Home Finance Options: 5 Easy Steps
Financing a new home can seem daunting, and in many respects, it is. However, it will be even more overwhelming if you step into the process blindly.
Buying a home is often much more affordable than renting.
A study conducted by Trulia found that those who purchase homes in the metropolitan areas the study covered were usually spending less money buying than renting.
This only works if you don’t spend beyond your means. The key to making your home affordable is to weave through the financial process carefully, especially when considering the best home finance options for you.
Determine Your Credit and Income
Before you can think about searching for your home and finding the best home finance options, you have to crunch some numbers.
Your annual household income is an important part of determining how much house you can afford.
In general, you should keep your home purchase cost no more than three to five times your annual income, and that’s only if you plan on placing a 20% down payment. Any less, and you may need to consider a home at a lower price point.
Also, keep abreast of your credit score throughout the home buying process. A score of 720 or above is what most lenders want to see.
Research, Research, and Research Some More
Once you have a firm idea of your finances, it’s time to research.
You should continue to research housing trends in your area to understand what’s available, and at what price range.
Throughout your research, look at how long houses in your area, and those comparable to what you’re looking for, are staying on the market. This will give you a better idea of how long you’ll have to get your home finance options together for your dream home.
Using your income, assets, and any other financial considerations, work with a loan officer to get prequalified, and preapproved, for a mortgage.
The prequalification process is the initial step that will help you determine how much you may qualify for, so you’ll have a price range to search within when looking for homes.
Once you have a home under contract is typically when you can return to your loan officer for a pre-approval. You should seek a preapproval within 30 to 60 days of your potential purchase date since many preapprovals will expire after a specific number of days.
Search For Your Dream Home Using a Qualified Agent
Check with trusted friends and family members for recommendations of qualified real estate agents. You want someone who will work for your best interests, not theirs.
Utilize your agent’s help in finding the best homes to meet your needs and fall within your price range. Make it clear that you’re not willing to step outside your budget.
Take photos of homes you’re interested in, so you can refer to them when choosing your home. Take into consideration any issues you found while touring, as well as the neighborhood setting.
Select a Loan and Prepare for Closing
Once you choose a home, meet with your loan officer to go over the final details to receive your home finance loan.
Most lenders have a variety of loan types that offer different payment methods, interest rates, and more. Your loan officer can help you choose the best type for you, as well as give you helpful tips to make the closing process go smoothly.
Be available to your loan officer and your real estate agent for all necessary loan and closing paperwork. The quicker you can assist in providing documentation, the quicker you’ll be able to enjoy your new home.
For more on the condo financing process, please check out our comprehensive financing guide.