Remember the good old days when you could just walk onto a plot of land, or, I don’t know, maybe a castle, and then declare it yours by virtue of one mighty sword fight with the lord of the castle? Ah, the good old (medieval) days. Simpler times. Simpler times…
Alas, we now live, not in the days of castles, sword fights and usurpation, but rather loan pre-approvals, rising interest rates and a competitive “seller’s market.” There are a whole mess of things that make living in the modern world way more complicated than living in medieval times of plundering, where securing land for yourself is concerned (AKA buying a house). And, I’m sorry to disappoint, but none of this process involves galloping on a steed at breakneck speed wielding a lance. Here are a few things to know before buying a house in 2018.
Ahhh! There are no homes available on the market circa 2018! Well, not none. But few. What this means is that we are working with a seller’s market. And what this means is that the onus is on the buyer to make an excellent offer to the seller. And, what’s more, an offer that is better than your competition is offering. One way to get ahead of the competition — something that everybody should in fact do, but often do not do — is get pre-approval for a home loan. This essentially means that your credentials — credit score, financial statements, etc. — will be legitimized by a lender and you, in turn, will look like, to the seller, a person who isn’t messing around and who can come through with a mortgage when it comes time to sign on the dotted line.
Besides which, it is also informative to get pre-approved:
“[Prospective buyers] need to immediately start with the lender,” Patti Michels, a real estate agent in Hinsdale, Illinois told Nerdwallet, “to see what you can afford and see what your hurdles are going to be.”
Figure out affordability Qs
“How much house can I afford?” is the first-time home buyer’s biggest question, Mat Ishbia, CEO of United Wholesale Mortgage in Troy, Michigan told Nerdwallet. As a starting point, he tells first-timers to aim for three times their income. But, then again, going to a lender for pre-approval also will help you clear up how much you can afford! It is a lot like going to a doctor. Many are afraid to find out information at a doctor’s office. But just because you don’t go to the doctor doesn’t mean that the true condition of your health doesn’t exist. The same is true with getting pre-approved for a home loan: it is better just to know where you stand than to be clueless and in the dark.
Recognize rising interest rates
Interest rates are rising rising rising. Ahhh! This translates into rising interest rates on your mortgage. That’s pretty much all there is to say. But time is definitely not on a first-time buyer’s side (at least, not at the moment). Because of this, most people are searching for a home now rather than later. This, in turn, is making the market more competitive, and more of a seller’s market than ever!
Know about credit scores
Here is the scoop, according to Ishba of Wholesale Mortgage, when it comes to that sweet spot for a credit score. He says that a typical credit score is one that fluctuates anywhere between 620 and 680. Anything below around a 580, on the other hand, might cause you some difficulties when searching for a mortgage. On the bright side, if you are above 740, then you are basically a superhero and nothing can stop you — not even walls (or something like that).
Put up or shut up
Another big question is: “How much do I need to put down for a house?” According to Ishbia in further talks with Nerdwallet, “People think that they need to put 20 percent down, [but] three percent down, 5 percent down are the way people are buying houses. And 10 percent is the average in the nation right now. Twenty percent … [is] the biggest myth out there.” This information is all well and good unless the competition is so stiff that a good impression on the seller hinges on you putting down 20 percent. Which, again, because of how competitive the market is at the moment, is not a complete impossibility.
Listing agents do often advise sellers to go with the buyer who is slamming the most cash down on the table (which probably sounds pretty darn obvious). “When [20 percent] comes into play,” Michels said, “is when you’re up against someone else on a home you really want.”
If you really want to buy a house, then it is more important than ever to be informed. Because gone are the days where you walked into a room and declared it yours by shouting loudly and maybe by having a goon or 17 by your side wearing chain metal and looking angry. The days of pre-approval and market knowledge have begun (actually for quite a while, so welcome to the present). Buying a house can seem highly stressful but, as with most things, knowledge is power.
So get the ball rolling and begin implementing the first step: get pre-approved for a home loan so when you find your dream house or one you can afford to dream about, you are ready to go!
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