Whether you’re buying your first home or you’re a seasoned homeowner, buying a new home can be both daunting and exciting. In Kentucky and much of the United States, the real estate market saw higher prices with fewer homes available last year. The result is a sellers’ market.
A seller’s market is one where the demand for homes is greater than the available supply. These conditions lead to rising house prices, multiple or competing offers to buy, and less room to negotiate when closing. If you are thinking about buying a home, there are a few steps you are taking to position yourself as a strong buyer.
Check your creditworthiness
At the beginning of the home buying process, take the time to understand your financial condition and creditworthiness. Lenders use your credit rating and credit report to determine how much money they can lend you and what interest rate they can offer you on a home loan. Credit scores range from 300 to 850, with a higher number representing better credit history. There are three credit bureaus: Equifax, Experian, and TransUnion. You can obtain a free copy of your credit report at www.annualcreditreport.com. Be sure to check for any mistakes or signs of identity theft that you may have to contest with the credit bureau.
Determine your budget
Before you start looking for a home, think about how much home you can realistically afford. Most lenders recommend sticking to the “28/36 rule”. Put simply, the PITI (principal, interest, taxes, and insurance) for your new home shouldn’t exceed 28 percent of your gross monthly income. Gross income is the amount earned before taxes. Together with your outstanding debts such as credit cards and student loans, this amount should not be more than 36 percent of your gross monthly income. The lower your debt-to-income ratio compared to PITI, the more home you can afford. You can find calculators online to help you work out general numbers, but be careful not to include any financial or personal information.
Save for a deposit (and more)
Saving for a down payment is often one of the biggest hurdles faced by aspiring homeowners. The minimum amount required for a down payment depends on the type of mortgage to which you are entitled. To avoid mortgage insurance, a 20 percent deposit is recommended. However, the down payments required range from 0 percent (for select loan programs such as VA or USDA loans) to 3 percent or more (for conventional loans) to 3.5 to 10 percent or more (for FHA loans).
As you save, you need to consider other costs associated with buying a home as well. This includes home inspections, appraisals, serious money, closing costs, property taxes, insurance, HOA fees, utilities, moving costs, and expected costs related to house maintenance. Closing costs vary depending on the house, but are often between 2 and 5 percent of the purchase price.
Get a loan approved
When you have saved enough money to begin your house search, it is best to do research on loan options. You should seek quotes from multiple lenders to compare costs and terms. Lenders can be financial institutions such as banks or credit unions or mortgage companies. Lenders need financial records such as tax returns, pay slips, and bank statements to check your assets (e.g. checking, savings, and retirement accounts).
Since lenders compete with each other, you may be able to negotiate to get a better deal. It can also be helpful to see if you qualify for local home buying assistance programs at https://www.hud.gov/topics/buying_a_home. When choosing a mortgage lender or looking for other services for your new home (such as a real estate agent, insurance company, or home inspector), keep the “rule of three” in mind. Ask for recommendations from trusted friends, family members, and coworkers, then compare at least three different companies before choosing one.
Start of the apartment search
Before viewing available homes, get a pre-approval letter from your lender. In this way, the seller knows that you can finance the purchase of his home in what amount. Lender approval allows you to get a quote quickly as homes in a seller’s market can sell within hours of being launched. To avoid bidding wars, keep a budget that you can afford. Homes in a seller’s market can be sold for thousands of dollars above asking price or with minimal concessions from the seller, such as necessary repairs. Set spending limits in advance so you don’t end up in a financially insecure situation.
Working with a relator can help you find your way through a tight housing market. When looking for a broker, look for someone who is relatable, trustworthy and can provide themselves with the listing for viewing homes. While experience is helpful, it can be more helpful to choose someone who is willing to work with both you (your budget, wants / needs) and for you (a good negotiator who values your finances).
Real estate agents familiar with the area can help you view new listings quickly and can often point you to properties that are coming soon in your area. Brokers are paid by commission, which is based on a percentage of the final sale price. Always clarify the commission rate with your broker before working with them. A buyer agent is the broker who represents the buyer. A common commission is 3 percent for the buyer’s agent and 3 percent for the seller’s agent, but this can vary.
(Reference office for consumer protection.https://www.consumerfinance.gov/owning-a-home/)