Buying a home, especially in today’s competitive market, can be daunting. However, by taking proactive steps beforehand, you can significantly increase your chances of securing your dream home. Here’s a guide to help you successfully navigate today’s home buying process.

1. Check Your Credit Score:

Monitoring your credit is always important, and it’s essential when buying a home. Your credit score determines whether you are eligible to get a mortgage and it impacts your mortgage rate. 

• Understand your credit score by obtaining free reports from all three credit bureaus.
• Aim for a score of at least 620, starting 6-12 months before applying for a mortgage.
• Dispute any errors and consider credit repair strategies if needed.

2. Calculate Your Debt:

Your debt-to-income ratio (DTI) is your monthly debt payments divided by your gross monthly income. This number is one of the ways lenders measure your ability to manage a monthly mortgage payment.

• Calculate your debt-to-income (DTI) ratio, aiming for 36%-45%.
• Pay down existing debt to improve your DTI and affordability.

3. Prepare for Down Payment and Closing Costs:

A down payment is the cash you pay upfront to purchase a home. Closing costs are additional costs and fees that you will pay to fund the loan. You use a loan to pay the rest of the purchase price over time.

• Determine your down payment requirement based on loan type (e.g., 3% for conventional, 3.5% for FHA).
• Most buyers will pay for their loan closing costs. Estimate closing costs at 2%-5% of the purchase price. However, you may be able to negotiate the sellers to contribute up to 3% of the purchase price to help pay closing costs.
• Consider savings, gift funds, or down payment assistance programs.

4. Research Loan Programs:

There are a variety of mortgage options available, depending on income qualifications, programs, and payment terms.

• Educate yourself on different mortgages before meeting with a mortgage lender.
• Consider your priorities: lowest down payment, lowest monthly payment, PMI avoidance, or fast payoff.
• Consult a loan officer to match your priorities with the right loan program.

5. Get Pre-Approved:

Consult with a loan officer to determine your maximum purchase price and get pre-approved as a buyer. A pre-approval is essential in a competitive buying market.   

• Most sellers will only work with pre-approved buyers, so it’s crucial to take this step before you start looking for a home.
• A pre-approval doesn’t guarantee that you will get a loan, but it qualifies you for financing as long as all of the documents you provided are still accurate.
• Do not make any major purchases or take out any other loans after you get pre-approved since they will adversely affect your credit and debt-to-income. 
• To start a pre-approval, click here.

6. Partner with a Real Estate Agent:

Buying a home can be overwhelming and complicated. Find a real estate agent who is familiar with your needs and the area you are considering buying your home.

• Seek recommendations and interview multiple agents before selecting one.
• For additional savings, consider an agent who will give you a cash reward.

7. Earnest Money Deposit Readiness:

Earnest money is a deposit made by the buyer to show the seller that they are serious about purchasing the property. It is usually a small percentage of the purchase price.

• Have readily available liquid cash for your earnest money deposit (1%-2% of purchase price).
• Funds are usually held in an escrow account with a title company, then applied to your down payment or closing costs.

By actively taking these steps, you’ll be well-equipped to navigate the competitive market and find a home you can afford and love. Don’t forget that we have a local, experienced mortgage team at PNWFCU that is here to answer any questions and provide guidance along the way.