4 House Hunting Steps When You’ve Only Rented Before
If you’ve been living in apartments for your whole life, there might come a time when you need to get into something bigger. However, buying a house can be daunting, especially if you have no experience in the housing market.
Luckily, the process is pretty straightforward, and if you follow these steps, you could be well on your way toward home ownership in no time. Here’s what you need to know if you’re looking for a house.
Step One: Get Your Finances in Order
You’ll likely have to borrow money to buy a house. So, you must ensure your finances look good enough for lenders to give you a home loan. Most lenders don’t look at rental history, although that seems to be changing somewhat. Lenders need to know you’ll repay the loan before issuing it. So, make sure to have these pieces ready to go:
- Employment History – Lenders want to see that you have stable employment with sufficient earnings to make your monthly payments. You’ll find it harder to move forward as an independent contractor, but not impossible.
- Good Credit – Do you know your most up-to-date credit score? If it’s below 700, you might get denied by most lenders. Even if they approve your loan, it’ll be for far less than you might want, and the interest rate will be higher.
- Debt-to-Income Ratio – Your DTI measures how much debt you have to pay back each month compared to your total earnings. Lenders want this ratio to be less than 43 percent in most cases.
Step Two: Talk With a Mortgage Lender
One of the best things you can do to secure a high-quality home loan is to research different options. You could pay a lot more overall if you only accept the first offer, you could pay a lot more overall. Comparing mortgage lenders lets you see interest rates, prepayment penalties, and loan amounts side-by-side. As a rule, you should pay attention to these factors:
- Fixed-Rate Interest – You don’t want your interest to go up over the life of your loan. Also, check if the rate is fixed now or when you close on the property.
- Balloon Payments – Some mortgages come with a substantial balloon payment at the end of the loan. While you can save more on your monthly payments, failure to make this last one could result in foreclosure.
- Prepayment Penalties – If you win the lottery or start making a lot more money, you’ll want to pay your mortgage off sooner than later. But will you be penalized for doing so?
Overall, try to get the best deal possible, and don’t be afraid to say no to an offer.
Step Three: Work With a Real Estate Agent
While you could search for a house by yourself, that takes time and resources. Also, you may not know about new listings that might not go on MLS pages like Zillow. Real estate agents can handle the due diligence and notify you of new arrivals immediately so you can act quickly.
Step Four: Know What You Want
Before moving into a new house, make sure to have clear expectations. While having a mansion as your first house would be nice, you must be realistic, especially after talking with a mortgage lender. If necessary, write down a list of must-haves and extra options that may or may not be dealbreakers. These elements will allow you to say yes to the right house, not just the one available and within your budget.
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