Buying a home is an incredible financial achievement and a major milestone in anyone's life. But, we don't want to sugarcoat it: purchasing a home is a long, stressful process.
The most stressful part is usually securing a mortgage loan.
While mortgage financing might feel out of your control, there are a few things you can control to help the process go as smoothly and stress-free as possible
Here are our top tips on how to reduce stress during the mortgage process.
- Check your Credit
Your current credit score. While there are mortgages you can obtain with a low credit score, it's best to have a credit score of at least 620. This helps you qualify for better mortgages and rates.
Any negative marks. Are there any red flags on your credit history? Debt in collections? What about recommended improvements? Some bad marks on your credit history can be reconciled. If possible, try to work on getting any negative marks removed.
Ways you can improve your credit. Look for ways you can improve your credit score. Most banks or free credit score websites will provide recommendations. For example, do you have one credit card with a higher balance than others? If you pay it down, it could boost your credit score.
- Get Pre-Approved for a Mortgage
The purchase price you're qualified for
Current interest rate of the loan (which will likely change by the time you close on a house)
An estimate of how much money you'll owe for your down payment and closing costs
Your estimated monthly mortgage payment
Two years of tax returns
Recent bank statements
Paystubs
Monthly debt payments
- Choose the Right Type of Mortgage
Only planning to stay in your home for a few years? Look into an adjustable-rate mortgage, where the interest rates can change, but buyers typically benefit from lower interest rates (and payments) upfront. You could also look into a 15-year mortgage instead of a 30-year, which tends to have lower interest rates and helps you build up more equity in less time.
Do you want to be in your home for a long time? A fixed-rate, 30-year mortgage is probably the way to go.
Are you looking to put as little money down as possible? If you qualify for it, a conventional loan only requires 3% down.
- Save as Much Money as Possible
Inspections - General home inspections cost anywhere from $300-$500+ in New Jersey. If you're looking for specific inspections, such as plumbing or roof inspections, it's usually a few hundred dollars more.
Appraisals - Appraisals for single-family homes in New Jersey can range from about $300-$400+.
Earnest money deposits - Some sellers require you to put down an initial deposit to show you're serious about buying their home. The amount you might need to put down is dictated by the seller. It varies, but is usually 1-3% of the home's purchase price. This deposit goes towards your down payment at closing, but it's still an upfront cost you'll need to cover.
Repairs necessary to close on the home. If any major issues are found during inspection, repairs might be required to bring the house up to code. In order to close on the house, repairs must be made by either the buyer or the seller. Oftentimes, the buyer can offer to pay for said repairs to expedite the sale.
Closing costs. Closing costs are separate from the down payment. Closing costs typically range from 3-6% of the loan's amount. The average amount of closing costs in New Jersey is around $8,000, including taxes. Closing costs vary depending on your situation and local requirements. However, they can cover things such as an application fee for your mortgage, attorney fees, escrow funds, title insurance, and homeowner's insurance.
Moving costs. Moving is never easy (especially if you're moving with kids or pets). Make sure you budget for any moving costs, whether you're going to rent a truck and do it yourself or hire movers to take care of everything.
Furniture. We're not saying you need the budget to buy new furniture for your entire house, but you might need a few items here and there. It's smart to work in some savings for whatever you need after you move in.
- Make Sure Your Offer is Well-Researched
Should you offer what the seller is asking? Of course, it seems safe and easy to offer the asking price of a home. However, your real estate agent can pull numbers on recent nearby home sales to determine if most houses are selling below or above asking price.
Should you offer less than the asking price? While offering less than what the seller is asking for can work in certain markets, it's not always the smartest move. If you're in a hot real estate market where most homes are going at or above asking price, you could have just taken yourself out of the running by offering below asking price.
You don't want to go into the mortgage process blind. Besides your savings and income, your credit score is one of the main factors that dictate how much money you'll qualify for and what your monthly mortgage payments will be.
Take a look at your credit score (most banks provide this service for free!) and keep an eye out for:
Even if you check your credit score and aren't able to remove negative marks or make short-term improvements, you'll at least be aware of your credit situation.
It's best to be upfront and honest with mortgage lenders than go through the process knowing you might not qualify for certain types of loans or stress out about potential bad marks on your credit history.
The most difficult part of buying a home is securing a mortgage. There's tons of paperwork, back and forth with the mortgage lender, and making sure you don't make any financial decisions that could jeopardize your financing.
One of the most important first steps you can take is getting pre-approved for a mortgage.
Here's What a Mortgage Pre-Approval Includes
A mortgage pre-approval is the first step toward getting an actual mortgage. It lets you know:
Knowing the ballpark figures of what you'll need to pay to close on your home and how much your monthly mortgage payment will be can give you a realistic budget.
This way, you'll know whether or not you have enough money saved. Plus, you'll find out if you can really afford the monthly payments for the homes you have your eye on.
To get pre-approved for a mortgage, you'll need to provide:
A mortgage pre-approval is not the same as a pre-qualification. A pre-approval is more in-depth, telling you exactly how much home you can afford based on your actual financial information. A pre-qualification still gives you a ballpark of how much home you can afford, but it doesn't actually verify your credit and income.
While any mortgage works to buy a home, not all mortgages will be the right choice for you, your personal finances, and your life goals.
For example:
If this seems overwhelming, don't worry! It's not up to you to figure out. That's what your mortgage broker will help you with.
Buying a house is expensive. Even if you're using a down payment assistance option or a mortgage that doesn't require more than 3% down, you're still expected to pay a few upfront costs.
Plus, after it's all said and done, you don't want to have your entire savings account drained to nothing.
We recommend budgeting for the following costs, plus still having enough in savings as a cushion if anything goes wrong.
Costs You Pay Before You Close
Upfront costs to buy a home (before you even close!) include:
In a seller's market, the buyer is usually responsible for all of the above costs and more. Sometimes, sellers might negotiate and offer to cover some of those costs. However, it's best to be financially prepared just in case.
Costs You Pay at Closing
In addition to the typical upfront costs, you should also budget for:
Not understanding all of the costs that go into purchasing and maintaining a home is one of the most common mistakes first-time homebuyers make.
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Did you find a home you're ready to make an offer on? This is an exciting step! But before you make your offer, we want to make sure you do your due diligence.
Save yourself the stress of finding out you overpaid for a home by consulting your real estate agent.
Before making an offer, you and your real estate agent need to consider:
This is where you'll take advantage of your real estate agent's experience and local market data. They will be able to tell you exactly how far above or below homes in the same neighborhood have sold lately.
Your real estate agent will help you put together a competitive offer and provide guidance throughout this process.
Are You Buying a Home in Central New Jersey?
If you're looking for your dream home in Central New Jersey, we can help you find it!
We've been in the real estate business for over 25 years, so you can feel confident knowing you have a team of experienced real estate agents ready to answer any and all questions you might have.
Ready to get started? Contact us today for a FREE consultation.
