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Real Estate Buying Process: How to Buy the House You Want in 2020

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Are You an Ideal Candidate to Buy a House?

If you’re ready to take the next step of becoming a homeowner in 2020, you should consider if a lender is ready to give you a loan. Before you start looking at potential homes and talking to a real estate agent, you should look at your finances.

Employment and Income

Lenders want to know if you have the financial means to pay back your mortgage. Showing proof of stable employment is key when thinking about buying a house.

As soon as you can, start gathering your most recent pay stubs, W-2s, and any other income proof.

If you’re self-employed, you will have to show your most recent tax returns as proof of income.

Debt-To-Income Ratio

Before you start the mortgage application, it’s important to learn about your other debts. Lenders want to make sure you have a healthy debt-to-income ratio (DTI).

A DTI is a way for a lender to calculate how much of your income is going to paying off debts every month. For example, if your gross monthly income is $4,000 a month and your debts equal $1,500 per month, the ratio will be $1,500/$4,000 or 37%.

Although the DTI requirements vary from lender to lender, you’ll want to make sure you get it as low as possible. Anything over 50% will disqualify you for a mortgage.

Down Payment

Down payments for a home get a bad reputation because many people believe they must put down 20% of the home’s value. If you want to buy a $500K family home, you would have to put down $100k, which means you’ll save for a long time.

Although it’s ideal to put down 20% to avoid private mortgage insurance and to have a lower monthly payment, you can get a mortgage if you put down 3%.

Aside from the downpayment, you also have to pay for closing costs and other fees. Even if you don’t put down 20%, you should aim to save between 3% to 6% to put down.

Credit Report

When you apply for a mortgage, the lender will look at your credit score in detail. It’s essential you look at your credit report before the lender does and perform damage control if need be.

A lender will consider the following factors before approving your loan: total debt, payment history, types of credit, length of credit history, and new inquiries.

Although they consider your overall credit report, your credit score will give you an idea of where you need to be. For example, to get the lowest interest possible, you should keep your score above 720.

However, you can still get a mortgage with a credit score of 580, but you will have fewer lender options.

How Much Can You Afford?

Once you have sorted out your finances and decided if you’re an ideal candidate, it’s time to decide how much you can afford.

The last thing you want is for all of your monthly gross income to go towards your mortgage. To come up with a comfortable number, you need to consider your monthly income and debts.

Based on all of the factors such as homeowner’s insurance, assessment fees, and taxes, you will be able to look at homes in a certain price range.

Get Preapproved

Before you get a real estate agent to start showing you homes in your price range, you will need to get preapproved.

The preapproval process is an essential step if you’re serious about buying a home.

When you start the preapproval process, the lender will give you a letter stating how much money you can spend on a home. They will come up with this number based on your income, assets, and credit report.

The real estate agent will only show you homes based on what the letter says. To learn more about the preapproval process, check out Ascend Home Mortgage pre approval.

Find a Real Estate Agent

The right real estate agent for you will represent you on every step of the transaction. They will show you homes based on your requirements and in your price range.

As a buyer, you will have the advantage of working with a real estate agent for free since the seller typically pays for the buyer’s agent commission.

A real estate agent will not only show you homes, but they will also assist you in the negotiation process. They will draft offer letters and walk you through the process.

Begin Looking at Homes

Once you have sorted out all of the technical stuff, you’re ready to look at homes. Your real estate agent will only show you homes based on your criteria, so keep in mind the price, the number of bedrooms, school district, home condition, square footage, and property value trends.

Because there are many things to consider when looking at a home, make sure you have a list of priorities. For example, while it is essential to have a two-car garage, it might be optional to have a pool.

Make an Offer

When you have found the right home, you’re ready to make an offer in writing. The real estate agent will help you draft the offer and sent it to the seller.

The seller can either accept, reject, or give you a counteroffer. Once the seller has accepted, then you can move on to the appraisal and inspection.

Close on Your Home and Become a Homeowner

After months of searching and negotiations, you’re ready to close on the home and finalize the sale. Three days before the closing, you will receive a closing disclosure outlining everything you will need to pay and the loan details.

If you agree with all the terms, arrive at the closing with your ID, proof of funds, and closing disclosure.

Follow These 2020 Real Estate Buying Process Tips

Now that you know about the real estate buying process of 2020, you’re ready to make your dream of becoming a homeowner a reality.

Start by reviewing your finances, improving your credit score, learn what you can afford, get pre-approved, and start house hunting.

If you enjoyed these real estate tips and would like to learn more, check out the rest of our blog.

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