22nd Wednesday Feb 2012

Home Buying 101: #1 How To Buy a House

Written by: Vanessa
Comments: 1
Category: Real Estate Bits

Nothing obliterates fear like information–-lots of it. In this post, I’ll do my best to answer questions most frequently asked by new home buyers. Knowledge is power and I want my buyers to be the most knowledgeable buyers out there. If you have any questions not covered here, or a general question about real estate, contact Vanessa.

Home buying made easy breezy

Buying a House, in Brief

  • Obtain a loan
  • Contact an awesome real estate agent
  • Determine what features you want in a house
  • Be clear with your agent about what you like/don’t like
  • Be realistic about what you want
  • Fall in love – make an offer

Buying a House, in Detail

Is this good time to buy a home?

Yes. Prices are low, inventory is high and mortgage rates are very low. It’s the trifecta new home buyers dream of and it’s happening right now. As someone who has purchased in “high” and “low” markets, the timing doesn’t matter as much as whether or not you’re ready and wanting to buy.

Should I buy a home?

Are you tired of renting? Do you feel renting isn’t giving you the benefits of home ownership? Are you tired of dealing with your landlord? Irritated that you can’t paint your walls green? This is something only you can answer. If the answers are motivating enough, you have the job history, savings and income to afford the purchase, consider it. You can also figure out how much house you can afford here.

How do I prepare to buy a home?

There’s no magic formula. Just make sure you meet the following requirements:

  • Steady employment – 2 years at the same job shows banks you’re responsible
  • Solid credit – FHA will lend with a 500 FICO, but you’ll need 10% down (see credit)
  • Savings – the more the better (see loans)
  • Find out how much house you can afford here

Have another question about how to prepare to buy a home? Click here.

How do I improve my credit?

FICO scores fall between 300 and 850 with 60% of people landing between 650 and 799. Those in the 650-700 range are considered good. Scores between 700-750 is very good and 750 and up is considered great. Those with a “great” designation will get the most favorable rates and terms.

So how do you improve your score? Contrary to popular belief, you do need a degree of credit card debt/activity. Have at least 3 major credit cards (i.e. Visa, Mastercard, AMEX), not debit cards, use them and pay them off on time. Make sure you don’t max out your cards; keep your balances under 35% of the total card limit. Payoff and eliminate any store credit charge cards (i.e. gas cards, Nordstrom, Macy’s, etc.). You need at least 2 years of solid credit history to qualify for any loan.

What kinds of loans are there and how much do I need to save?

You can get an FHA government backed loan with a FICO score of 500, but you’ll need at least 10% down. If you have great credit, you can buy with as low as 3.5% down. While FHA loans offer more favorable down payment options, you’ll have to also deal with paying mortgage insurance on top of your mortgage payment, taxes and property insurance. This amount will tack on several hundred dollars more per month. On the plus side, FHA can also lend on 2-4 units up to specified amounts with minimal down payment.

A conventional loan means you’re coming in with 20% down. You’ll get the best rates and terms and won’t be bogged down with paying mortgage insurance.

As far as savings, how much you need depends on the type of loan you’re gunning for. Depending on the loan, you’ll need between 3.5% to 20% saved for down payment. Additionally, you’ll be required by most banks to have another 3% saved for closing costs and 2 months of estimated mortgage payments.

Stumped by loans and want further explanation? Click here.

How do I buy a home?

Once you’ve determined that you’re ready to buy you’ll need to do the following:

  • Qualify for a home loan – they’ll establish exactly how much house you can buy
  • Contact an awesome real estate agent who can answer your questions
  • Determine if you want to buy a condo or house
  • Determine where you want to live
  • Determine what features you really want in a house
  • Explore homes in the neighborhoods you like
  • Fall in love and make an offer


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  1. Bill Clifford said:

    February 24, 2012 at 11:03 am

    Another great post as usual Vanessa! I do have a couple of comments about the home loan section of this post. There are a number of different loan programs available today, some that don’t require any money down like a VA loan. You mention Conventional loans and if a borrower has pretty good credit they can typically do a Conventional loan with 5% down and obtain Private Mortgage Insurance (PMI) which is about half the price of FHA mortgage insurance right now. There are also other programs such as Fannie Mae’s HomePath program which allow buyers to purchase for only 3% down with no PMI.

    What I’m getting at is that there are many loan programs out there for buyers right now that may be able to help someone buy who didn’t think that they would qualify. My advice is to contact a lender even if you don’t think you will qualify for a loan. You may be surprised and if you don’t qualify, a good lender should be able to give you some steps to take so that you will qualify down the road.

    Bill Clifford
    Open Mortgage

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