Summer is prime moving time, and the upcoming season is going to be as busy as ever. Low home rates and a recovering economy have created a perfect storm for homebuyers and sellers alike. If you’re ready to take the plunge and become a homeowner, there are a few things you need to do to prepare.
“Right now, they’re saying this year is going to be a really good year to purchase a house. Prices have leveled out. For a short term, prices were climbing with an artificial pace. It’s pretty equal as far as a seller’s and buyer’s market right now,” said Linda Incardine, a Relocation Specialist in Utah at Equity Real Estate. “We are starting to get a fresh inventory, which will pull old and new buyers.”
A home will be one of the most expensive purchases you make in your lifetime. It’s an investment in your future. Make sure you’re doing it right with these 16 tips:
1. Find a lender and real estate agent – Shop around. Interview a few to see who will give you the best rates and help you negotiate. You will be spending a lot of time with these people over the next few months. You’ll want to make sure they have your best interests at heart.
“Buyers should be connecting with an agent and lender right away” said Incardine. “They can help you get the information you need to start the process correctly. They are your best friend from start to finish in getting your dream home”
2. Check your credit score — Make sure everything on the report is accurate, and fix anything that is negatively affecting your score.
3. Avoid making any big purchases — Don’t take out a new car loan or book an international vacation on your credit card. These things can affect your debt-to-income ratio and put a dent in your credit.
4. Start gathering financial documents – Create a home buying folder with pay stubs, bank statements, income tax returns and debt records (auto loans, student loans, credit cards, etc.).
5. Read up on what you need to qualify and get approved for a mortgage loan – If you’re planning to go with a VA Home Loan, be sure to read our article outlining some of the credit and document requirements.
6. Find out how much you can borrow — You’d hate to find your dream home and then find out you aren’t qualified to buy it. Your lender will be able to tell you how much you can borrow based on their guidelines and formulas.
7. Peruse neighborhoods — Make a list of neighborhoods you’d like to buy in. Check out the school districts they’re in, and find out how long of a commute you’ll be looking at.
“Neighborhoods are the number one criteria for most buyers. Some considerations can be access to schools, transportation, healthcare, your job and other activities. It’s always good to know a bit about your community — the businesses/amenities that are around your desired neighborhood, and anything that will impact resale,” Incardine said.
8. Figure out what type of payment you’d be comfortable making each month — Now figure how much house you can afford. Don’t forget to factor in closing costs, property tax and insurance. Your lender will be able to help you calculate how much home you can afford within your budget.
9. Save — Make sure your bank account is comfortable with the monthly payment you’ll be making. Start putting the difference between what you’re currently paying and what you expect to pay into savings. You’ll build up a nice little nest egg for moving costs and maintenance while getting used to your new budget.
10. Get pre-approved – Sellers take pre-approved offers more seriously, and it could give you an edge if they receive competing offers.
11. Consider your future and current needs – Are you planning on expanding your family? What might be right now, may not be what you need in two to three years. At the same time, you don’t want to be paying for tons of space you don’t need. Try to find a happy medium.
“I don’t usually recommend how long people should be in a home because I don’t know about their future. I typically look at where they are now and make recommendations based on their plans for the future,” said Incardine. “I can tell you that the average home buyer relocates after four to seven years, usually due to life changes such as marriage, divorce, starting a family, kids leaving the home — all those sorts of things.”
12. Find out when your lease ends – If you’re renting, find out when your lease expires and any penalties for breaking it. Talk to your landlord about your plans and see if you can get a month-to-month extension on your lease if you need it. While it’s impossible to plan the exact amount of time it will take to find and close on a new home, you’ll want try to time it with the end of your lease (or prepare yourself to pay any fees associated with breaking it).
13. Avoid financial changes – If you’re thinking about finding a new job or switching banks, you may want to hold off a bit. Financial changes can affect your approval status or slow down the closing process.
14. Pay off small debts – If you only owe $1,000 or so on your car, consider just paying it off. This goes for any other debts you have with payoff status in sight. It will improve your credit and decrease your debt-to-income ratio.
15. Figure out what kind of home you want – Which area do you want to buy in? Do you want three bedrooms or five? Start thinking about these things now, and determine which aspects are wants and which ones are needs. Start browsing home listings to determine if these things are feasible for your price range.
“If you’re still in the military and think there’s a chance you’ll be relocated, you’ll want to make sure you’re not the largest home on the block. That will work against you when you go to resell, and it tends to not sell as well per square foot as some of the smaller homes,” said Incardine. “You want to be the average guy in the neighborhood for resale purposes, especially if you think relocations will be coming.”
16. Decide how you’ll finance the purchase — Will you go with a conventional, FHA or VA home loan? Do you know the difference? Do you want a fixed-rate or an adjustable-rate? Do you want to make payments over 15 years or 30? Talk with your lender about the best options for your situation.
“I think there’s going to be a good amount of inventory in 2015. There are already homes going on the market right now, and I think that as we get into April and May, you’ll see even more inventory come up,” said Incardine. “The financial forecast that we had at the National/State/City Board of Realtors released at the first of the year, indicates that the economy should really loosen up the housing market. It should be easier this year for both buyers and sellers because the economy is doing better.”
Planning is key. You don’t want to scramble during the home buying process. Trying to fix incorrect credit hits or finding out you’re missing an important document is one of the worst things to deal with when you’re trying to close the purchase in three weeks. Do these things, and we guarantee the homebuying process will go as smoothly as possible.