Are you sure you’re really ready to buy a home? With so much conflicting information out there, it’s often hard to tell what’s true and what’s false in the housing and mortgage industry. I’m here to shed some light on the truth, and help you assess if you’re ready to purchase a home!
Just to be clear: the market is tough, but not impossible! If you think now’s the time to get started in the homebuying process, let’s first make sure that you aren’t assuming things that aren’t true.
1. Stop obsessing over the current interest rate. Focus on your monthly payment and understand that there are options available to refinance at a lower rate later.
2. A longer “average time on market” for a home can be a good thing – it doesn’t necessarily mean it’s a money pit! The longer a house sits unsold, the more likely the seller is willing to negotiate on price.
3. Be realistic about your monthly payment. Don’t just use the number a mortgage calculator tells you that you can afford. Understand your budget and focus on the payment you’re truly comfortable with.
4. It’s okay if an all-cash deal isn’t in the cards for you. The key is securing a rock-solid pre-approval from a lender with a great reputation. We’ll cover the details around this later, but rest assured, this step can make a significant difference.
Remember, slow and steady wins the race!
Is Your Credit Good Enough?
I hate to break it to you, but your credit score has a bigger impact on buying a home than you may think – both on the rate you get and what you get approved for. But how do you know if your credit is good enough to get what you want?
After helping thousands of people buy homes, credit continues to be the #1 topic that confuses people! Let’s clear up three common points of confusion:
1. Loan programs have different guidelines around the minimum credit score needed. The score used is generally the median score between the three major credit bureaus (Experian, Equifax, and TransUnion). If there are two or more people buying a house together, they’ll usually take the lowest median score from each person on the loan.
2. Minimum scores can vary quite a bit. That’s why it’s important to work with a mortgage company that has lots of programs, and to choose a smart loan officer who helps you understand your options (and which one is best for you).
Minimum Scores Needed:
680 – Jumbo Loans
620 – Conventional Loans (Fannie Mae or Freddie Mac)
580 – FHA (3.5% down)
500 – FHA (10% down)
0 – USDA
0 – VA
3. When it comes to your actual credit history, there are two key aspects: your payment history and any negative marks. Ideally, you should have no late payments within the past year leading up to the credit check. If you’ve experienced past bankruptcy or foreclosure, don’t worry! Just be prepared to wait a few years before you can grab your dream home.
How Much Money Do You Need?
More people need to know what it actually costs to buy a home. Whether you’re struggling to save enough money for a downpayment or you’re only just starting to plan it out, let’s talk about how much you’ll need.
Contrary to popular belief, Conventional Loans require a minimum of 3-5%, while FHA loans can go as low as 3.5%. VA and USDA loans usually don’t require a downpayment at all. Also, remember to factor in closing costs, which are typically around 3-6% of the purchase price. However, sometimes the seller is willing to pay these on your behalf!
If you're looking for downpayment assistance, keep an open mind! The money you need to provide can come from all sorts of places, so try and explore options from nonprofits, local governments, employers, or unions. Ask about things like grants, forgivable loans, or matched savings programs. Plus, don’t forget about using a 401k loan or getting a gift from family or friends! There’s a long list of resources to help you become a homeowner.
The best thing you can do is start planning early with the help of a mortgage pro (like me!) I’m here to help you develop a plan, so you know which steps to take instead of guessing throughout the process.