Buying a home is part of the American dream, yet it doesn’t always go as smoothly as the word “dream” would suggest. Some aspects of home buying are widely known and talked about often. Other things are little known and leave you wishing you’d known them earlier. Learn these important things before you apply for a home loan.
Build Your Savings
When buying a home, there are some things you should do even before you begin your search. Building your savings is one of them. There are many things that can be considered part of this, such as earnest money, checking and savings accounts, retirement savings, stocks and bonds, and more. Banks call this your reserves and assets.
It’s more complicated than just putting some money in the bank. It’s also about your habits. If you spend your whole paycheck as soon as you get it, or empty your account each month, it’s likely that a bank won’t find you a good candidate for a mortgage. They want to make sure you’re prepared for more than just the cost of a mortgage each month.
Take Care of Your Finances First
It’s more than just the money you have in your bank account; it’s also the amount going out every month. You may have money saved, but how much outstanding debt do you have? The bank calculates whether or not you’re eligible for a loan based on how much of your monthly income goes to paying off debts and how much goes to pay for the housing. Usually the lender would like to see your mortgage payment at 28% of your income or less. As far as the debt to income ratio, it varies, but generally most investors like to see it under 40%.
Whether it’s a first-time home buyer pre-approval or a conventional one, it’s still important to do. First, some sellers will require a pre-approval to view their home and your offer won’t be taken very seriously without one. Second, you shouldn’t get serious about buying a home until you know you can. You should shop around with a couple of lenders, but try to get all of your pre-approvals as close together as possible to avoid too many inquiries on your credit.
Talk to the Sellers
Most people usually talk to their realtor and never speak with the selling agent, let alone the sellers. Provided they’re willing, you should absolutely talk to the sellers. They, after all, are the ones that know the house intimately. They also know the neighborhood. While they’re probably not going to talk about the negatives, they’ll certainly talk about places close by, like parks and grocery stores, or when items in the house were replaced last. If you can’t talk to the sellers directly, ask if you can make a list of questions for them.
Buying a home is an exciting time, but it’s also filled with anxiety and stress. Look at each home as an opportunity, but make sure you do your homework, too. In the end, the house you choose will become your home. Try to enjoy the process.