Buying a home is considered a pretty big, exciting milestone in anyone’s life. But it can also be intimidating. After all, as you’ve surely been informed by many people, a home is the biggest purchase you’ll make in your life—which probably doesn’t ease your anxiety about the decision! But what will help you feel more confident going into this process is being prepared, starting by knowing what you need to have in place before you buy a house. So check out this overview of the five most important factors to consider before buying a home, and then get in touch with us once you’re ready to get started.
Before you even start looking for that perfect home, you should check your credit. You don’t want to spend hours finding your dream home, only to be shocked at your score the minute you sit down to get financing. In fact, it’s best to check your credit several months before you plan to buy a house, as you might need some time to improve your score before you try to qualify for a loan. You might also find some incorrect information on your credit report—such as an account you never opened or a debt you paid off years ago—and you’ll need time to correct it before you can buy a house.
So, what credit score do you need to buy a house? In general, your score should be at least 620 to qualify for most loans, though some types of home loans do accept lower scores. For instance, conventional home loans usually require a credit score of 620 or more, as do VA loans. On the other hand, the minimum score for USDA loans is typically 580, and it’s about 500 for FHA loans. Just keep in mind that the higher your score, the lower your interest rate will be, so it’s best to have a score of 740 and above when you buy a house.
If yours isn’t quite there yet, you can take a few actions now to fix it. First, if you find any incorrect information on your report, talk to the credit reporting agencies to get it removed. Next, pay down any credit card debt so you’re only using 30% or less of your available credit. And note that this is not the time to open a new account, such as a credit card, as it can reduce your chances of getting approved for a home loan if you make big changes like that within months of buying. So wait until you close on your home before getting a furniture store credit card that will allow you to get that classy couch for your new living room!
When you buy a house, you might be focused on what your monthly payment will be. But don’t forget about the upfront costs you’ll have to pay before you even get the keys. First, there’s the down payment, which is typically 20% of the cost of the home. Granted, you can buy a home with a much lower down payment, as some loans let you put as little as 3% down. But that could still be at least $5,000—and the smaller down payment also means you’ll pay more on your monthly mortgage payment.
There are other upfront fees, too, such as closing costs. These often equal 3% or 4% of the purchase price of the home, so the average buyer pays close to $5,000. The closing costs pay for a variety of fees, such as title insurance, loan origination, home inspection, the appraisal, and prepayment of property tax and homeowner’s insurance.
Finally, think about moving costs. If you’re hiring movers or will need to rent a moving truck, and if you’ll owe any money for breaking your current lease, factor these costs into your budget. And once you move into your new home, you might find you’ll have to replace old appliances, ceiling fans, window coverings, and paint—or buy all this for the first time if you have a new build. This means you should budget for thousands of dollars in upfront costs when you buy a house.
The fun part of buying a home is getting to look at all your options as you go to open houses or check out the online listings your real estate agent sends you. But there’s more to buying a home than just looking at floor plans. You also need to plan the financial part. It’s not as fun, but it’s definitely an essential part of the process! So it’s important to consider this early on by thinking about which lender you’ll go with.
If you’ve been with the same bank or credit union for a long time, it’s a good idea to ask about the home loan options available to you. If you don’t have a bank in mind, your real estate agent can recommend some good lenders. It’s best to talk to a few lenders so you can compare the types of home loans available, the interest rates, fees, and how long they’ll take to close.
Now that you have at least one lender in mind, you should consider getting pre-approved for a loan. The benefit of this is being able to see exactly how much house you can afford before you shop for homes. Pre-approval also shows sellers that you’re serious about buying and won’t have a problem getting a home loan once your offer is accepted.
So what do you need to bring to your bank to start the pre-approval process? Basically any documents that can prove your income and how much debt you have, as this will determine what kind of mortgage payment you can comfortably afford. This means you should bring check stubs from the last couple of months, as well as tax returns and W-2 forms from the last two years. If you have any other source of income, bring proof of that, too, such as 1099s and documents from any rental properties you own.
You’ll also need to show how much debt you have, so bring a list of all your bills that says the amount you pay every month on student loans, credit cards, car loans, etc. Finally, you should also bring a list of any assets you have, such as investment accounts, real estate you own, and cars that are paid off.
Last but not least, don’t start the home buying process before hiring a real estate agent. This professional will be your best resource when it comes to finding and closing on your dream home! As you look for an agent, try to find one who has years of experience helping people buy and sell in the area you’re looking to move to. After all, you want to work with someone who can answer your questions about the best neighborhoods to look in, the average cost of utilities, local amenities, and other details that will factor into your decision.
This means you shouldn’t necessarily hire a real estate agent just because they’re a friend or family member. Sure, your Aunt Sherry rocks at making lemon tarts, but does she know which neighborhood is the quietest or what new businesses are coming to the city you want to move to? Make sure the agent you choose knows the area well and has handled home buying situations like yours before. Feel free to interview some local real estate agents before you make your final decision, as you deserve to feel comfortable that you’ve chosen a knowledgeable agent who you can communicate with easily throughout the home buying process.
If you need help narrowing down your options, you can turn to LemonBrew. Our custom matching technology can help you find a LemonBrew Partner Agent who is just right for your home buying needs. Contact us today to learn more about how we can help you find the right Partner Agent for when you’re ready to buy a house. Our goal is to make this process go as smoothly as possible as you clear this amazing milestone in life, so come to us for help when you’re ready to buy a house!