Buying a home is an exciting milestone, but getting started can be overwhelming. Before diving in, take the time to understand how the process works so you have the knowledge and tools needed to confidently navigate the journey to homeownership. Here’s what the early stages of the home-buying process look like.
Browse Homes Online
The home-buying process begins well before you’re ready to make an offer. Browsing home listings online is one of the first steps. Your goal is to get a sense of what’s available in your desired location. Start browsing about six months before you envision buying.
Decide if Buying a Home is Right for You
Don’t take your decision lightly. Before you get serious about house hunting, consider these key factors to decide if buying a home is right for you:
- Income and employment status: If you have a stable job and steady income, you may be in a good position to take on a mortgage. However, if you’re self-employed or have an inconsistent income, qualifying for a mortgage and keeping up with payments may be more difficult.
- Debt-to-income ratio: Your DTI measures how much of your income goes toward paying off debt. A DTI of 35 percent or lower makes it easier to qualify for a mortgage and may result in a better interest rate.
- Liquid assets: Cash savings and liquid investments are helpful when buying a home. You can use this money to make a larger down payment, cover unexpected expenses, or maintain an emergency fund.
- Credit health: Lenders look at your credit score to determine the risk of granting you a loan. A credit score of about 670 or higher helps you qualify for a lower interest rate and better loan terms. If your credit score needs improvement, start by paying your bills on time, keeping your credit utilization low, and disputing any errors you find on your credit report.
- Willingness to “settle down”: Buying a house is a long-term commitment unless you plan to fix it up and sell it for a profit. Assess your readiness to live in one location for the foreseeable future before you decide to buy.
- Timing: Your financial readiness, lifestyle preferences, and market conditions all come into play when timing your home purchase.
Evaluate Your Finances
Understanding the monthly mortgage payment you can afford is crucial when buying a home. Start by building a monthly budget that accounts for your income, expenses, debts, and any savings or investments. The goal is to have a mortgage that costs no more than one-third of your total income; preferably less if you carry a lot of debt or expenses. Be realistic and leave a cushion for emergencies.
Determine Your Homeownership Goals
Before you start house hunting, get a clear idea of what kind of home you want. Consider factors such as home size, yard space, and location. Think about what you need from your home and what you’re willing to compromise on. This helps narrow down your search and prevents buyer’s remorse.
Save for a Down Payment and Closing Costs
Saving for home-buying expenses is a crucial part of the process. You should already have some savings built up, but now you’re putting it toward a specific purpose. The ideal down payment is 20 percent, but options are available to lower your upfront costs.
For instance, you might qualify for a down payment assistance program or low down payment mortgage with or without private mortgage insurance required. In addition, closing costs typically total 2 to 5 percent of the home’s purchase price, so factor this into your savings plan.
Understand Different Mortgage Types
Several types of mortgages are available, each with different requirements and benefits.
- Conventional home loans are not guaranteed by the federal government, so they typically require a higher credit score and larger down payment than government-backed loans. However, conventional mortgages often have more flexible terms and may be most suitable for borrowers with strong credit and a steady income.
- FHA home loans insured by the Federal Housing Administration help borrowers with less-than-perfect credit and small down payments. While this is good news, FHA loans also come with more fees, including mortgage insurance premiums.
- VA home loans guaranteed by the Department of Veterans Affairs are geared toward military service members, veterans, and their families. VA loans typically require no down payment and have more lenient credit requirements than conventional loans.
- USDA home loans backed by the Department of Agriculture help borrowers purchase homes in rural areas. They typically require little or nothing down, and buyers with mediocre credit may still qualify. However, location and income restrictions apply.
- Native American home loans are guaranteed by the federal government and made available to eligible Native American borrowers. These loans can be used to purchase or refinance a home on tribal land or other designated areas. Expect flexible credit and income qualifications, along with little or no down payment required.
Get Pre-Approved for a Mortgage
The next step is to look for a lender. Browse companies in your area to find the lowest fees and interest rates. Ask questions and make sure you understand the terms and conditions of the loan before signing any paperwork.
Mortgage pre-approval tells you how much a lender is willing to loan you based on your income, credit score, and other factors. Get pre-approved before you start house hunting, but keep in mind that pre-approval is not a guarantee of final approval or interest rates. Your pre-approval letter typically expires after 90 days.
Apply for a Home Loan in Oklahoma Today
For help on your home-buying journey, turn to Financial Concepts Mortgage. We offer flexible, affordable loan options for first-time homebuyers to make the path to homeownership as smooth as possible. When you’re ready to get started, please complete your pre-approval application online or call us at (405) 722-5626 to speak directly with an experienced loan officer.