Published June 25, 2019
First Steps to Buying a Home | Full Buyer Guide
Thinking about Buying a home? Find yourself asking “I want to buy a home but I don’t know where to start?” Here is what you'll need to know in today's competitive market. Buyers are losing out on their offers left and right and we are here to educate you and give you an advantage!
Here is everything you will need to know when it comes to buying your first home! OR you Can get our FREE Home Buyers Guide Download HERE
In today's real estate market, low housing inventory is spoken about in many areas of the country. It can often be frustrating to be a first-time homebuyer if you aren't prepared. What we are seeing here in Bakersfield is not enough homes on the market to meet the demand of buyers. Even with these tough market conditions, we have been able to coach our buyers through the process and give them tips to make sure they have a standing chance against the competition.
In a realtor.com article entitled, “How to Find Your Dream Home—Without Losing Your Mind,” the author highlights some steps that first-time homebuyers can take to help carry their excitement of buying a home throughout the whole process.
There are just a few key items you need when it comes to buying a home. Those being employment, money saved and credit. Since credit is the first thing the lender will look at when you go to get prequalified for a home loan, we will start there.
How to Boost Your Credit Fast!
If you find that you have some credit issues, you definitely should work on raising your credit score because the higher your score, the better interest rate you will get and today's rates are super low. Check today's interest rates HERE.
The first thing you need to do is to obtain your current credit report to examine any late payments, unpaid bills or inaccuracies.
Next up is to pay down credit card balances. Did you know that 30% of your FICO score is based on the amount of credit debt you have? Having your credit cards maxed out is not something that will help you raise your credit score. When you meet with your lender for a consultation, they will guide you on what you need to do exactly to get ready to buy a home and qualify for a home loan.
How can you pay down credit card balances quickly?
What are a few ways to pay down credit card balances quickly, you may be wondering. Ways we have found that are effective in this are living lean, having a garage sale or picking up a 2nd job. Being a homeowner can be a sacrifice for somethings but in the end it is well worth it. If you have OLD or Past Credit mistakes that are in collections, get ready to get on the phone and negotiate with the collectors.
"What does my credit score need to be to buy a Home?"
- 580 is minimum credit score for FHA. But that requires proving you have paid rent on time for the last 12 months and will hurt the buyer interest rate-wise although, a loan can be done.
- 620 or higher is preferred for FHA loans but not required.
- 620 or higher is required for Conventional mortgages. The interest rate will be pretty bad though so typically you want the client to have a minimum score of 680 for conventional just so they can have a better rate.
- 620 or higher is required for VA loans.
- 620 or higher is required for USDA loans. (Some companies can go lower. HomeStreet Bank's requirement was 600)
- 640 or higher is required for down payment assistance programs. If using an assistance program, it makes no difference if the score is 641 or 740, just needs to be over 640.
- Interest rates for conventional loans are based on tiers of 20-point increments. 620-640, 640-660, 660-680, 680-700, 720-740, 740 and up. 740 is the top tier interest rate wise for conventional loans. Someone with a 742 score will get the same interest rate as someone with a score of 812.
How To Get Pre-Approved For A Home Loan
Now that you presumably have your credit in excellent condition, you can move forward with the home loan pre-approval process. You must get Pre-Approved for a Home Loan before you start your search. When you start house hunting with out a pre-approval letter, you are basically window shopping. This tells your Realtor that you are not serious and most Realtors will not commit to showing you homes if you cannot prove that you can buy a home by getting pre-approved. You are at risk losing your dream house with out a Home Loan Pre-Approval Letter.
For example, say the Smith Family are looking at the same home you are, but they have already gone through the entire pre-approval process and they are ready to make an offer with absolutely no delays-- but if you want to make an offer, you will still have to schedule an appointment with your lender and get the entire process started. They could possibly get their offer accepted before you have a chance to finish your pre-approval process. We see this happen so much and we would hate for you to suffer the consequences of potentially losing out on a home you really love for not starting your pre-approval process when recommended.
So the way to show your Realtor you are serious about buying your dream home is to get pre-approved for a Home Loan before starting your search. Remember, this is your very first step! Even if you are in a market that is not as competitive, understanding your budget will give you the confidence of knowing whether or not your dream home is within your reach. Like we talked about above, the lender will and must run your credit to make sure you don't have any collections and that your debt/income ratio is not exceeding the limit. The lender will provide you with the amount you are approved for.
Now, keep in mind that you do not have to buy a home for your maximum Home Loan Approval amount. If you have a budget that you must stick to, we suggest that you stick to it. Exceeding your budget can result in homeowner hardship later. This step will also help you narrow your search based on your budget and won’t leave you disappointed if the home you tour, and love, ends up being outside your budget!
We'd like to give you the answers to some popular questions, which are- "What do you bring when getting pre-qualified for a home loan?" and "What do lenders ask for when getting pre-qualified for a home loan?". These are the answers, and they are quite simple really!
- Last Two Years of Tax Returns
- Most recent one month of pay stubs
- Last two months of bank statements
When you meet with your lender, they will run your credit and analyze your credit history, finances, and determine your loan ability. Here are some of the most common types of home loans that you can choose from and determine which one is best for you.
