I have a lot of people asking me how to best prepare for a home purchase in the next year or two.
Here are a few tips. I'm more than happy to answer any additional questions anyone considering a home purchase in the next 2 years may have.
How much should you save for a down payment?
If you CAN, try and save 20% of the purchase price as a down payment. Here's why: Mortgage Insurance. Mortgage insurance is getting expensive and can equal hundreds of dollars a month on your mortgage payment. None of which goes toward the principle balance of your loan. If you can save a 20% down payment, you should be able to avoid mortgage insurance altogether. This will significantly lower your monthly payment and/or allow you to qualify for more home. Just remember, if you bump up the cost of the home, you will need to bump up your down payment accordingly. Your payment goes down because you don't have to pay mortgage insurance, but also because you are financing less.
To some people, 20% would be out of reach in the next year or two, but they would still prefer to buy rather than rent. It can be done. If you CANNOT save 20% of the purchase price as a down payment, shoot for 5-10%. The minimum amount required for mainstream financing is 3.5%, but you will also have some additional expenses beyond the down payment. These expenses are called "closing costs" and can include such things as loan fees, appraisal, pre-paid property taxes and homeowner's insurance, title insurance, etc. If your down payment is less than 20%, you will likely have mortgage insurance, either up-front, monthly, or both.
My recommendation for a down payment: 5-10% minimum, try for 20% or more if possible.
What should you do before actually starting to house hunt?
- Save, save, save that down payment.
- Keep paying any bills and/or credit on time. This includes car loans, student loans, credit cards, even cell phone bills. With the changes going on in the financing industry, keeping your credit score as high as possible will allow you to qualify for the best interest rate available and will make it possible for you to qualify for financing that those with poorer credit cannot qualify for.
- Determine whether buying or renting makes the most sense. Start to get a feel for what home values are. What can you buy for $x per month? What can you rent for $x per month? You should be able to get a ballpark idea of home values by browsing the local MLS site online. If you know you will not be in the area for at least a few years, continuing to rent and to save for a future purchase may make the most sense. If you are ready to set roots and make the community your home for a while (5-10 years+), buying a home can have it's advantages over renting.
A few more things when you start to look:
Don't contact listing agents. They are not the Buyer's "trusted advisor". They are salespeople. Their job is to sell you the homes they have listed. Some might dispute that with you privately, but I'd like to hear them say as much in front of the Seller who hired them to sell their home. Selling those homes is why the Sellers have hired them.
Since Sellers usually have professional representation, I believe a Buyer should also, to level the playing field and possibly even to give them an advantage in negotiations. The highest form of Buyer Representation is an Exclusive Buyers Agent (EBA) whose company never lists homes for sale. They (and their broker) never represent sellers and will not ask you to agree to a limited form of representation such as limited or dual agency, where the agent cannot work for your best interest, because they also represent the Seller.
An Exclusive Buyer's Agent can give you information on market trends, home values, help you with loan shopping, etc. Their job isn't to "sell" you any particular home, but to make sure you are protected and aware of all your options as you try and buy the best home you can at a price and terms most favorable to you, the Buyer, NOT the Seller. Before you do anything else, try and find a reputable Exclusive Buyer's Agent who you can trust to work in your best interest and guide you through the homebuying process. See my company's relocation website at www.getyourownagent.com for more details or to find a local EBA.
When do we start getting serious?
The time to start getting serious is when you are about 90 days from wanting to be in your new home. This gives you time to go physically through a fair number of available properties, negotiate an agreeable contract on a home and allow for the escrow process to take place where you finish all your financing arrangements, do your home inspections and other professional evaluations of the property, have an appraisal done on the home, etc. etc. You will want to have inspections and evaluations done as early as possible in the process in case you need to renegotiate the agreement based on home conditions or in case you need to move on and find another property.
There is nothing wrong with doing some preliminary research prior to the 90 day mark. But when you start to get close, that is when you want to engage professionals to help you with your searching, financing and other preparations.
If you have any additional questions on this topic, please don't hesitate to call, text or email me.
Best of luck as you prepare for homeownership!
- Do you have excellent credit?
- Are you looking to purchase a home within 90 days?
- Are you making a substantial down payment (5% of the purchase price or more) or paying cash for your next home?
If so, don't buy a home without an agent on YOUR side of the transaction!
Make sure you hire an Exclusive Buyer's Agent!
Call us at (801) 969-8989 or contact us via the link on this page.
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