BUYERS: ARE YOU ABLE?
(This is the first of a three part series for homebuyers, outlining the process and steps to take that will result in your successfully buying a home, whether you are a first time homebuyer or a move-up buyer .)
Buying a home has always been an exciting endeavor. The steps to buying a home, however, have always been somewhat confusing to many homebuyers , even those who have already bought a home and are looking to buy a new home.
In my experience in meeting with prospective homebuyers, the conversation generally goes something like this:
Buyer : Oh, you’re a realtor! I’ve been looking for a home!
Me: That’s great! Are you working with a realtor?
Buyer : Not at this time . We’ve just started looking.
Me : That’s good for you to know. Have you been pre-approved for a mortgage?
Buyer : No …
The first thing that all prospective homebuyers should do is to hire a Realtor to help guide you through the process. Hiring a Realtor usually takes place through what is known as a Buyer’s Agency/Broker Agreement. This generally means that the Realtor is legally responsible for 1) helping you to both locate the property that you wish to buy, 2) providing you access to other services which are relevant to the homebuying process, such as mortgage, home inspection, and legal services, and 3) when you are ready to actually purchase a home, negotiating on your behalf and protecting your best interests. It also means that the Realtor that you have hired is the sole contact that you should have when looking for a home, as sellers also have Realtors looking out for the seller’s best interests .
The Realtor that you hire should address three important questions as they guide you through the process of buying a home:
The focus of Part 1 in this series addresses the first question: Are you able to buy a home? This is the first question that needs to be asked because without the ability to buy a home, the other two questions, and indeed, the whole process, becomes an exercise in futility, and an unproductive use of both your time and the Realtor’s time.
So, what does it mean to be able to buy a home?
Being able to buy a home encompasses the following:
- Income/debt ratio
- Credit score
- Amount of money for down payment/closing costs
The price of the home you can afford, and the interest rate that you will pay on the mortgage, are determined by the amount of your debt relative to your income, and your credit score. Your Realtor should provide you with at least three mortgage professionals to choose from, and the one you choose will ask the relevant and appropriate questions to determine whether you are indeed able to buy a home.
If you have been planning to buy a home for some time, and have the cash reserves for a down payment, then your mortgage amount will be less than the actual purchase price of the home. You should also have some reserves for the closing costs associated with buying a home – attorney’s fees, lender’s fees, insurance, appraisal, taxes, etc.
Even if you do not have a lot of money for a down payment or for closing costs does not mean that you are unable to buy a home, if your income and credit qualify you. There are down payment assistance programs available; talk with your lender about your options. Your Realtor can discuss with you the options available for covering your closing costs, should you be unable to cover most or all of the closing costs.
But what happens if you are not able to buy?
There are generally two main reasons why a prospective homebuyer would be considered unable to buy a home – lack of income, and poor credit.
There are many reasons why a person’s income is not enough to qualify to buy a home, at any price range. The thing to do in those cases is to decide if buying a home is really what you want, and if it is, then you must engage in some long-term strategies to improve your income. Taking a second job or improving your skills to qualify for a higher paying job are certainly options to consider. Reducing the amount of debt that you owe is another way to improve your income, because it will show that you have more money available for buying a home.
Credit issues are another matter entirely. The first step to correcting any deficiencies in your credit is to know what is on your credit. Prior to contacting a mortgage professional, you can access your credit report free of charge once a year through annualcreditreport.com .
This service provides access to your credit report from the three major credit reporting agencies – Transunion, Equifax, and Experian. Identifying what issues you have with your report is the first step in correcting them. If the items on your report that are negative are accurate, then you must correct those items. If there are errors, then you have the option of challenging those items on your own. Should you be unsuccessful in getting the credit bureaus to correct the deficiencies, you can contact credit repair and restoration companies to assist you, and there are several available here on ActiveRain and also through my website.
Depending on which mortgage professional you choose, they may also be able to assist you with programs designed to help you correct any deficiencies in your credit report.
Knowing that you are able to buy a home is the first step to complete in the home buying process.