Reality TV makes it seem like you should call a Realtor®, see three houses, and pay just under asking for the home of your dreams. The truth is, there are some steps you absolutely must take before you step foot inside of a home. These steps will make certain you are able to buy a great home that fits your budget.
Strengthen your credit score
Your credit score will play a huge part in the interest rate you will pay on your mortgage, so taking time to improve it is well worth it. Run your free annual credit report (https://annualcreditreport.com) and look for any negative marks. Work to fix these so your score improves. Small changes to your credit report could mean lots of savings in your future.
Lower your debt-to-income ratio by paying down your debts
Your debt-to-income ratio simply takes your debt and divides it by your income. What this means is that to improve the ratio, you can either make more money (very challenging) or pay down your debt. If you have the ability to pay down debt without sacrificing your down payment savings, it is worth it. This also will have an influence on your interest rate, so do not let this slide.
Save for your down payment and closing costs
One of the most common misconceptions I hear from people is that they cannot buy because they do not have 20% to put down on their home. This misconception has cost people so much time and rent money, and it simply isn’t true. It’s great if you can put down 20% on a home, which saves you a monthly private mortgage insurance fee, but most buyers cannot. The most common amounts are 5% down for a condo and 3.5% down for a single family home. There are various programs with different down payment requirements, so speak with your lender about the options available.
Hire a Realtor® to work for you
No surprise here – this is my favorite step! A Realtor® is a licensed real estate professional who belongs to the National Association of Realtors®. Hiring a Realtor® is a huge step for you to take because this person not only must be an expert in the area, but also will negotiate on your behalf to get you the home you need at a price you can afford. Interview a few agents to find out who you are most comfortable with. Ask about their most recent sales, local knowledge, and availability. Think about your needs: If you work normal business hours, you will need an agent who answers the phone and shows property after business hours and on weekends.
Pick your mortgage broker and get pre-approved
Finding a mortgage broker that you want to work with and is reliable enough to get you to the closing table can be a tough task. After you’ve hired a Realtor®, ask for a lender recommendation. Remember, an experienced agent has worked with many different lenders, so this recommendation is valuable.
Once you have applied for a mortgage and received approval, you will have a strong estimate of what interest rate you will pay and, more importantly, you will know how much home you can afford.
Narrow down your search by limiting geographic areas
One of the quickest ways we can refine your search results for your home is to know where you want to live geographically. Here in Naples, we commonly hear people say they want to be west of I-75, have land, or be close to a school. Perhaps you have a maximum time you want to commute to work, a church you want to live near, or restaurants and activities you like. Whatever your situation is, narrowing down the geographic area will help you focus in on the individual homes to pursue.
Purchasing a home can be an exciting but stressful time. With the right team, things will go smoothly for you and your family. Happy house hunting!
Laney and Chris Farrugia are both parents and Realtors® living in Naples, FL. www.ListingNaples.com