Central Texas Home Buying Tips
Home Buying Tips for Central TX Real Estate
Buying a new home can be a life changing experience. It can also be a stressful journey, however if you’re prepared, it can also be an enjoyable experience. The home buying tips below will help prepare you for your new property search and lender so you are ready to purchase a Central Texas home.
Check your Credit
If you need a mortgage to buy a home, make sure your credit history looks as good as possible. A few months before you start your home search, get copies of your credit report. Make sure the data is accurate and repair any incorrect credit issues you may find. The higher your credit score, the better the interest rates, fees and down payment options. A credit score between 640 to 680 may cause a buyer to pay more fees and require a larger down payment. A score of 700 to 720 will get you a good deal and 750 and above will get you the best market interest rates.
How Much Home can you Afford
A rule of thumb is you can buy a home that costs about 2-1/2 times your annual salary. Use our mortgage calculator to see what you can afford. If you’re using FHA financing your home expenses should not exceed 31 percent of your monthly income. For conventional loans, a safe formula is home expenses should not exceed 28 percent of your gross monthly income.
Prepare for Down Payment, PMI and Closing Cost
Depending on your credit score and financing, you typically need to save enough money to put anywhere from 3.5 percent to 20 percent down. FHA requires a 3.5% minimum down payment. Many first-time buyers don’t have the funds for a 20% down payment, but don’t worry, your lender should be able to find alternatives that will work for you. The US government offers a handful of government backed loans with 0% to 3.5% down. Also check out Federal Housing Administration’s loans. Former military members can go through the Department of Veterans Affairs, and the Department of Agriculture offers loans through Rural Development programs.
With conventional loans, not making a 20% down payment could cause a mandatory additional expense called private mortgage insurance (PMI). PMI typically costs between 0.5% to 1% on the entire loan amount on an annual basis. In other words, a $200,000 loan at a 1% PMI rate adds an extra $166.66 to your monthly mortgage payment. PMI protects your lender against the possibility of you defaulting on the loan.
Also don’t forget that in addition to your down payment you will also have to pay closing cost. Closing cost can range between 2% to 5% of your purchase price of your home. Your lender can provide you with an estimate of your loan costs during your pre-approval process.
Choosing Points and Rates
When deciding on a mortgage you will usually have an option on points and interest rates. By paying more points, which is a portion of the interest, you can get a lower interest rate. If you stay in your new home for five years or more it’s usually a better deal to pay more points. Although you pay more up front, the lower interest rate will save you more in the long run.
Get Pre-Approved by your Lender!!!
Getting pre-approved by your lender is one of the single most important things you can do in preparation for buying any kind of property. Being pre-approved will save you and your agent time, since you can look only at properties that fit your budget. It also puts you in great position to make desirable offers on properties. It’s always a good idea to attach your pre-approval letter when submitting your offers. Offers with pre-approved buyers will rank much higher in multiple offer situations, compared to offers from buyers who are not pre-approved. A pre-approval from a lender is based on your actual income, debt and credit history and is a much more thorough process than getting pre-qualified. Please read more about why you should be pre-approved and pre-approval vs. pre-qualified.
Start your Property Search
The internet gives buyers access to an endless amount of listings to view. All buyers are far better off using a real estate professional to purchase any property. A REALTOR® from Longhorn Realty can provide buyers a multitude of property information that the unlicensed public doesn’t have access to. REALTORS® can also refer lenders, inspectors, contractors, provide information about communities and future developments that would prove invaluable to any buyer.
Perform Inspections by Licensed Professionals
It’s extremely important that buyers get a home inspection. A home inspection is almost always performed during the option period. Inspecting during the option period allows for negotiating repairs or the option to terminate the contract if major deficiencies are found that can’t be corrected. A home inspection is key to really understanding the condition of the property that you are buying.