House hunting in a hot housing market is stressful enough – especially smack in the middle of a seller’s market — but newbies take heart: We tapped the experts for eight foolproof ways to make the home buying experience short(er) and sweet.
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Tip 1: Find out how much home you can afford
A surefire way to stall the homebuying process is to begin looking at properties before you’ve determined your budget.
Putting the cart before the horse this way works against you financially and emotionally — falling in love with a home you can’t afford is bound to cloud your judgment.
Andy Krider, vice president of residential mortgage banking at Bryn Mawr Trust, says many homebuyers focus on the wrong number when sculpting their budget. “In terms of getting approved, lenders are actually looking at what your monthly payment is going to be, not the total sale price,” he told LendingTree.
That’s why researching neighborhoods is vital. (More on this shortly.) Property taxes, for example, can vary widely between neighboring towns. Krider says a good rule of thumb is to settle on a monthly payment, including taxes, insurance, and any homeowners association fees, that’s equal to no more than 25% of your gross monthly income.
LendingTree’s handy mortgage calculator makes it easy to take that figure, plug in the neighborhood and enter some basic criteria: credit score, income, and monthly expenses to see where you stand. Learn more about the qualifying criteria for a home mortgage loan here.
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Tip 2: Supercharge your credit score
Your credit score plays a big role in getting the best terms on a mortgage loan. It essentially lets lenders know if you’re a risky borrower. They’ll pore through your credit report and consider everything from payment history to debt-to-income ratio, to length of credit to your credit utilization rate. All of these factors shape your actual credit score.
The lower your score, the more likely you’ll pay higher mortgage insurance premiums and interest rates, or worse, get declined for a loan.
To get the ball rolling on improving your credit score, familiarize yourself with everything that’s actually on your credit report. You can pull your report free of charge once a year via AnnualCreditReport.com. Is everything accurate? If you spot an error, you can dispute it with the three main credit reporting agencies: Equifax, Experian, and TransUnion. Each has its own set of procedures for resolving errors, which should boost your score.
You can also improve your score by keeping your credit utilization ratio at or below 30%. Zero in on your revolving accounts, including credit cards — are you using more than 30% of your available credit? If so, it’ll ding your score. Consolidating your debt with a personal loan can quickly improve this ratio. Of course, simply paying down your debt is the best way to improve your score. If you’re in over your head, taking advantage of an introductory 0% balance transfer offer can accelerate the process.
What’s your debt-to-income ratio? Where mortgage loans are concerned, one of the most important parts of your credit score is your debt-to-income ratio. This tells lenders how much of your monthly income is going toward debt payments. If it’s more than 36%, getting the best terms on a mortgage loan could prove difficult. This, in itself, could put the brakes on your house hunt.
“The more disposable income a person has, the more likely they are to get a loan for the home of their dreams,” said John Lynch, a broker at Keller Williams Realty in Ohio and a regional vice president for the National Association of Realtors. “Put it another way: The less debt a person has, the more home they can buy.”
To calculate your debt-to-income ratio, take your total monthly debt and divide it by your gross monthly income.
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Tip 3: Come ready with a down payment
Having a healthy down payment in your arsenal immediately makes you more attractive to lenders and sellers alike. Why? You’re considered a less risky borrower. In a competitive housing market, this can help you stand out from the pack and lock down your dream home faster.
“Everything else being equal, most sellers would take a large down payment over a smaller one,” said Krider, a residential mortgage expert.
While the old rule of thumb used to be saving a 20% down payment, that number is out of reach for many homebuyers. These days, there are a number of loan options that can get you into a home for much less. USDA loans, for example, require no down payment at all, while you may be able to lock down an FHA loan for as little as 3.5% down.
Of course, a smaller down payment also translates to higher monthly payments and private mortgage insurance premiums. In today’s hot housing market, when sellers are weighing multiple offers, you could be edged out of a home you love by someone who’s armed with a larger down payment.
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Tip 4: Get pre-approved for a mortgage
Once you pin down your preferred monthly payment, the next step is to get preapproved for a mortgage before you start making offers. This involves providing lenders with supporting documents that provide a snapshot of your financial health. From there, they’ll draft a pre-approval letter that spotlights the estimated loan amount for which you qualify. The letter also includes your anticipated mortgage rate.
