This St. Patrick’s Day, luck doesn’t have to be limited to the Irish. Any potential homebuyer can find treasure at the end of the house-hunting rainbow. But instead of counting on the magic of a four-leaf clover, try following these proven methods for finding a house.
Get Your Finances in Order
Buying a house takes some groundwork; you need to be on sound financial footing and take actions to resolve any issues before you start searching for a new home. Here are a few financial prerequisites to keep in mind as you prepare to buy a home:
- Down payment. There are some ways to buy a home with no money down — one popular such option is a VA loan — but chances are you’re going to have to put down cash. How much? Most conventional mortgage programs require from 3% to 5% down. FHA loans, for example, require minimum down payments of 3.5% of the home’s sale price. While not realistic for many homebuyers, putting down 20% is ideal; that way you can probably avoid having to pay for private mortgage insurance (PMI) as you usually must when less than 20% is put down.
- Credit score. You won’t be very lucky in getting approved for a mortgage if you have a terrible credit score. What should your score be? While this differs with individual situations and lenders, often between 580 and 620 is the minimum score one can have and still get approved for a mortgage. So best to check your credit before the house hunting begins, and the three major credit reporting companies, Equifax, Experian, and TransUnion, are each required to give you a free report.
- DTI. Knowing your debt-to-income ratio is important; your lender will use your DTI to evaluate your mortgage application. A DTI of more than 43% is usually considered high, making the borrower more of a risk to the lender. To figure out your DTI, just divide all the debt payments you make each month by your gross monthly income. If you can, pay down debts to get your DTI as low as possible.
Mortgage Pre-Approval is Key
You might be tempted just to go for mortgage pre-qualification as you begin your home search. You’re just starting to look, so what’s wrong with just getting a general idea of the mortgage you might be approved for? Right? Wrong. While pre-qualification can be a helpful tool in getting a sense of how much you can afford to pay for a home, pre-approval offers a much more effective tool that can be determinative in getting the house you desire. Some real estate agents won’t even work with potential buyers unless they have pre-approved mortgages.
Pre-approval letters, which are issued by lenders after they thoroughly evaluate a potential borrower’s financial situation, tell sellers you mean business. While not a guarantee you’ll get financing, a pre-approved mortgage proves that you more than likely meet the conditions of the mortgage loan you’ll need to buy the home you’re bidding on.
Figure Out the Features You Want
What kind of home do you want to live in? And where? These are huge questions with a variety of factors that can at times feel at odds. From the number of bathrooms and bedrooms to proximity to schools and public transportation — it can all feel dizzying. You might seek some help from online features and amenities checklists to see what experts have to say about what homebuyers most look for when house hunting.
Making a list of the features you want will also help with any online searches. Both consumer sites and the Multiple Listing Service systems that realtors use have filters that narrow searches by these features. If, for example, you don’t want a home with carpeting, you can eliminate those with carpeting from your searches.
Understand How Long Things Take
Having some idea of how long you’ll be looking for a home can bring you peace of mind. The same holds true for understanding how long it will take to close on a house after your bid is accepted by a seller. According to the National Association of Realtors, homebuyers usually search for about eight weeks, on average looking at eight homes: five in person and three houses only online. Closing on a house often takes between 30 and 45 days. So, from your first look at home listings to having the keys to your new house in hand, you may be looking at about three months or more.
Choose the Right Real Estate Agent
While online tools are wonderful — and NAR data shows that a whopping 95% of homebuyers searched for houses online — there’s nothing like having an in-person real estate pro in your corner. So much so that 87% of recent buyers bought their homes with help from brokers or real estate agents. A small minority, just 7%, bought their homes from builders or their agents.
Most buyers go with the very first agent they speak to; 73% of homebuyers interview just one real estate agent. But you might not want to follow the masses here, as interviewing up to three potential real estate agents seems like a wise choice. Get a feel for each agent, see if you’re in sync about the kind of home you’re looking for and how you’d like to go about searching for it. As these chats with potential agents are job interviews, you might approach them as such.
Pick the Perfect Mortgage Professionals
This one’s easy — City Lending has been the right choice for many homebuyers and we’re likely the best lender for you too. Our team is ready with a wide range of mortgage programs to meet the unique needs of individual borrowers.
Your proverbial pot of gold might be anything from a cozy cottage to a large luxury home. But there’s one thing all potential homeowners share: partnering with the loan professionals at City Lending will probably make you a lot luckier.