For a Successful Home Purchase, Start with Long-Range Planning
By Jim Perry
For home buyers hoping to make 2020 the year they attain the American Dream of Homeownership, the end of the holiday season usually signals the beginning of the home buying season. So, if your next project after putting away all the holiday decorations is to start shopping for your new home, here are some long-range planning tips that will make your home buying experience as rewarding and stress-free as possible.
Getting the best credit rating will be the first step for any major purchase, people often charge up more than expected on their cards during the holiday season, so start by paying down your accumulated credit card debt. That debt limits how much you qualify for from a lender and they want to see a total debt service ratio that is less than 40 percent of your monthly income.
Then calculate what you can afford to pay on a monthly basis. Remember that, in addition to the monthly principal and interest, you will also pay into escrows for property taxes, hazard insurance and possibly a homeowners’ (HOA) or condominium association assessment. Once you have determined how much you can afford, hold firm with that number. Never be tempted to agree to an amount higher than which you are comfortable spending.
Purchasing a home is a major financial investment and buyers will have to master a great many terms to make the best purchase possible, so visit www.nahb.org/en/consumers/home-buying/homebuying-dictionary.aspx for an in-depth glossary of all the legal and financial terms you will encounter. This site is provided by the National Association of Home Builders (NAHB) which also offers a wide range of useful easy-to-understand information for homebuyers and homeowners on their www.nahb.org site.
Attend a first-time home buying seminar or talk to a credit counselor who does not work for a lender. This allows you to research your options without being influenced by someone who has a financial interest in the home or loan you choose. The U.S. Department of Housing and Urban Development (HUD) offers free housing counseling and seminars. Visit their website at www.hud.gov on the web including Common Questions from First-time Homebuyers, which provides additional resources for first-time buyers, including special financing options and HUD programs.
Likewise, make sure you understand and adjust for the Settlement or ‘closing’ process. Settlement is a meeting to sign documents which transfers property from a seller to a buyer. Closing costs are charges paid at settlement for obtaining a mortgage loan and transferring real estate title. This process can be complex, so there are many sources that can help you get prepared well before you step foot into a sales office, model home or open house such as the www.nahb.org/forconsumers website.
Decide which type of mortgage will work best for you – whether a fixed-rate (FRM) or adjustable rate mortgage (ARM). Familiarize yourself with both products because many homebuyers begin with an ARM and then move to an FRM. Visit your bank and some candidate lenders to better understand the loan choices that are available to you. Mortgage calculators are a great way to figure out what your monthly payments would be based on interest rates and down payment amounts. Calculators can be found on many real estate-focused websites such as www.bankrate.com.
Once you’ve determined the most suitable lenders and loan opportunities, then get pre-approved for that loan. Once you know how much money you can borrow, you will know what price range you should look at and can move quickly if you are bidding on a house that has several interested buyers. A lender’s pre-approval is subject to a final verification of your credit and a satisfactory appraisal, but it’s a big step toward becoming a homeowner.
The BIA Baldy View Chapter seeks to advance the opportunity to attain the American Dream of home ownership. For additional information on homebuying, home improvements, the benefits of homeownership or home safety or maintenance, visit our www.BIABUILD.com website and have a great Dr. Martin Luther King, Jr. Day.