Ever wonder what steps you need to take to buy a house? Or if you even qualify to buy a house? The idea of home ownership is no doubt exciting but can also feel intimidating and stressful.
A report published by NerdWallet highlights that 42% of homeowners thought the buying process was stressful.
The good news is, home buying does not need to be complicated or stressful. I am going to outline some easy steps you can take to ensure a smooth and positive home buying experience.
Start With The Mortgage Pre-Approval Process
Before getting started, believe you can own a home. Erase the self doubt in the back of your mind. Many times we are our own worst enemy when it comes to achieving our goals and dreams.
The Nerd Wallet report points out that 38% of potential home buyers are worried about qualifying for a mortgage. I get it, no-one likes to be rejected or denied.
Follow the steps below to make qualifying for a mortgage less stressful.
“There are many ways of going forward, but only one way of standing still.”
― Franklin D. Roosevelt
Know Your Credit Score
Assuming you are not buying your home cash, you will need to take out a mortgage. Before you start looking at homes, I recommend getting pre-approved for a mortgage loan. Before applying for a pre-approval make sure you know where your credit score stands.
You don’t need a perfect credit score to be able to buy a home. Some lenders will even go as low as a 580 credit score.
Click Here To Get Your Free Credit Score
You’ll want to do this before you apply for a pre-approval. When you check your own credit, it does not lower your score. You want to make sure you’re at a score of at least 580. This will ensure you are at least in the range score-wise to qualify for a mortgage before wasting a credit inquiry.
If your score isn’t at least 580, or you’d like to learn an easy way to increase your credit score, click here. Increasing your credit score leads to both a higher approval amount and a lower interest rate.
Consider Down Payment Options
You do not need a 20% down payment to become a home owner. While a large down payment can lower your interest rate and monthly payment, it is not required.
Most accessible mortgage options will allow you to put as low as a 3% downpayment when buying a home. There are even some no-money down mortgage loans that exists if you have a strong credit score and income.
Depending on the lender and type of loan, your downpayment can come from various sources such as:
- Personal Savings
- Retirement Account
- Investment Account
- Gift Money From Friends or Family
- Downpayment Assistance From City or County where you are purchasing
I recommend you continue to the next step even if you do not have 3% saved. Continuing with the process will give you an idea of what you will need to save if you haven’t already done so.
Many cities and counties have downpayment assistance programs available that aren’t advertised. The steps outlined in this post will get the ball rolling on uncovering these resources.
Often times lenders and real estate agents will know about these programs available. The programs available vary depending on city or county.
Apply For a Mortgage Pre-Approval
Once you’ve verified that your credit score is over 580, the next step is to apply for a mortgage loan.
I recommend you do some shopping around when looking for a mortgage. Every lender has different requirements needed to qualify. It’s likely that if one lender does not approve you, another may choose to make you the loan. One lender may have lower rates than another lender. Some loans have lower fees than others. One lender may be willing to complete the loan in 30 days, some may need 45 days.
There are a lot of moving parts when it comes to securing your mortgage. Do not get discouraged if you do not receive the news you were expecting on the first or second go-around.
You can click the banner below to visit Lending Tree to get started on the pre-approval process. Lending Tree is a great place to start, as the initial check to see if you qualify does not affect your credit score. They work with various lenders and will provide you one location where you can shop different lenders.
I also recommend asking friends and family for recommendations. In my own experience, the best experiences often come from personal referrals.
The Pre-Approval Letter
Once you’ve been pre-approved you should receive a pre-approval letter. This is a letter from your lender stating how much home you can afford to buy in terms of price.
This will be calculated based on factors such as:
- Credit Score
- Debt-to-Income Ratio
- Down Payment Amount
- Property Type
Each lender has their own specific criteria. Approval amounts and interest rates will vary between lenders. Again, this is why it’s crucial to shop a few different lenders.
I do want to point out that while rates and approvals may vary between lenders, there usually isn’t a huge difference. For example, if one lender approves you for $400,000, don’t expect another lender to approve you for $600,000. It may be closer to a 5 to 10% difference, if at all.
Start Looking at Homes Once You Have Been Pre-Approved
At this point, you should have worked out with your lender the most you should or are approved to spend on your new home. This will help you set realistic expectations on the locations and price range of your home search.
Thanks to the internet, you can immediately start shopping for homes online. At this point you should contact a real estate agent in the area you are looking to buy. While it’s easy to look at homes online, the available listings online are often not up-to-date. This is where a real estate agent can help. They have access to instant, up-to-the-minute listing information.
Hiring A Real Estate Agent
Hiring a Real Estate Agent does not costs you any money when buying a home. You do not need to pay an agent at all. If they are asking for payment up front to help you find a home, look for another agent.
Real Estate Agents that represent buyers get paid by the listing agent representing the seller. After the agent helps you find a home and your deal is complete, your agent will get paid.
If you need help finding a real estate agent in the San Francisco Bay Area or Central Valley, click here to email me. I’m more than happy to connect you with a local, trusted agent. I can also place an offer for you if you’ve already found your ideal home. My California Real Estate License number is 01968917.
Not Every Agent or Lender is a Good Fit
Your Ideal Real Estate Agent Should Earn Your Business by:
Valuing your time: The agent should respect agreed upon appointment times and dates. They also should make themselves available at reasonable times.
Knowing the market: The agent should have a solid understanding of the market in which you are looking to buy. If they aren’t familiar with the area, they should have partner agents who are.
Being Honest: An honest real estate agent should be willing to point out the things you may not want to hear. The agent should be open to having their motives and recommendations questioned. They should be prepared to back up their claims with facts and evidence.
Providing Updates: The agent should provide you with up-to-date lists of properties hitting the market. This can be at the frequency you prefer and can happen as often as daily. They also should check in with you from time-to-time to answer any questions that may have come up.
Being Patient and Responsive: Real Estate agents are familiar with the process. Most buyers are not. They should understand this and not make you feel uncomfortable about contacting them and asking questions. They are there to guide you through the process.
Real Estate Agents and Lenders Are Human
Your agent or lender may miss one of your calls from time to time. It’s important to understand that things do come up. Expecting an agent be responsive does not mean they are on-demand. Reasonable expectations should be set agreed upon that determine the time frame you should expect to be contacted back by.
If you feel that your agent or lender is not being supportive or responsive, point out your concerns to your agent or lender right away. If your experience does not improve or mistakes occur repeatedly, you should immediately look for a new agent or lender to partner with.
This may be difficult or uncomfortable when the agent is a referral, friend or family member. No matter how good an agent or lender is, not every partnership is a good fit. It is important that you feel comfortable with your agent.
An unresponsive lender or agent may cost you time, money, or even the home you are bidding on. This is often the main source of frustration and or stress during the home buying process. You should look to end conflicts before further issues come up.
If you signed an exclusive representation agreement with your agent, do not look for a new agent yet. You must secure written agreement releasing you from your current agent to be able to work with a new agent. Often times these agreements are not in place. It is good practice to make sure you understand every contract you sign.
If you follow the steps outlined above, you will be on the path to home ownership sooner than you think! While the home buying process doesn’t have to be stressful or complicated, it is a lengthy journey.
- Know Your Credit Score
- Start Thinking About Down Payment Options
- Apply for Mortgage Pre-approval if Score is Above 580
- Get Pre-Approval Letter
- Hire Real Estate Agent / Look For Homes
In The next Post I will Discuss the Trade-offs Between Buying:
- When Prices are Higher, and Interest Rates are Low
- When Prices are Lower, and Interest Rates are High
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