Buying a home is can be a stressful and complicated process. Homes.com reported that 40% of people say that purchasing a home is one of the most stressful events. This is a life-changing event and homeowners should be excited about it.
Now is an awesome time to purchase a home with low-interest rates. In fact, in the past 18 months, the low-interest rates have pushed homeownership up by 2.1 million in 2020. If you are in the market for a new home becoming familiar with the steps you must take can help smooth out the obstacles that might come your way.
Determine How Much Home You Can Afford
This is the first basic step. A homeowner needs to know how much house they can afford. It is important to become familiar with the debt-to-income ratio (DTI). The DTI is the percentage of your income required to pay down existing debt.
Professionals in the industry advise keeping your housing expenses around 30% or less of your annual income. So if you have an annual income of $50,000 your expenses should not be over $15,000 a year. These expenses include your mortgage payments, property taxes, and homeowners insurance.
Get A Pre-Approval Letter
Once you have established how much you can afford, then you need to get a pre-approval letter. Having a pre-approval letter lets agents and sellers know that you are a serious buyer. Just remember that each pre-approval letter you obtain will put a hard inquiry on your credit report.
Some leaders in the industry suggest getting more than one pre-approval letter. If you do decide to do this. Get them within a 30-day period so that it will count as just one hard inquiry.
Explore Your Mortgage Options
You will want to shop around to find the best rate and the best mortgage option for you. There are two mortgage types that leaders suggest. The fixed-rate mortgage loan has a rate that stays the same so the payment throughout the loan will be the same. The adjustable-rate mortgage (ARMs) begins with a fixed rate but does change every so often. If you are planning to stay in your home for a shorter period of time, then this loan might best suit you.
Another thing to consider is mortgage points. If you want to reduce your long-term costs you can purchase mortgage points to save. You can purchase these at closing and each point is worth 1% of your mortgage amount and each point will reduce your rate by .25%.
Take these steps into consideration before you start on your homebuying journey. Remember to choose a Realtor who can help you through the whole process.