Be Financially Prepared to Purchase A Home
Regardless of what the real estate market looks like, buyers should always be as financially prepared as possible. To help make sure you are financially prepared to purchase a home, find the right lender. Lenders are a huge piece in the home-buying puzzle, having the right lender work for you will make the process as smooth as possible. I always recommend interviewing at least three lenders, including those with both local and national affiliates. There are benefits in both, and depending on your circumstance will determine which is right for you.
I know you have probably heard talk about the market shifting. Regardless if we are in a seller’s market or a buyer’s market, buyers should be prepared with a pre-qualification letter prior to making an offer on the home of their dreams. After you have selected a lender, schedule a meeting with them to discuss your income, credit score, and debt. The lender will use this information to determine how much house you will qualify for and they will be able to provide you with a letter to provide when submitting your offer.
Let’s talk about interest rates! It is hard to not feel as if the current rates are “crazy”. I get it! But if you look at interest rates historically, we are actually still sitting pretty good as far as the current rates are concerned. If you are nervous about the interest rates, talk to your lender! Oftentimes there are options for you to “buy down” rates, or maybe switching to a different program will provide you a better rate. Your lender can also recommend if you need to work on your credit score to qualify for a better rate. Bonus tip: remember do not add any new credit until after closing!
One suggestion for improving your credit score is by lowering your debt. If you are able, set up automatic payments to pay down credit card debt for a few months prior to applying for a mortgage. Try to make payments that are larger than the minimum required and create a plan to reduce your overall debt.
As you are creating a plan to minimize your debt, consider budgeting small amounts from each paycheck set aside specifically for a down payment and closing costs. Buyer closing costs can be estimated around 3% to 4% of the loan amount. Your lender can give you specific numbers, but this is a great estimate for planning purposes. The down payment amount is dependent on the finance program you select. Be sure to discuss your terms with your lender so you are prepared to cover the down payment as well as your closing costs.
Also, use this time to estimate what you feel comfortable paying for a mortgage payment. Your lender will guide you through the pre-qualification process and provide you a budget. Look at your monthly finances and decide where you feel comfortable having that mortgage payment, sometimes this may be different from where the lender qualifies you.
My final suggestion to make sure you are well prepared, financially, to purchase a home is to have your earnest money deposit (or EMD) ready to go with your offer. It is common to talk about closing costs and down payments, but not every buyer is familiar with an EMD. When your realtor submits your offer they will ask you to submit a binder deposit (or EMD), this can also be referred to as a good faith or security deposit. The EMD is provided to the title company for holding in an escrow account until closing. As the buyer, you will get credit for the EMD at closing.
There is never a better time to become a homeowner! Being a knowledgeable buyer, with market knowledge and financial knowledge, will help you make informed decisions during your home-buying journey. Not sure where to start? Reach out, I am happy to provide you resources to help you make informed decisions. Unsure what the home-buying process looks like? Check back next week as we dive into the untold truths about buying a home, you’re not going to want to miss this!