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9 Things You Need To Do Before You Can Buy A House - YouTube
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hey guys it's chelsea from the financial
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diet and this week's video is sponsored
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by my fico
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now one thing that we don't talk about
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all the time here on tfd but it's always
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a pretty big subject of interest from
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you guys is home ownership and the
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process of buying a home
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now it's true that many millennials are
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waiting till later in life to buy a home
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and that does make sense when you
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consider a lot of financial realities of
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our generation
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but it is still a goal for many
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especially in the longer term
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full disclosure i'm not currently
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personally a homeowner myself
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but it is high enough on my to-do list
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that my husband and i are actually in
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the very early stages of getting
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pre-approved for a mortgage
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so we can start shopping the good news
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for most of us
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is that if we plan with the right budget
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and long-term financial adjustments
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we keep a realistic idea of the home we
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can afford and that is right for us
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and we prioritize it consistently in our
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financial management
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home ownership can be a reality but we
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have to prepare for it and here
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are nine of the things you are going to
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want to check off your list in order to
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buy a home
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number one is deciding that you actually
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even want a house
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because although it might seem obvious
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that homeownership is an automatic next
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step for young adults
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it is not necessarily the right choice
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for everyone
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i cannot tell you how many times i've
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heard phrases like renting is just
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throwing away money because you're not
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building equity in that property
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which i don't think is a very logical
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way to look at it because ultimately
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you're not throwing away money you're
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paying for a place to
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live and while homeownership may in some
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financial situations be a better option
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it's not an automatic guarantee but i
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think it's also tied up in the fact that
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a lot of us tend to have a very outdated
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view of homeownership in the sense that
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you're not a
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real adult until you become a homeowner
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and these views simply do not take into
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account the many benefits of
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not being a homeowner first and foremost
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if you are renting
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the property's owner is responsible for
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the maintenance and upkeep and repairs
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of the home you might have heard of
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people referring to home ownership as
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sometimes being a money pit
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because of all the things that can go
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wrong in a house or all that it may need
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just to get it up to a livable standard
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when you're renting these major repairs
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and maintenance are simply not your
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problem renting also gives you a lot
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more flexibility for example if you may
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need to move on a shorter timeline
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because of employment or
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relationships or any other personal
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reason being able to leave a lease is
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much easier than being able to sell a
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home
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in what may not be a good market for it
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or the right time for you
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also it's important to note that buying
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a home is not the only way to set
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yourself up for a healthy financial
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future
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for example investing in a retirement
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account with all of the tax advantages
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that that
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provides and expecting average market
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returns can set you up for amazing
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long-term returns on your money
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this is of course not mutually exclusive
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with home ownership but it's important
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to remember that there isn't just one
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way to set yourself up
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and to also understand that if
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homeownership isn't right for you at the
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moment
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doesn't mean you can basically do
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nothing productive for your financial
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future
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now of course home ownership does have
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many advantages and can be an amazing
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choice for you financially
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but you have to set yourself up to get
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there so the second thing you'll want to
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do
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is get your fico scores in shape like
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many big money goals buying a home
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typically requires you to have good fico
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scores
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the credit score that you will need in
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order to apply for a home will depend on
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a lot of factors
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such as the lender and the type of loan
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you're applying for but more on that in
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the next point
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for most conventional mortgages you will
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need a credit score of at least
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620 to be considered however the higher
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score you have the better chance you'll
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have of qualifying for a lower rate
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but did you know that there are specific
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versions of the fico score that are used
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by mortgage lenders
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mortgage lenders usually pull these
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score versions from all three credit
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bureaus
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and then they use the middle score for
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their lending decision so you need to
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know your mortgage scores from all three
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credit bureaus to be sure that you're
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looking at the middle score that your
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lender will use
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that's where my fico comes in if you
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haven't heard of my fico yet
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my fico is the consumer division of fico
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the people that make the fico scores
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while there are lots of places to find a
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credit score online there aren't many
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places outside of myfico where you can
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find all three of your mortgage scores
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and while they may look the same other
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credit scores can vary as much as 100
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points from your fico scores
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do your research ahead of time and don't
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be surprised by your score when you
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apply for a mortgage
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in addition to all three mortgage scores
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myfico allows you to compare your fico
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scores
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and credit reports from all three
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bureaus experian transunion and equifax
