Buying a house is a minefield full of “I didn’t know thats.” From choosing the right home to qualifying for the best mortgage, you want to minimize the things you don’t know.
So let’s lower your “didn’t-know” ratio. With a shifting lending landscape, unpredictable interest rates and down payment priorities based on your local market, here’s what you’ll need to know about buying a home this year.
What’s the first step to buying a house?
With acute shortages of homes for sale in so many markets throughout the nation, getting a pre-approval for a home loan is more important than ever. Cash buyers used to give sellers confidence that a deal would close quickly, but fewer cash buyers are shopping right now. And when houses weren’t in such short supply, buyers didn’t face the pressures of intense seller’s markets.
With a lender lined up and a pre-approval letter in your pocket, sellers know you’re serious. With a pre-approval, sellers feel comfortable that, ‘Hey, this guy is a legit person who is going to buy and close.’ Prospective buyers need to immediately start with the lender. See what you can afford and see what your hurdles are going to be. Shopping for homes before gaining a loan pre-approval can be a big home buyer mistake. Some buyers don’t realize how many underwriting deal breakers that can hijack — or significantly delay — getting a mortgage there are.
Those home loan approval pitfalls can include issues with student loans, significant recent cash deposits, and the manner in which self-employed income is reported.
How much house can I afford?
‘How much house can I afford?’ is the first-time home buyer question. We offer a rule-of-thumb to help.
Instead of telling them about debt-to-income ratios, first-time buyers better consider three times their income as a starting point. So, if you and your spouse have a combined annual income of $110,000, most likely $330,000 will be your price range, plus or minus a couple of percent. But rather than guessing, you can simply take the first step — talking to a lender.
What’s up with interest rates?
Another change impacting the real estate market is interest rate volatility. Many experts predicted rates to steadily rise throughout 2019, yet so far 30-year mortgage rates aren’t far from where they were a year ago. At this point, it’s not clear where they’re headed over the next 12 months.
In fact, more than a third of Americans say they plan to buy within the next five years — and nearly one-fourth of those prospective buyers say they’ll buy in the next 12 months, according to NerdWallet’s 2019 Home Buyer Report.
What credit score do I need?
A credit score of 620 is typically the minimum that mortgage lenders are looking for, though some lenders will go as low as 580 or below.
What we see is that average credits are usually 620 to 680, very good credits are 680 to 740, and if you’re over 740, you’re spotless.
How much do I need to put down on a house?
People still think they need 20% down. Three percent down, 5% down are the ways people are buying homes. Ten percent down is the average in the nation right now. You don’t need 20% down to buy a home. It’s the biggest myth out there.
20% down — especially in a tight market — is going to come into play. If somebody else has 10% and you’ve got 20, that’s going to be a factor. Listing agents will usually advise sellers to go with the buyer who has the most cash on the table.
How long does it take to buy from start to finish?
You know what’s changed in the last three years in mortgages? Speed to closing is more important now than ever.
Application-to-closing times are shrinking. For the 12-month period ending in January 2019, average closing times for purchase and refinance loans combined were about 43 days, according to Ellie Mae, a mortgage industry technology provider.
For refi loans alone, the average was about 40 days. For the same period in 2015-2016, the averages were 46 days for all loans and 47 for refis.
The best real estate deals allow everyone to shake hands and walk away from the table feeling like a winner. And in what looks to be another year of uncertainty, disappointment and just plain incivility, spreading a little extra goodwill during the negotiations and at the closing table seems like a very good idea indeed.