Most Common Home Loans
-Conventional Loan
This loan has low rates for borrowers with excellent credit, and has no limits on income, area, or occupancy type. Down payments as low as 3%.
-FHA Loan
This type of loan has flexible guidelines, does not require perfect credit, offers low interest rates, and requires no reserves for 1 to 2 unit properties. Down payments as low as ZERO. WHOOP!!
-USDA Loan
This loan has income restrictions, but offers no required down payment ( Yup! ZERO Down!), and only applies to certain areas. The USDA site requires you to check by each individual address. If you click HERE, you are able to enter in whatever address you want to inquire about and it will tell you if it is eligible.
-VA Home Loan
This loan is only available for Veterans, Active Duty, Reservists, Surviving spouses of military (Based on military entitlement) and requires zero down payment! There are no monthly mortgage insurance premiums, which gives you all the more purchase power. There are flexible credit guidelines which can go as low as 550 in some cases. This is also the easiest loan to qualify for and well deserved at that. You can click HERE to get started on your VA Home Loan Pre-Approval.
-CalHFA Loan /Down Payment Assistance Program
This type of loan is a first time buyer program, has certain income restrictions (currently income cannot exceed $188,000), however offers up to 7.5% in down payment assistance. Must be primary residence only. Must have at least a 640 Credit Score.
There are even more benefits for teachers and staff who serve California's public schools. Let us know if you are interested in this program and we will make sure your lender provides you with more info. You can click HERE.
Know the Difference Between Your ‘Must-Haves’ and ‘Would-Like-To-Haves’
Do you really need that farmhouse sink in the kitchen to be happy with your home choice? Would a two-car garage be a convenience or a necessity? Could the ‘man cave’ of your dreams be a future renovation project instead of a make-or-break right now? Before you start your search, list all the features of a home you would like and then sort them as ‘must-haves’, ‘should-haves’, or ‘absolute-wish list’ items. This will help keep you focused on what’s most important.
Also, in today's Youtube savvy/DIY world, there are many home projects that you can start yourselves and can save you a lot of money in the end. And if you do find a home that you really like in a great neighborhood, it's okay that it may need a little elbow grease and some upgrades in the future. This is something to keep in mind that there are always projects that can be done, and not everything on your wishlist has to be present in the home you are searching for.
During your home search, you should research and choose a neighborhood that you want to live in. Every neighborhood has its own charms. Before you fully commit to a home based on solely the house, you should test drive the area and make sure that it meets your needs for "amenities, commute, and school district" and to spend a day or two exploring the neighborhood before you commit.
Finding Your Perfect Home
There are many things to consider that don't always come to mind immediately when trying to purchase a home, such as expanding your family, or the downsizing of your family. Here are some tips to keep you aware of the track to stay on while you are starting the search for your home.
Figure out what you want in your future home. For example, think of things that you think would be nice to have and things that you can live without. Some things that would be good for a list like this are location, nearby parks, busy streets, a particular school district, a certain price range, a pool, a large backyard, a certain size of garage, RV parking, open layout, a certain number of beds and baths, and so on and so forth.
You should be preparing for the future. Keep in mind that chances are extremely slim of a home coming perfect for you and your family. Think about whether or not you will want to remodel, and if you need room for extra storage or not. Are you a DIY-er or a Not So Handy Manny? These are all things that aren't something you know unless you plan ahead when you are starting your home search.
Pick a house style you love and stick to it. You need to evaluate your family's needs and settle on a style of home that would best serve your needs. For example, the article lists a scenario where if you have younger kids in your home and you don't want your bedroom on a different level in a multi-level house, steer clear of Cape-Cop style homes, which has two or more bedrooms on the upper level and the master bedroom on the lower level. Another thing to always keep in mind is that you may be selling your home in the future, and you should always be thinking of your resale value.
Document the homes you visit once you start looking at homes, and assign details you admire to each different house. The features of each home will blur together once you tour to choose your dream home. The article also suggest to keep a camera handy to document what you admire and don't admire about each property you visit. Making notes as you tour each property will help you remember what the photos mean, or mimic the feelings you had while you were touring.
Be mindful and aware of things like unrealistic expectations. Some things that are sure to help you greatly in your home search are to picture your own family in each different house, and checking out the surrounding area. You should not set your expectations too high because then you might overlook and miss the home that was right for you. For each property you tour, you should imagine living in that house and think- does it feel like it could be your home? After you tour, a good idea for each house you look at is to go around the neighborhood and be sure you like the area it is in.
All in all, in a high paced, competitive environment, like a market that is saturated with buyers and not enough sellers, any advantage you can give yourself will help you on your path to buying your dream home.
Making the Offer
When you have finished your home search and have settled on the house you think is the one, it is time to make an offer before someone else does. Making an offer on a home is no small thing, it is one of the biggest purchases you will make in your life. Here are some tips to help you understand the process.
