Most Silver Lake Real Estate Agents will tell you that buying your first home can be one of the most thrilling — and stressful — moments of your life. But armed with the correct information, you can shop for a house, apply for a mortgage, and close the deal with confidence.
Determine How Much House You Can Afford
Our Silver Lake Realtors say the first thing to do before buying a home is to make sure it’s the right time to do so. Generally speaking, owning a home pays off financially if you will live in it for at least five years. Otherwise, there’s nothing wrong with renting. Your actual numbers may vary, but you can play with scenarios using our rent vs buy calculator.
You might disagree, but I don’t believe you should treat your home as an investment. Yes, hopefully it will appreciate over time. But you should buy it because you want a home, not an investment.
That means you should never stretch to buy your primary residence thinking you can take cash out or flip it for a quick profit in a few years. Only buy a house that you can afford today!
Although it may not always be feasible if you live in an expensive real estate market, try to keep your total housing payment under 30 percent of your gross monthly income. When you spend much more than that on your mortgage, our Silver Lake Real Estate Agents say you risk becoming “house poor” — you might live in a beautiful home but find it difficult to save or even cover other monthly expenses.
Prepare Your Finances For The Mortgage Process
Most Silver Lake Real Estate Agents will tell you, the last thing you want to do is find your dream home only to discover you’re not financially qualified to buy it. To guarantee you’re financially ready to buy your first home, you’ll need good credit, cash to close, and a verifiable income.
Check Your Credit
Hopefully this isn’t not a shock to you, but getting a mortgage requires a good credit score. It’s a good time to check your credit reports for errors and possibly invest in a few months of a daily credit score monitoring service.
Some Silver Lake Realtors will tell you that a fast way to improve your score by a few points is to pay down credit card balances and stop using them for two months before you apply for a mortgage. Also, you’ll want to avoid applying for credit (for example, a new credit card or car loan) until after you’ve closed on your new home.
If you’re buying a home with a spouse or other co-buyer, your mortgage lender will likely consider both buyers’ credit scores in the application process. That’s not to say you’re necessarily doomed if one person’s credit isn’t as good, but don’t count on things going off without a hitch just because one buyer has a great credit score.
Finally, our Silver Lake Real Estate Agents say to always remember that making your credit score better can take at least six months, so we suggest that you get started ASAP!
Save Cash For A Down Payment and Other Expenses
Additionally, our Silver Lake Real Estate Agents say that in order to make sure your credit score is in order, you’ll also want to think about the cash you’ll need to make purchasing your first home a reality. Of course there’s your down payment — typically between 3.5 and 20 percent of the purchase price.
As you save money for your down payment, avoid the temptation to invest in the volatile stock market with money you hope to use in the next year or two.
While you might be tempted to try to earn a greater return on your money than an online saving account paying one percent, the greatest risk is not having your money available when you’re ready to buy a house.
As you save, our Silver Lake Real Estate Agents suggest you don’t underestimate how much money you’ll need — you might be pleasantly shocked at how much cash you’ll need for closing.
Get Your Documentation In Order
Finally, our Silver Lake Real Estate Agents say if you’re close to putting an offer on a home, begin to collect documents that you’ll need to verify your finances on the mortgage application: pay stubs, W-2’s, bank statements and, if you have freelance or self-employment income, copies of your last two tax returns.
Shop Around For A Mortgage
Too often, home buyers leave mortgage shopping to the last minute and watch their dream home go to another bidder who had financing in order. Mortgage pre-approval is a free and non-binding process that presents you as a serious, qualified buyer when buying your first home.
Comparing two mortgages can be a bit complex. There are fixed-rates and adjustable rates, or ARMs, which are priced very differently. You can take out a mortgage for 30 years or as little as five years (interest rates are typically higher the longer the term of the loan).
Silver Lake Real Estate Agents say a handful home buyers should look at fixed-rate mortgages and, indeed, the 30-year fixed rate mortgage is the most notable kind of loan, by far. Nonetheless, it’s not a bad idea to get to know how mortgage rates work and the different kinds of loans that are out there.
You may also want to run some situations through a mortgage calculator to see how different terms and rates will affect your monthly payment.
To make matters worse, mortgage lenders charge fees that aren’t necessarily reflected in the interest rate. There can be fees for appraising the home, checking your credit, and preparing documentation.
In some cases, you may be offered the option to pay “points” at closing that will reduce your interest rate. Points are essentially prepaid interest.
This can be a sticky choice, but our Silver Lake Realtors say it can make sense if 1) you can afford to put down the extra cash and 2) expect to carry the mortgage for many, many years. In addition, it can be an exceptional habit to compare mortgage rates online on a routine basis.
Private Mortgage Insurance (PMI)
If you put less than 20 percent down, your lender will likely charge you a monthly premium for what’s called private mortgage insurance, or PMI. Most Silver Lake Private mortgage insurance protects the bank in the event you default on your loan and the value of your home declines drastically.
Understanding Where To Get Mortgage Rates and Pre-Approval
Our Silver Lake Real Estate Agents say the only wrong way to get a mortgage is to walk into your local bank, ask for a loan officer and go with whatever rate they give you without ever looking around.
You can compare rates with any number of leading online mortgage lenders or find a local mortgage broker who will shop your application to multiple lenders on your behalf.
Our Silver Lake Los Angeles Real Estate Agents often also suggest using the site, to quickly get four or five competing mortgage rates from an assortment of banks. These rates will be more accurate than the ones you see in advertisements and websites because banks provide real rates based upon your credit profile and the location and value of the home you want to buy.
Silver Lake Real Estate Agents say buying your first home is exciting, but there’s a lot to think about before you begin looking. Our Silver Lake Realtors suggest you start by getting all your finances in order, and using online tools to compare mortgage rates, and manage your credit score.