Some lenders use the term “pre-qualification.” From the homebuyer’s perspective, it’s essentially the same thing as pre-approval. According to the Consumer Financial Protection Bureau, there are some nuanced legal differences, but both serve the same purpose. Getting pre-approved doesn’t mean you’re guaranteed a loan, but it shows sellers that you’re a serious buyer who can indeed afford a home. It also gives you a leg up on other homebuyers. Buyers who skip this step unnecessarily risk stretching out the home buying process, Lynch says.
“They go out and say, ‘I like this house and want to buy it,’ only to find out they could actually buy more house if they got pre-qualified,” he told LendingTree. “In some cases, they find out after the fact that they don’t have the income right now to buy the house, which is a situation they could have avoided had they gotten pre-qualified.”
Seeking pre-approval from multiple lenders may cause a slight dip in your credit score, but completing these applications within a 30- to 45-day period should only count as a single hard inquiry on your credit report. In other words, your score should rebound relatively quickly.
Compare offers. Since it pays to shop around, it makes the most sense to get multiple quotes. It’s a smart move considering that the Consumer Financial Protection Bureau says you’re more likely to get a better deal if you compare offers.
And you’re under no obligation to take out a loan for the full amount for which you’ve been pre-approved, especially if it exceeds the figure you set using the home affordability calculator. As tempting as it is to borrow more money for a dream home, it’s a recipe for financial disaster if it means struggling to make the monthly mortgage payment.
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Tip 5: Research the neighborhood
This one’s a biggie. Before getting serious about making an offer, look beyond the sale price and do a little homework.
“It’s possible that in one school district, you can afford a $350,000 house, and in the next, you can only afford a $280,000 house because taxes vary,” Krider said.
People are often surprised, he adds, that property taxes can be $6,000 for one house and $8,000 for a similar property in a neighboring town. According to Krider, this can translate to a monthly payment that’s nearly $200 higher.
Lynch says to expect steeper prices in neighborhoods that have low crime rates and are close to amenities like good schools, public transportation, restaurants, and shopping. You may be able to afford a larger house in a secluded part of town, for instance, but if that requires a long commute to work, it may not be worth the trade-offs in higher fuel expenses and stress.
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Tip 6: Shop online
It pays to determine these priorities — a certain school district vs. an in-ground pool and three-car garage — before you take advantage of the array of popular sites that allow you to research neighborhoods right from your smartphone.
While searching online, flag homes and use them to create a comparison chart that highlights three important distinctions — must-haves, like-to-haves, and unacceptables. By weeding out deal breakers, you can cut down your home-shopping timeline.
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Tip 7: Pay for your own inspection
After you’ve narrowed your search and are ready to move forward on a house, take care of one more hurdle that could stretch out your timeline: the home inspection. While some homebuyers withhold an offer until an inspection is complete, consider making an offer that’s contingent upon a home inspection.
“While they’re going through the inspection process, someone else could actually be making the deal to buy the house,” Lynch said.
If the inspection does reveal structural problems or damage to the home, you then have the leverage to negotiate a lower price. You also retain the right to walk away if inspectors stumble upon a serious problem.
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Tip 8: Work with a real estate agent
One other way to shorten the homebuying experience is to work with a real estate agent. Taking a do-it-yourself approach and calling individual realtors for each listing that interests you could be a tedious, time-consuming process.
“A good realtor knows what the buyer wants and can narrow down the search to properties that meet that criteria,” said Lynch. “It doesn’t cost anything since the commission is built into the price of the house.”
Working with a trusted realtor means taking your list of deal breakers and handing it off to someone who knows your local market. This way you’re not wasting time looking at ill-suited properties.
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Important things to remember
Buying a home is never an overnight process, but there are ways to shrink the timeline. Figuring out how much home you can afford from the get-go will have the biggest impact. This goes hand in hand with getting pre-approved for a mortgage before you begin house hunting. If your credit score could use some work, think about ways to give it a boost before you start looking for a house. And, if you have a down payment ready to go, all the better.
Researching neighborhoods, familiarizing yourself with homes online, and working with a real estate agent can also go a long way in streamlining the process. When you’re in the homestretch, making an offer that’s contingent upon an inspection is another hack that can help you get into your dream home as soon as possible. When it comes to buying a new home, knowledge is your best weapon.
This article originally appeared on LendigTree.com and was syndicated by MediaFeed.org.
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