-Having your agent do a market analysis ASAP
A comparative market analysis will show you the fair market value of the property and could affect the price of your offer, as well as the condition of the home itself and conditions of the market at the time. Chances are that if you have found the home.. you have seen other homes for sale in the area and you will be able to tell if it is priced to sell or too high.
-Trust your agent on how much to offer
Your offer will show the seller that you are sincere about purchasing the property. This is a time when you and the seller must come to a mutual agreement and the Agents will be negotiating on your behalf. Terms negotiated are usually price, length of escrow, closing cost and warranty.
-Multiple Offers
If you find yourself in a multiple offer situation, do not panic or withdraw your offer, your bid could be the highest. Have a price in mind of where you want to go and stay in the bid until that price has been reached. Do not risk losing the property by pulling out too soon. We have been able to successfully negotiate during multiple offer situations and have many great strategies that will help your offer get to the top!
4. From Offer to Closing
Once you have presented your offer to the seller, this is the beginning of the negotiating process as mentioned above. During this time, there is always a chance that your offer can be countered, and that there can even be multiple offers the property. That is the negotiation part. Here are a few important things to remember.
-Making Your Offer
In order to make the process much easier on yourself, you and your agent should come to an agreement with the seller on the offer itself in a reasonable amount of time, or you risk losing the house completely. Time is of the essence during this time. Once your Realtor receives a Fully Executed Contract back from the Listing Agent, and you Acknowledge it, You are accepted. YAY!! If there are Counters then, the same goes for those. Once an Agreement is reached, You are Now in Contract / Escrow.
-Listen to Your Lender
Once you are in Contract on a Home Purchase, Comply with the requests of your lender, because if you fail to produce the documents and information they need, it can jeopardize you receiving your mortgage on time.
- Appraisal. An appraisal is A written analysis of the estimated value of a property prepared by a qualified appraiser. This will be done as soon as you enter into an Accepted Contract. There are times when the appraisal might come in low and that is when your Realtor will come in and get a price reduction request in to the selling party. This is why it is highly important to have a Trusted Realtor representing you.
-Inspection Period
Once your go into contract on a home, it is time to order any and all inspections. The common inspections are Home Inspection, Termite & roof. This will allow time to communicate with the Inspectors and gain access to the house. Your agent will help arrange the inspection appointments for you. In your contract, there will be an inspection Contingency period. We mostly go by the 17 days allotted in the contract.
Trust Your Agent
At this point, your agent will act as a coordinator for all activities and keeping everyone in the loop as needed. Things your agent will coordinate include Inspections, home disclosures, repairs needed, and your final walk through. You should always feel extremely comfortable asking your Realtor any and all questions that may come to mind.
-Multiple Offers
If you find yourself in a multiple offer situation, do not panic or withdraw your offer, your bid could be the highest. Have a price in mind of where you want to go and stay in the bid until that price has been reached. Do not risk losing the property by pulling out too soon. We have been able to successfully negotiate during multiple offer situations and have many great strategies that will help your offer get to the top!
Well, if you ever wondered how to become a pro at buying a home, you're pretty darn close to it now! If this seems a little overwhelming, do not worry-- you’re in good hands. Your agent has been through this many times and will be there for you during the entire process. Relax and enjoy your home buying experience.
Bonus - Top 10 Home Buyer Mistakes / What not to do when buying a house.
1. Don't apply for new credit. This can bring your score down and if you are already borderline qualified, it can cause you to become unqualified and therefore cause your purchase to fall out. This can also cause your interest rate to increase since your rate is based on your credit score.
2. Don't miss any payments. Again, missing a payment can lead to creditors reporting this activity and causing a negative reflection on your credit score. Remember, the lower your credit score, the higher your payment.
3. Don't change jobs. Lenders have to follow very strict guidelines when qualifying you for a home and if you switch job types, the chances of you qualfying for your home, might be in jeopardy.
4. Don't make any large purchases. You must wait until after your home closes to make your large purchases. Be patient. It will be ok, if you buy that fridge or sofa set after the houses closes. What use is that new couch if you have no house to move into?
5. Don't use credit cards excessively or make large purchases. Freeze up those credit cards until after you close escrow. We always tell people" Stay out of the big stores!"
6. Don't spend your closing money. Even if you think you are coming into money from somewhere or borrowing it. If you have the money set aside for your Down Payment or Closing Cost, leave it in the bank until the lender tells you to take in your money for closing.
7. Don't leave out any debts when applying for a home loan. The lender will need to know what your debts are in order to determine what you qualify for.
8. Don't make large or unusual deposits over $500. The lender will want to track all of your money and you will need to discuss the deposits before you make them. Tell the lender everything. We have had some clients that Sell Candles and other Multi Level Marketing on the side of their main job and have had to hold off on making deposits until their house closes.
9. Don't change bank accounts. Did you know that your money has to season for a certain period of time? If you switch bank accounts in the middle of your escrow and move your money, the seasoned period starts over. Just don't do it!
10. Don't co-sign for anyone. This causes two things to happen. One Your credit will be ran and Two, your debt to income ratio will go up. This will negatively impact your purchase.
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