Wednesday, September 14, 2011
Send us your Questions!
Q:
What are the first steps I should go through to buying a home? Do I find a home first and through contacting the realtor do I figure out the mortgage and payments? Do I go to a bank and get a loan first? I have been renting for the past 10 years, I lead a simple life and my credit is ok. I’ve never had a loan for anything and I never owned a credit card. I know that makes it tough to gain credit without more than paying utilities/car payments etc. I noticed most homes ask for a certain percentage down, does that come out of the mortgage/loan, or would I need to have that from my own pocket? It’s hard to make that jump from paying rent to saving 10’s of thousands of dollars. I’ve heard of pre-qualifying, but I’m not sure where I go to for that either[as in a bank a mortgage company, etc.] I’m sorry for so many questions and examples, but like I said I am absolutely clueless.
A:
Great questions. You can either contact a local Realtor and establish a relationship with them first – ask for referrals from people you know and trust, or search for one in your area on the internet and see who has good testimonials on their website. You can usually tell a little about their personality from their website. Don’t be shy about emailing or calling. Realtors love to talk to new potential clients, as well as past clients! The other option is to contact a lender first. In your case, since you don’t have much credit, you might be better to get in touch with a lender first so they can help you determine how much loan (house payment) you qualify for. Be prepared to give copies of bank statements, your past 2 years of tax returns, etc. so your lender can determine how much debt you have and how much income you make each year, etc. (your debt to income ratio). Once you have gone through these nitty gritty details, your lender will determine how much house you can afford. (This is what we mean when we say you are “pre-qualified” to purchase a home for $X amount.”) You don’t want to go looking at houses in the $250,000 range when you can only afford $150,000. The lender will also be able to tell you right away if you need to improve your credit score. A lack of credit will impact your score, so a good lender will pull your credit report and tell you how to improve it. While you’re improving your credit score and once you know how much you can afford (now or in the near future) you can start looking at houses online. Contact a Realtor as soon as you feel ready, and they’ll answer all your questions about homes in your area, making offers, earnest money, getting inspections, etc. As far as the down payment, you might be able to finance the entire purchase, but you have to have good credit to qualify for the right loans. Usually you need at least 3.5% down payment for the loan (for example, 3.5% of $100,000 is $3,500) up front, but everything really depends on the type of loan you get and the standard of practice for the area you live in. So call your local lender &/or mortgage company (can’t hurt to call more than one and find the right fit for your personality) and then find a Realtor you are comfortable with. Don’t worry, you really can’t ask a stupid question. Ask all the questions you need until you have a good understanding of the process. Knowledge is power! And even though you may feel overwhelmed at the beginning, it’s worth it when you find a place to call your own.
-Stephanie Fairchild
