So you’ve decided to buy a new home. Whether it’s a first home or an upgrade, it’s obviously not something you should jump into without any preparation or planning. For most people, buying a home is the largest purchase they will ever make, and it will have financial implications for a long time, possibly in the next 30 years. To avoid making an enormous mistake, undeeded stress, and triggering a decision you’ll regret for many years, consider these 5 things you need to do before buying a home in Roseburg.
1. Work on Credit Score
Today, your credit score plays a major role in determining how much house you qualify to buy. Your credit score also determines whether you can get financing at all. One of the first things you should do before getting too crazy about buying a home in Roseburg – and definitely before you start house hunting – is to know your credit score and clean up your credit score to see if you can get it even higher (whichever applies to your situation).
Your credit score “is basically your lending risk score. It is the number that mortgage lenders will look at to determine whether you are ‘creditworthy,’ which dictates if you’ll qualify for a home loan. Your score will also play a role in the rate you get. ” In general, the better/higher your credit score is, the better rate you’ll get on your mortgage – which translates to lower monthly payments and significant savings over the long haul.
For the most part, lenders want to see a minimum score of around 620, but higher is always better. Typically, you’ll need around 6-8 months to improve your credit score – so start now. If your score is low and you don’t have time to get it up, give me a call for other possible options. Call 541-643-1131
2. Determine What You Can Really Afford
Another of the very first things you need to do before buying a home in Roseburg is to determine exactly how much home you can actually afford. One of the biggest mistakes first-time home-buyers make is buying more home than they can really afford. To avoid falling into that trap, keep your house payment (PITI) at or under 30% of your take-home pay.
Keep in mind, that 30% isn’t just the house payment on the sale price of the home alone. It will also include a host of related costs like:
- Mortgage interest
- Property taxes
- Hazard insurance
- Mortgage insurance (in some instances)
- Maintenance and any renovations you might want to make.
A good rule of thumb is to use the 28/36 rule. In a nutshell, this rule says that “you should spend no more 28% of your gross monthly income on housing costs and no more than 36% on total debt, which includes housing and other debt like student loans, car loans, and revolving credit.” In fact, many lenders will use this 28/36 rule to assess how much you can borrow and at what rate. If you need help, please don’t hesitate to reach out. I’m here to help you figure out how much home you can actually afford and which lender might be right for you.
3. Get Pre-Approved
One of the most important things you should do, before looking or buying a home in Roseburg, is to get pre-approved for a mortgage loan. Your pre-approval letter will state how much your lender is willing to lend you. Your pre-approval letter does a couple of things…
Besides proving that you can actually borrow a certain amount, pre-approval also positions you as a serious buyer and so can help your bid be the winning bid. “In any market, mortgage pre-approval is almost always required for a seller to take your offer seriously . . . That’s because it spells out exactly how much a lender has agreed to loan you, thus assuring the seller that you’re both willing and able.” Providing a pre-approval letter could actually get a seller to choose your offer over another buyer who fails to provide proof of qualification.
The difference between pre-approval and pre-qualifying. Pre-approval is not the same thing as pre-qualifying. To pre-qualify, you just have to provide a lender your financial information without producing any documentation to back it up. Pre-qualification gives you a ballpark idea of what you can afford and whether the lender might be willing to lend you the amount you need. But it doesn’t guarantee you can actually get the loan.
A pre-approval goes a step further. To obtain a pre-approval, you actually submit miscellaneous verifications which are then reviewed by an underwrite prior to issuing a letter. In short, a pre-approval is a much stronger position than being pre-qualified. Make sense?
4. Factor in Closing Costs
Another thing you must do – and many people neglect to do – before buying a Roseburg home is to budget for the closing costs. Besides the down payment (in most cases) and the upfront costs, you will also have closing costs.
These closing costs will vary from area to area and according to the kind of loan you have, but, typically, they are about 2% to 3% of the purchase price of the home. I have seen them run as high as 7% so make sure you pay attention to the cost breakdown you get from your lender.
Closing costs may include:
- Property taxes
- Title insurance
- Prepaid loan interest
- Fees for various services such as application, inspection, appraisal, and pulling a credit score
To make sure you have properly calculated and factored the closing costs into your total cost, you can use one of the online calculators or ask me about this.
5. Save for Down Payment
An then there is saving for the down payment… the thing many of us have a hard time doing… saving money! Truth is, most people will need to save up a for a down payment before buying a home in Roseburg.
There are several first-time buyer programs that offer low (and even no) down payment options. But, remember, the less you pay down, the more you will have to borrow, the higher your payment will be, and the more you will pay in interest over the life of the loan.
Money pros advise trying to save up enough to pay 20% down. “If you go lower than that you will likely have to pay for private mortgage insurance. That is a safety net for the bank in case you fail to make your payments and can cost between 1-2% of the amount of the loan.” In short, it pays to pay more down.
Lean on Your Local Real Estate Professional
These are the major things you need to do before buying a home in Roseburg, but this is by no means an exhaustive list. The difficulty lies in the fact that local markets can vary so widely and, as a result, require different approaches. Things like the coronavirus, for instance, can really change lending guidelines and the pre-approval requirements. But don’t worry, I and my team know the local market and can provide the guidance you need.
When you think real estate, think The Sky Team.