How To Prepare To Buy A House (From a Realtor)
The Central Florida real estate market has all over the place since COVID hit in 2020. Interest rates hit record lows, home prices hit record highs, and everyone asked, “what’s next?” Now that the Orlando, Oviedo, and Winter Springs home sales data is showing the market balancing out, you might be wondering how to plan your next move.
If you’re thinking about purchasing a home— whether it’s your first home or just your next one— the best thing you can do is prepare! The more prepared buyers will have a leg up in competitive situations, and with a little leg work in advance, you can make sure you’re getting the best house at the best rate.
How To Prepare To Buy A House (From a Realtor)
1. Check your credit and improve your score.
Your credit score is a big factor in determining how you qualify for a mortgage, and it determines your mortgage rate. The higher the score, the lower the rate.
Most mortgage programs require a minimum credit score between 580 and 620. Aim to check your credit history at least six to 12 months before applying for a mortgage loan to allow time to improve your score if necessary.
2. Lower your debt-to-income ratio.
Your debt-to-income ratio (DTI) shows the percentage of your monthly gross income that goes toward debt repayment. Mortgage lenders use this to see how big a house payment you could afford. Typically, lenders prefer a DTI ratio that’s no higher than 36% to 43%, depending on the mortgage program.
To lower your DTI ratio, pay off as much debt as possible before applying for a mortgage. This includes credit cards, auto loans, student loans, and other loans. You don’t have to be debt-free to purchase a home, but less debt can up your purchasing power.
3. Save for a down payment.
Unless you have VA or USDA loan eligibility, you’ll need to make a down payment. Conventional loans require at least 3% to 5% down, and an FHA loan will need at least 3.5% down.
While we’re on the topic of saving, remember you’re also responsible for closing costs — which are roughly 2% to 5% of the loan amount (or $4,000-$10,000 on a $200,000 loan).
4. Find a Realtor partner.
Buying a home can be a complicated, intimidating process, so you’ll need a professional on your side to answer questions and look out for your best interests. Don’t rely on the seller’s agent to provide advice and guidance. It’s their job to advise their client, not you.
We recommend asking friends and family for referrals, read online reviews, and interviewing two or three agents before making a final decision. In most cases, the seller pays your Realtor’s commission using funds from the home sale, so you don’t have to worry about paying agent fees out of pocket.
5. Get pre-approved.
A mortgage pre-qualification and mortgage pre-approval can jump-start your home buying process. But while both steps sound similar, there are a few differences. A pre-qualification is a preliminary step where you provide the mortgage lender with basic information about your financial situation via an online form. The lender doesn’t verify this information, but uses it to measure your mortgage eligibility. The lender might offer you a preliminary approval letter after getting pre-qualified, but it typically doesn’t carry as much weight as a pre-approval letter.
“Homeownership is the largest source of wealth among families, with the median value of a primary residence worth about ten times the median value of financial assets held by families. Housing wealth (home equity or net worth) gains are built up through price appreciation and by paying off the mortgage.”
— NAR
One of the biggest benefits of owning a home is that it provides financial stability and an avenue to build wealth. The data shows these benefits are applicable to homeowners of all income levels.
Instead of being tied to rising renting costs, owning a home lets you directly contribute to your financial future.
