how much you can afford, you can try their Home Affordability Calculator. Keep in mind that the larger the down payment, the more equity there will be, and it also means lower monthly mortgage payments. Experts always recommend putting down 20% if you’re up for a larger down payment.
Also, in Nevada, with the prices going all up and saving for a down payment has been really hard, they have offered grants and programs to help lessen the cost. They offer five grant and loan programs that can help you buy a house.
- NeighborhoodLIFT Program
- City of Henderson’s First-Time Homebuyer Program
- Home is Possible Program
- Wish Program
- Home Program
- Have you obtained a Pre-Approval Letter from a lender?
Preapproval is the process of deciding how much you can get to purchase a home. To pre-approve you, lenders take a look at your pay, resources, and credit score to figure out what loans you can be endorsed for.
Sellers are more receptive to potential buyers who have been pre-approved. Aside from being disappointed and wasting time going after houses that are out of your price range, being pre-approved gets you to apply for a mortgage and receive a letter from the lender. It’s not free, though, but it is nominal, and you will pay them when you close your loan. That is the very first step before getting an agent.
AZ Lending Experts says, “The Pre-Approval Letter is generally issued by a loan officer after credit has been pulled, income and assets questions have been addressed, and some of the other initial borrower documents have been previewed. The Pre-Approval Letter is basically a loan officer’s written communication that the borrower fits within a particular loan program’s guidelines.”
Victoria Araj, How To Get A Mortgage Pre-approval stated, “The pre-approval process is essentially a mortgage application. This means your lender will want to take a comprehensive look at your finances. You should be prepared to provide information on the following:
- Proof of income
- Employment verification
- Proof of assets
- Credit history
- Identification
- Debt-to-income ratio (DTI)>
Before starting the pre-approval process, you’ll want the necessary documentation to ensure the process goes smoothly. Here are a few items you should have on hand:
- W-2 statements
- Pay stubs
- Bank statements
- License
- Social Security number
Once you’ve submitted all your information to the lender, you can expect to receive your loan estimate within 3 business days, though this may be much shorter if you use an online lender. The loan estimate will let you know whether you’ve been pre-approved and for how much, she added.
- Do you have the Right Real Estate Agent?
It is often a huge mistake you don’t want to work with a real estate agent. A real estate agent will walk you throughout the home buying process to ensure that you find the right house. How do you know if you found the right agent? Try asking them these questions:
- How long have you been working as a real estate agent?
- How many homebuyers or clients are you currently working with? ( the more the better)
- How knowledgeable are you about my desired area and price range?
- Can you provide me with references?
Once you pick the best real estate agent for you, they will look over your pre-approval letter and help you set off.
Clever Real Estate says, “Of course, a real estate agent is always the best person to guide you through the complexities of the buying process, whether we’re talking about mortgage pre-approval versus pre-qualification, appraisals, and contingencies, or the tricky business of crafting offers and counteroffers. An experienced agent has been through the buying process many times, and will be able to authoritatively answer any questions you might have.”
Before you start the process of buying a new home, you may want to make sure that you’re that you have a good credit score. Mortgage lenders will look at your credit score and credit history before they can approve you anything. Your score will dictate what type of home you can procure and at what interest rate.
Quicken loans published, “To obtain a conventional loan, you’ll need a median FICO® Score of 620 or higher. However, if you qualify for an FHA loan, Rocket Mortgage® requires a minimum middle credit score of 580. The VA doesn’t require a specific qualifying credit score, but lenders can set their policies. We require a median credit score of at least 620.”
If you have bad credit, the first step is to request a copy of your credit report, dispute any items on that report and work on restoring your score.
You can always get a free copy of your credit report at annualcreditreport.com or by calling 877.322.8228. It is regulated by the fair credit reporting act (FCRA). The three big national credit reporting companies: Experian, Equifax, and Trans Union, should provide you a copy at least once a year.
Aside from your down payment, you also have to save money for closing costs. These are the fees for processing and securing your loan. The amount varies depending on the amount you’re trying to loan and the tax requirements in your area. It is somewhere from 3% – 6% of the purchase price.