Steps to Take While You Wait to Buy a Home
When you’re preparing to buy a house, the earlier you can start, the better. Buying a home can be complex, even under the best circumstances. So, depending on your unique situation, it might be in your best interest to wait until you are fully prepared before attempting to buy a home.
If you’re not ready to enter the market, don’t fret — there are steps you can take to help you prepare for the home-buying process. Continue reading to learn five things you can do while waiting on the real estate market sidelines.
5 Steps to Take While You Wait to Buy
Waiting around is not wasted time, as there are steps that you can take to ensure a smooth buying process. Let’s discuss our top five tips:
1. Get Your Finances in Check and Speak with a Lender
The first thing you should do to prepare to buy a home is to get in touch with a local mortgage lender
. Not only does speaking with a lender
help you better understand which loans are available to you, but it also makes you more attractive to sellers. Additionally, a lender will help you with all of the additional necessary steps, and serve as your personal expert guide!
Mortgage lenders consider your entire financial situation when applying for a loan; however, your FICO score
can take center stage. Your credit score
indicates to lenders how likely you are to repay what you borrow. If you have a bad credit score or, even worse, no credit history at all, it will be challenging to qualify for a mortgage. You can combat this roadblock by ensuring that your credit score and finances are in order before entering the market. A few things that lenders are likely to consider are:
- Your credit history
- Down payment amount
- Your assets (stocks, real estate, etc.)
- Income and employment history
- Tax returns
2. Calculate Your Debt-to-Income Ratio
If you’re waiting on the real estate market sidelines, an important metric you should determine is your debt-to-income
(DTI) ratio — which compares your total monthly debts to your monthly income. You can figure this out by adding up all your monthly debt payments and dividing that figure by your gross income each month. The lower this number is, the better for meeting the requirements to buy a house — typically, a DTI under 43 percent is ideal.
3. Determine Your Budget
You’ll need to first weigh how much money you have coming in, such as your monthly earnings from your job, investments, and any other income streams. Then, you must calculate how much money you spend to cover costs like student loans, credit card balances, and car payments.
A great way to determine your budget is by following the 28/36 rule
. This rule states that you should only spend 28 percent or less of your gross monthly income on housing expenses, including your principal, interest, homeowners insurance, HOA
dues, and property taxes. Meanwhile, you should allot 36 percent of your gross monthly income to all of your debts, from a mortgage to credit cards.
4. Gather All of Your Documents
If you’re planning to apply for a mortgage, it’s a good idea to start prepping your financial documents. Lenders will request paperwork for your mortgage application
that proves your annual income and debts. Depending on your unique financial situation, there are seven mortgage documents you might need when applying for a home loan:
- Tax returns
- Pay stubs, W-2s, or other proof of income
- Bank statements and additional assets
- Credit history
- Gift letters
- Photo ID
- Rental history
5. Get Pre-Approved for Financing
When preparing to enter the market, you’ll have a leg-up against the competition if you’re pre-approved for a home loan, as it shows the seller you’re serious about buying. Mortgage pre-approvals verify you can get approved for a mortgage loan
. However, they don’t mean you have final approval – just the green light to shop around and find your perfect home.
Our experienced Redbud Group REALTORS® are equipped with the local market knowledge and expertise required to make your real estate journey as smooth and easy as possible. To learn more about how we can help you buy or sell your next home, click the button below to get in touch
with one of our real estate agents today!