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side by side you can make sure to get
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the right score for your credit goal
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whether it's fico scores used for
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mortgages or you're in the market for an
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auto loan or credit card
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check out the link in our description or
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visit myfico.com to get more information
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number three is researching your
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mortgage options which is actually the
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current stage of the process that i am
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in
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depending on where you live your
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finances and your credit you may have
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several different mortgage options
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available to you at any given time
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some of which will require much less
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than the famed 20
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down payment that many of us are used to
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hearing about here are just a few
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options beyond a conventional mortgage
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an fha loan often cited as a good option
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for first-time homebuyers
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if you have a fico score over 580 you
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may be eligible for an fha loan with a
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down payment of just 3.5 percent
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fha loans typically require a
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debt-to-income ratio of less than 43
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percent
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and we'll talk about this more in my
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next point a usda loan is helmed by the
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u.s department of agriculture
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and this type of loan is typically for
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those with low to moderate incomes
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and in largely rural areas if you're a
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first-time buyer or don't meet typical
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mortgage requirements
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these can be a good option as usda loans
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don't require a down payment
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and can have a lenient credit score
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requirement however there are strict
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guidelines for where an eligible
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property can be located and strict
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income limits
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the annual income limit for a one to
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four person household in most eligible
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counties is ninety thousand three
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hundred and fifty dollars
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and one hundred and nineteen thousand
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two hundred dollars for five to eight
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member households
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in a higher cost areas like san
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francisco county the limit jumps to two
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hundred and twelve thousand five fifty
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for smaller households
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and two hundred and eighty thousand five
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fifty for larger ones
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the usda sets limits at or below 115
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percent of the median household income
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in each region
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and updates them annually there are also
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different types of conventional loans
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such as
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fixed rate and adjustable rate whether
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they're conforming or non-conforming
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all mortgages require you to pay
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interest with a fixed rate conventional
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loan the interest rate stays the same
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for as long as you have the mortgage
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many buyers choose a 30-year fixed-rate
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conventional loan because it usually
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results in an affordable monthly payment
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but shorter terms are also available the
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alternative to a fixed rate mortgage is
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an adjustable rate mortgage or arm
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conventional loans with adjustable rates
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also known as hybrid arms
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have rates that may go up or down over
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time arm rates usually adjust annually
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after an initial fixed rate period of
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three five
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seven or ten years lastly we'll also
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link you in the description to a tft
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video from our friend tasha cochran
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where she details the specifics of
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getting a va loan herself which are
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available to veterans
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at the end of the day you'll want to do
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the research to find out the mortgage
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that makes the most sense for you both
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now
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and down the road which brings me to my
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next point number four
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is calculating how much house you can
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afford
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depending on the kind of loan you get
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your mortgage payment will not usually
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be as straightforward as your rent
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payment
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on top of your monthly mortgage payment
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you'll also have to budget for
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property taxes which can be pretty damn
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high in places like new york city
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private mortgage insurance which you'll
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typically need if your down payment was
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less than 20
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and can often cost a few thousand
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dollars a year homeowners insurance
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homeowners association fees etc
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additionally your mortgage rate will
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depend heavily on your credit score
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while fair credit may qualify you for a
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mortgage your best chance of getting the
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lowest possible rate is going to be from
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having a score in the excellent range
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we'll link you in the description to a
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home affordability calculator
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number five is determining how much you
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need to save before closing
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now my previous point was all about the
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cost associated with owning your home on
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the long term
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but we also need to think about how much
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it actually costs you to get into your
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home initially
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when you're a renter your costs of
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getting into your unit are fairly
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limited and straightforward
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often a month of security deposit and
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your actual cost associated with moving
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if you're not handling it yourself
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but if you're a buyer you have much more
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to consider you have your down payment
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which is up to 20
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of your total purchase price depending
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on the type of mortgage you get
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your closing costs which are about two
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to five percent of the loan principal
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and can include application fee
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appraisal fee credit check fee
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origination and or underwriting fees
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title insurance title search fee
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and transfer tax if applicable lastly a
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home emergency fund which we'll get into
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in a later point
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we'll link you to a complete list of
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closing costs in our description
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number six is creating a list of
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must-haves and nice to haves
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unless you have a completely unlimited
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budget in which case why are you
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watching this channel
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no home you buy is going to be
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completely perfect especially not right
