4 Keys To Buying a Home In Today’s Market

After a few months of thinking it over, you’ve finally made the decision to purchase your first home.

You picture the process to be fairly simple: find a realtor, tour a few homes until you find your dream home, obtain a mortgage, and then you have your new home,right?

Not exactly.

You meet with your realtor and view a few homes, but the houses you see don’t match up to what you imagined your forever home for your family would be.

Because you’re ready to buy your first home, you feel annoyed and frustrated at the process. Then, it happens. Your realtor shows you a house for sale that meets all your requirements, but it has several competing offers.

Your realtor says you need to be ready to make an offer to the seller soon so you don’t lose the property, and to have the best chance you should not ask for a seller assist.

Reality sets in, and you quickly realize you are nowhere near as ready to purchase a home as you initially thought, especially from a financial standpoint.

It’s not uncommon for first-time home buyers to reconsider once they realize they may have to compete for a home and don’t fully understand what financial considerations are taken into account at that point in the home buying process.

Fortunately for you, Erica Rawls Real Estate Advisors know buying a home can be complicated, and our job is to make it as simple as possible for you.

To help first-time home buyers and others who are looking for a new home, we’ve shared four key things you need to know before buying a new home in today’s market.

1. Save As Much Money As You Can Toward The Total Purchase Price

That’s right. The most important thing to do you can do when buying a home is saving money.

You may be afraid of not knowing exactly how much money it will cost to buy your new home, but if you have enough saved toward it, when the time comes, you will have a better chance at getting your home.

Here’s Our Tip: Have at least 7 % of the total purchase price saved. This amount includes the down payment, closing costs, and may not may not include money for future repairs and furniture.

Now, you may be thinking how much money is that? Let’s break it down with this example.

Let’s say the home you want costs $100,000, and you have to put a 5% down payment toward the cost, which would be $5,000.

You also need to plan for closing fees, which you can expect to pay, on average, 3% of your home’s purchase price, so that would be $3,000. Then, you know you want to have $3,500 saved for future repairs and furniture.

In this case, you’d ideally want to have $11,500 saved at a minimum ($5,000 + $3,000 + $3,500) to include the down payment, closing costs and repairs/furniture.

You would only need about $7,000-$8,000 if you want to save 7% without factoring in future repairs or furniture.

If you’re in a competing offer for a home you don’t want to be in a position to ask for seller assistance, which can risk your chance of getting the house.

Here’s a real-life scenario where having enough money saved benefited the potential buyer in a competing offer.

Our team worked with a millennial who saved $20,000 toward their dream home,which was between $130,000 – $150,000. When the millennial found out there was a competing offer, they told the seller they could make a $10,000 earnest money non-refundable deposit with no seller assistance — the millennial won the offer!

The amount of money you save is going to make or break you in today’s market, so save as much as you possibly can.

You may be thinking, I already have so many other bills and obligations, how can I begin to save for a home?

Don’t get discouraged.  Here are a few tips to help you with saving for your dream home

• Tip 1: Don’t make any large purchases, including furniture, until AFTER closing! Keep your focus on the down payment and closing costs.
• Tip 2: Save a portion of money from your tax return! The beginning of the year is a great time to start a new savings plan. Jump-start your savings using your refund.
• Tip 3: Find a program that will help you pay for your closing costs. There are even some programs will pay up to 100% of the costs!

2 . Understand Your Credit Score And/Or Work Toward Improving It

Aside from saving money toward the down payment and closing costs, your credit score is another important factor that you need to consider when purchasing a home in today’s market.

If you know the importance of having a good credit score to buy a car, then you understand how imperative a good credit score will be for buying a new home.

The higher your credit score is, the less risky you will appear to the lender. You will also have a lower interest rate on your mortgage over the life of the loan, which saves you money long-term.

You may be wondering, “What credit score do I need to buy a home?”

Here’s Our Tip: Reach for a minimum of a 740 middle credit score across all three credit bureaus so you will have the most favorable terms available to you.

It’s possible to purchase a home with a credit score lower than 740, such as a 640 or 680, but you will pay at least one percentage point higher in interest, which is a significant amount of money over the life of a loan.

There are some programs that may allow you to purchase a home with a score of 580 — we do not recommend going this route!

We want you to be financially successful when it comes to purchasing a home so you become a successful homeowner.

If you’re credit score is not where you’d like it to be, work on ways to improve your score before you enter the home buying process.

“What if I can make a big down payment? Does my credit score matter then?”

Your credit score doesn’t matter if you pay in cash. Otherwise, yes, it’s still a factor, even with a large down payment.

If you make a larger down payment it will not fix a poor credit score. The down payment will only reduce the amount of the loan you will need.

For example, the house you want is $250,000 and you qualify for a $150,000 mortgage. You can still get the home if you have $100,000 in cash to pay it off.

3. Have and Maintain a Steady Job For At Least 2 Years

One thing lenders review when considering whether to grant you a mortgage is whether or not you have a steady income.

Lenders like to see at least two years of employment when they’re considering you for a mortgage. They will review at least two years of your tax returns — whether you receive a W-2 from an employer or work as an independent contractor.

Here’s Our Tip: If you’re considering leaving a job, wait until AFTER closing.

Lenders understand if you’re working in a position where you’re going from one job to another in the same field that would be considered a promotion, but it still makes the closing process more difficult with additional paperwork to file.

4. Assess Your Finances – Can You Really Afford the Monthly Mortgage Payment?

The last thing to consider when buying a home in today’s market is how much you can actually afford to pay for your mortgage each month.

Once you’ve saved the money for your closing costs, boosted your credit score to the ideal range and established you have a steady income, you need to determine how much you can afford for your monthly mortgage payment.

Just because you qualify for a certain mortage doesn’t mean you have to take it. If you qualify for a $250,000 mortgage but know you can’t afford more than $1200/month for a mortgage payment, you may consider taking a $150,000 mortgage instead.

Here’s our tip: Create a list to determine all of your monthly bills and expenses. This can give you an idea for how much you can afford each month for your mortgage.

You know your monthly financial obligations and personal desires better than anyone else. In your list factor things such as how much you shop, spend on bills, potential vacations, children’s expenses (if applicable), etc.

Contact Erica Rawls Real Estate Advisors Team Today!

If you’re ready to take the next steps to purchase your new home, complete our online form  or give us a call at 717.678.6339 to contact the team at Erica Rawls Real Estate Advisors today!

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