Steps to buying a house Part 1


This week I’ll share 5 things you should know to help you understand if you’re financially ready to become a homeowner. A lot of people start thinking that they want to buy a house, and the first thing they want to is run out and start “shopping”. They think that’ll be fun. But in my experience that’s not the best way to get started. It’s important to lay the groundwork for your search so that you’re set up for success.  Here are a few things to consider from the very beginning of the process so that you can determine if you’re ready to make the financial commitment to becoming a homeowner.

1. Do you know what your credit score is? Knowing your score, and if you have any dings on your credit that can be easily fixed is a great place to start. There are lots of places you can go online to check your score, and if you want to get a copy of your credit report for all of the details go to freecreditreport.com and request a copy of your file.

2. Forty points can make a difference. A little bit of repair work that moves your score up to the next tier can make a big difference in your mortgage expenses over time.  620 is considered the minimum score for conventional or FHA financing these days, but every 40 points you can improve your score can save you thousands of dollars over the life of your mortgage. If you are looking for ways to improve your credit score, you can go to myfico.com for some great tips on how to do that.  If you’ve got a score of over 740, congratulations, that puts you in the top tier of borrowers, so you should be able to get the best rate and terms from your lender.

3.   Have you been steadily employed for the past 2 years? Banks tend to be conservative these days, they look for stability in a borrower. So 2 years is their preferred minimum, but there are caveats to that. Here one:  many banks consider being in college as “employment” so you could have graduated a year ago and gotten a job right out of school and a lender would look at that as the same as having been employed for 2 years.

4 . How much money do I need up front? So there are really 2 parts to this answer. The first is your down payment.

4a. There are different low down payment programs that are available depending on your income and credit score, but for most people, the minimum down payment you’ll need is 3.5% of the sales price. That will get you an FHA loan. If you are active duty or former military you can buy a house for almost no money down. There are also assistance programs which are available from the different jurisdictions, but they vary from time to time. Here is one of the places where a good lender will prove invaluable in helping you to find the right loan program for you.  Now let’s talk about closing costs

4b. Closing costs – These are the fees that the lender and the local jurisdiction will charge you when you want to purchase a home. They are like taxes and tags when you buy a car. Those can vary depending on the jurisdiction, Virginia generally has the lowest closing costs, but also on the loan program you are using. One thing that a lot of first-time buyers do is ask for closing cost assistance from the seller as part of the negotiation process. As a general rule, you’ll need between 2.5 and 3.5% of the sales price for your closing costs.

So, that’s an introduction to some of the financial items you’ll need to consider before you become a homeowner. I hope that you found this useful. If you or someone you know is thinking about starting the home buying process, I have a complimentary home buyer’s handbook that I’m happy to share. It’s full of great tips about the whole home buying process from soup to nuts. Just call or text me at 202-362-4663 or email me at harry @harrymoore.com and I’ll get it sent right out.