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off the bat
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so it's important to make a list where
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you actually understand what is
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absolutely non-negotiable for you
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and what is negotiable but nice to have
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because once you start looking at places
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it's
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very easy to get those two things
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confused and the difference here is
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pretty self-explanatory
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your needs should be things that you
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really absolutely cannot live in the
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home without
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whereas you're nice to haves no matter
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how nice they would be to have
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are things that can ultimately be
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negotiated with being clear about the
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difference between these two things is
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crucial to making sure you're not
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spending up to the absolute
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maximum on the home that you could
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afford which will often leave you
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without any wiggle room in your budget
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or for incidentals which you absolutely
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want to avoid
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no matter how much that broker is trying
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to get you to go up to your limit
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when determining these lists here are a
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few things you'll want to consider
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location where do you want to live is it
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within your price range
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number of bedrooms how many does your
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household need versus how many would be
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nice to have
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does anyone in your home need their room
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to be on the first floor the type of
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home you want
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single family standalone townhouse condo
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etc
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total indoor and outdoor space how much
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do you want well moving slightly further
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from your city
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or town center be worth it if it means
[591]
more space for less money
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distance to public transportation being
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move-in ready i.e no renovations
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imminently needed
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are you willing to put in some work or
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to hire a contractor for a lower
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purchase price
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garage or parking space which is a major
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consideration if you drive but a total
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non-necessity if you don't
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central air conditioning if you live
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somewhere really warm this might be an
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absolute need but if you live in
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northern new england and only really
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turn on the ac for a month out of the
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year
[616]
would window units suffice amenities for
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instance do you absolutely need in-unit
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laundry or even a separate laundry room
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flooring are you okay with wall-to-wall
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carpet or must you absolutely have
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hardwood
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we'll link to a good home checklist to
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get you started in the description
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number seven is having a robust
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emergency fund when you own a home
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there's a lot to consider having
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available in your emergency fund that
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goes beyond your usual three to six
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months of expenses that we've talked
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about many times on this channel
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for example if something in your home
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needs fixing you'll be on the hook to
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pay for it and homeowners insurance
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may not cover it right away or in full
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according to realtor.com
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your cash reserve target should be about
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one to three percent of your home value
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so if your home is worth five hundred
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thousand dollars ellis suggests setting
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aside five thousand to fifteen thousand
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dollars
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and of course each situation is
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different a homeowner with a new home
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with all new systems and appliances
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might not need to tap into a home repair
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emergency fund while fixer-uppers and
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old homes of course will likely require
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that money sooner
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number eight is to shop around for your
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home and your mortgage
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just like you should put an offer on the
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first home you see without checking out
[679]
any other options
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you don't want to necessarily rush head
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first into the first mortgage that is
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offered to you either
[685]
you'll want to apply for mortgages from
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several different lenders to see the
[688]
best rates that you'll be offered
[690]
and don't worry too much about the
[691]
impact on your credit some people worry
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that each time a lender makes a credit
[695]
score inquiry it suppresses a borrower's
[697]
credit rating
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but credit agencies can tell when a
[699]
homeowner is simply making the rounds
[701]
and they recognize that mortgage-related
[703]
queries
[704]
usually result in a single loan
[706]
consequently agencies cut house hunters
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from slack
[708]
and don't allow the multiple queries to
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negatively impact credit scores provided
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that the loan hunting occurs within a
[714]
narrow time period
[715]
for example fico scores disregard
[717]
multiple inquiries when they happen
[719]
within a 45-day window
[720]
and lastly remember that you can
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negotiate
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once lenders provide estimates borrowers
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are entitled to negotiate for better
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terms
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especially if they can make above
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average down payments or if they boast
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excellent credit histories
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this may include asking lenders to shave
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interest rates or reduce certain fees
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lastly number nine is take time to find
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a trusted realtor
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before you start the process of actually
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buying your home you'll want to find a
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realtor whom you trust
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enjoy working with and you feel shares
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your best interests
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testimonials are great especially when
[752]
they come from someone you yourself
[754]
trust
[754]
and according to bankrate look for a
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real estate agent who is a realtor with
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a capital r
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that means they're a member of the
[760]
national association of realtors and
[762]
have formally agreed to abide by the
[764]
group's code of ethics
[765]
some realtors also have certifications
[768]
to show that they've completed training
[769]
in a certain area of real estate
[771]
some designations include a crs or
[773]
certified residential specialist
[775]
someone who completed additional
[776]
training and handling residential real
[778]
estate
[778]
an abr accredited buyer's representative
[781]
completed additional training and
[782]
representing buyers and transactions
[785]
and sres senior real estate specialist
[788]
completed training aimed at helping
[789]
buyers and sellers age 50 and older
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talk to several different realtors
[793]
before you make your decision
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do your research and make sure to review
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your contract carefully before you sign
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anything
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and if you are ready to get the process
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started like i am don't forget to go to
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myfico to get the right score for your
[805]
credit goal
[806]
including fico scores used for mortgages
[808]
so as always guys thank you for watching
[810]
and don't forget to hit the subscribe
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button or to go to thefinancialdiet.com
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for
[814]
more and to come back every monday
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tuesday and thursday for new and awesome
[817]
videos
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goodbye
[829]
you
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