As the real estate market gears up for its busiest season, spring emerges as the prime time for both buying and selling homes. If you have plans to make a purchase in the upcoming months, here are the essential steps to prepare yourself to buy your dream home this spring.
Down Payment and Closing Costs
Finances often pose the biggest challenge when buying a home. If you plan to purchase a home in Raleigh, where the current average home price is approximately $414,949, a conventional mortgage typically requires a 20% down payment, which amounts to about $82,990. Additionally, you’ll need to allocate 3-5% of the purchase price for closing costs.
However, don’t be discouraged if you don’t have a 20% down payment. There are alternative financing options with lower down payment requirements:
- FHA loans require as little as 3.5% down.
- USDA loans require as little as 0% down.
- VA loans also require as little as 0% down for eligible veterans and active-duty service members.
Remember, if you choose a loan with less than a 20% down payment, you may be required to pay mortgage insurance as part of your monthly payment.
Before applying for a home loan, it’s essential to manage your debts effectively. Aim to maintain a debt-to-credit ratio of 30% or less by reducing your outstanding debt. You’ll also want to ensure that your debt-to-income ratio doesn’t exceed 45% of your monthly income, as this is a common requirement for conventional loans. Lowering these ratios will increase your chances of loan approval and make monthly mortgage payments more manageable.
A good credit score is crucial for securing a favorable interest rate. While the minimum credit score for most lenders is 620, aiming for a score of 740 or higher will help you obtain the best possible interest rates. If your credit score is close to this range, consider working on it for a few more months to secure lower rates.
Even if you have had past credit challenges, some FHA lenders accept credit scores as low as 580. However, improving your credit score before buying can save you money in the long run.
Getting pre-approved for a home loan should be a top priority. A pre-approval letter serves several purposes:
- It helps you determine your budget.
- It expedites the closing process.
- It demonstrates your seriousness and qualification to sellers.
To get pre-approved, contact a lender, fill out an application, and provide necessary documentation such as tax information, employment history, pay stubs, bank statements, and proof of available funds. Remember that pre-approval letters are typically valid for up to 90 days.
Find the Right Real Estate Agent
Choosing the right real estate agent is crucial to finding your dream home within your budget. Top agents have extensive networks and local connections, which can be invaluable in your search. They can also connect you with lenders, builders, and off-market listings.
If you are interested in finding out how I can assist you with your real estate needs, click this Calendly Link to book time for us to chat.