8 Steps You Need to Follow When Buying a House
If you want to buy a house, but you do not know where to start, this is the article for you! We'll tell you all about the 8 steps you need to follow when buying a home.
1st Step: Check your credit score
2nd Step: Calculate how much cash you’ll need
3rd Step: Know what you can afford
4th Step: Get pre-approved for a home loan
5th Step: Know which type of mortgage you need
6th Step: Think about all the features you want
7th Step: Find the perfect real estate agent
8th Step: Prepare a home offer
Check Your Credit Score
There are websites where you can check your credit scores for free. Take a close look at all the information, and carefully monitor your credit report for any changes. Also, look for the errors. If you notice any, file a dispute to credit bureaus.
To apply for a mortgage, you'll need a credit score that's at least 580. If your credit score is lower than that, try increasing before applying. Here are a few tips that might help you:
- become an authorized user on a credit account
- keep your credit utilization ratio below 20%
- keep all your accounts active
- don't apply for any new loans or credit cards
- don't miss any payments (set up auto pay)
Calculate How Much Cash You’ll Need
When buying a house, you'll need money for the down payment. Keep in mind that the funds for the down payment can't come from a loan. Some types of loans will allow you to use money that's a gift from a friend or relative, but for all others, you must use money from your investment account, 401k, or savings.
And down payment is just one of the costs you'll have when buying a house. You'll also need money for closing costs and the home appraisal.
Know What You Can Afford
When starting the whole home buying process, it's important that you know what you can afford. Lenders will use your debt-to-income (DTI) ratio to determine how much of a loan you qualify for.
Get Pre-Approved for a Home Loan
Before you start looking for a house, you must first get pre-approved for a home loan. Even if you find a real estate agent who will show you houses before you get a mortgage pre-approval letter, you wouldn’t want to look at properties you don’t qualify for.
These are the documents you'll need:
- information about your credit report and credit scores
- W2’s
- 2 years of tax returns
- copy of bank statements
- proof of down payment funds
Know Which Type of Mortgage You Need
There are a few types of home loan programs. Find the one according to your situation.
FHA Loans – Because of its low down payment and credit score requirements, this is a very popular mortgage option for everyone who is buying his first home.
Conventional Loan – These loans are offered by private lenders and not insured by the government.
USDA Loans – This is a Government-backed mortgage for families in rural areas of the country, with lower or medium incomes.
VA Loans – These loans are made for Veterans.
Think About All the Features You Want
Before you start looking for a house, think about all the features you want. Think about the things you really need, and things that are an absolute deal breaker.
This list of features might help you:
- square footage
- a number of bedrooms and bathrooms
- a number of stories
- the view
- formal dining room
- home office
- covered patio
Find the Perfect Real Estate Agent
It's important that you find a perfect real estate agent. A good real estate agent will save you money, and make sure the whole home buying process goes well. Sellers always built realtor commissions into the price of the home, so you won't have to pay the fee.
Prepare a Home Offer
When you find the perfect home for you and your family, your real estate agent will help you prepare the home offer. Before closing the deal, you'll need a home appraisal (between $300-$700), and you should definitely use a home inspection to reveal any potential issues and negotiate these repairs to be made at the seller's expense.
Follow these steps and the whole home buying process will run smoothly.