Tips for Buyers
Don’t buy if you cannot commit
Buying a house is an enormous commitment. If you’re not willing or able to stay in one place for at least a few years, then buying a home is probably not the best idea for you. Unless the real estate market is soaring, it usually doesn’t make much sense to own a home for less than three or four years. There are significant transaction costs when buying and selling and you can potentially lose money, especially if you sell your house is under two years then you’ll have to pay capital gains taxes if you make a profit.
Review and cleanup your credit
Most likely you will need to obtain a mortgage to buy a house. In order to do so you should make sure that your credit is a clean as possible. Several months before you begin your house search, it is a good suggestion to get copies of your credit report by all three credit bureaus. Because errors are very common, you should make sure that the facts are correct and fix any mistakes or problems you may have discovered. Having good credit is very important because it helps to determine your financing and interest rates.
Buy only what you can afford
Generally, individuals put at least 20% down on a home loan. Anything less than 20% may require private financing, which can lead to higher interest rates. There are a few rules of thumb when it comes to buying.
- Purchase a house roughly 2-3 times your annual gross income.
- Make sure your overall monthly home payments do not exceed 36% of your monthly gross income. The best way to know exactly what you can afford is to speak with your lender about what mortgage amount you can get pre-approved for.
Pre-approval from a lender
Pre-approval is very different from pre-qualification. Pre-approval takes into account your actual income, debt, and credit history before calculating a mortgage amount that you realistically can afford. Pre-qualification does not. Getting pre-approved from a reputable lender will allow you make an offer on a property much faster than others who are not pre-approved and save you the grief of looking at homes that you really cannot afford. It could make the difference between you or someone else getting the house.
