Over-dramatic headlines bashing the housing market–both its options and affordability–can make it hard to get excited about buying a house. In fact, it can feel flat out disheartening. The decision to buy a home is a big one and you should feel excited and confident about it, not anxious and uneasy. Here’s the good news;
It is a great time to buy a home.
Take the right approach by following these steps.
Home affordability is especially favorable right now. This doesn’t mean house prices are low. Affordability is determined by employment, incomes, and rates. Current employment and income rates support home prices and median home affordability on the national scale is more favorable now than it was in the pre-economic crisis era (2004-2006).
The start of June brought the lowest interest rates since November and savvy homebuyers were quick to seize this opportunity. Loan applications jumped 10% from the previous week and are 5.5% higher than they were one year ago.
What’s the lesson here? Take every advantage you can. Ever-rising interest rates on mortgages have been a source of frustration for potential home-buyers. Keep your eyes and ears open to economic opportunity and strike while it makes sense.
Ultimately, buying real estate is a long-term game. Time will always be on your side, so the younger you are and the sooner you buy the better off you will be. The right time to buy truly depends on you and your personal goals. The best time to buy is when you have the cash for a down payment and a pre-approval letter from your bank.
What are the true first steps to buying your first home?
Check the bank.
How much have you saved for a down payment?
Generally, you should expect to provide a 20% down payment on the purchase price and around 1% should be set aside for closing costs. For example if a house is $500K 20% is $100K.
Yep, $100,000. Start saving.
Check your credit score. That’s where lenders will look first. A higher score is more likely to get you a higher loan and a lower interest rate. Lenders will also look at your debt-to-income ratio (monthly debts divided by monthly income) and they don’t want to see anything greater than 43%. When you’re preparing a buy a house, clean your credit, work on erasing debt/collections and hold off on other large purchases (like a new car) to keep your ratio low.
Credit monitoring and advisement is helpful at this stage in your life, teach yourself as much as you can, become your own credit expert.
Never start your house search based on an assumption. All kinds of factors are taken into account when a lender determines what you qualify for, so get pre-approval from a lender so that you know exactly how much you can spend. You’ll need a pre-approval letter for your offer to be accepted by any seller anyway, so it doesn’t hurt to get this done early in your housing search.
Consider the amount of money you got approved for a loan. Just because it’s available, doesn’t mean you need to spend that much. Reassess your budget considering essential expenses like student loans, car payments, health care, groceries, cell phone and utility bills. Account for fun things like entertainment, shopping, and travel. The amount of money you spend on your house should feel right to you.
Finally, it’s time to start clicking through online listings and get to the part of your house hunt with actual houses. Get an idea of what homes cost in the areas you’re interested in and determine what you can expect to buy given your budget. Some buyers find it helpful to write down a few lists early in their search. What features are absolutely essential in the home you buy? What characteristics are you hoping to find, but aren’t deal breakers? What are the deal breakers?
While you don’t need a real estate agent, a good agent can help you shop around to get the best price and having a professional guiding you through a process they understand well can make your life a lot easier. Usually realtors are paid by the seller’s commission after a sale, so you shouldn’t have to pay for their service. Ask your family, friends, and coworkers about agents that they have personal work experience with and start interviewing. Your agent and attorney will ensure your final contract is valid, beneficial, and legally enforceable so take the time to find a team you’ll feel confident in throughout the entire home buying process. Wondering why you need to hire an attorney to buy a home? Click here.
Good luck and happy house hunting!