With mortgage rates at a record low and rising home prices, many Americans are interested in buying a house in 2021. However, the home buying process can seem pretty daunting – lenders will check your credit score, you'll need a preapproval letter, much of your personal information will be out in the open and you'll be making extremely important financial decisions.
Consider the points below as a buying guide for homes in 2021. If you’re a first-time homebuyer ready for home ownership, these are eight steps you'll need to take if you're just getting started.
8 steps to buying a home in 2021:
1. Save up for a down payment
When you prepare to buy a home, most lenders will require you to pay a 20% down payment. If you’re unable to put that much down, it’s still possible to buy a home. For instance, FHA loans allow you to buy a home with just a 3.5% down payment.
But if you can’t put 20% down, you’ll likely have to purchase private mortgage insurance (PMI), which protects your lender if you stop making your payments. So, it’s a good idea to spend some time saving up for your down payment.
2. Get your credit score to at least 620
It’s common knowledge that you need to have a good credit score if you want to qualify for the best rates on a mortgage. However, a perfect credit score isn’t a requirement to buy a house.
If you’ve struggled with your credit in the past, try to get your score to at least 620. You can do this by paying your bills on time, lowering your debt-to-income ratio and avoid taking out any new lines of credit in the meantime.
If you aren’t sure what your credit score is, visit Credible to check your score without negatively impacting it.
3. Determine how much you’re willing to spend
Before you start house hunting, it’s important to figure out how much home you can afford. You can use this online mortgage calculator to determine your potential monthly payments.
However, there’s more to buying a home than just your monthly mortgage payments. You should also consider homeowners association dues, maintenance costs and utilities.
4. Shop around for homes in your price range
Now that you know the type of house you can afford, you can start looking for houses that fall within your price range. Spend some time thinking about the must-have features you want the home to have. That way, you’ll be ready to act fast once you find your perfect home.
5. Get preapproved for a mortgage and lock in your rate
Shopping for the home itself is the fun part, but shopping around for your mortgage lender is arguably the most important. Your lender will determine the type of rate and repayment terms you receive on your mortgage.
It’s a good idea to apply with multiple lenders so you can see who offers you the best rates. If you use a mortgage broker like Credible, you can get personalized offers from multiple lenders without affecting your credit score.
6. Make an offer on the home you want
Once you find a home you want to buy, it’s time to make an offer. You should work closely with your real estate agent throughout this process to ensure that your offer is competitive and has the best chance of acceptance in a bidding war.
Once the seller accepts your offer, you may be required to put down earnest money. This is a deposit you put down on the home, and you may be able to apply this money toward your final closing costs.
7. Get a home inspection and appraisal
Before you can buy the home, you need to get it inspected and appraised by a home appraiser to ensure there aren’t any issues with the property. A professional home inspector will check the foundation and be on the lookout for any mechanical or structural problems that may need home improvements.
An appraisal checks to see that the home is worth the price the seller is asking for. The appraiser will check the home and compare it to similar houses on the market.
8. Close on your home
The day you’ve been waiting for is finally here – it’s time to close on your new home. Before you close on your home, take some time to look over your closing disclosure and review your closing costs.
On closing day, you’ll do a final walkthrough of the property, sign the paperwork and pay for your closing costs. From there, you’ll receive the keys to your new home.
The bottom line
The more informed you are about the homebuying process once you're ready to buy, the less stressful it will be overall. From mortgage preapproval, to determining your loan amount, to homeowner insurance, a variety of steps are involved ranging from straightforward to more complex.
Working with a qualified real estate agent and mortgage lender will help you feel more confident in your decisions when it's time to buy. Be sure to visit Credible to get in touch with experienced loan officers who can answer all your questions.
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