Buying a home is a rite of passage, the American dream, and a signifier of true adulthood. While I am not sure about that last one because there is certainly nothing wrong with renting, as a real estate company we like to think that home ownership has a lot of benefits and if that is your goal this year we’d love to help you achieve it.
Before we start talking the market and houses and neighborhoods we ask every client to think about whether they are ready, because just wanting to buy a home doesn’t mean you are actually ready. This means you are planning to stay in the same area for an extended period, you can handle maintenance, you expect a steady income and can handle the financial responsibility with 2 months reserves in the bank, you aren’t drowning in debt, and you have cash on hand for closing costs and the down payment (even if you have to get creative). If all of these statements aren’t true, stop where you are and let us help you get ready. Here’s how:
- Strengthen your credit score. We have relationships with professionals that can give you personal tips on how to do this, but an easy tip is to simply pay your bills on time. This has the largest impact on your credit score. Additionally, pay down any balances and stop using them before you get a mortgage. It can take up to 6 months for your credit to improve so do this early!
- Save for the downpayment. It may be tempting to make some risky investments to build cash fast, but your best bet is to cut back on regular “luxury” expenses and save that money until you build enough to cover the downpayment. Down payments can range from 3.5 for certain programs to as much as 20%, especially in competitive housing markets.
- Build up your savings. Beyond the down payment, buyers shoulder the lion’s share of the load of closing costs (3% to 4% of the home’s price) compared with sellers (1% to 3%). And while some closing costs must be paid before the home is officially sold (e.g., the home inspection fee when the service is rendered), most are paid at the end when you close on the home and the keys exchange hands. Here is some of what a buyer expects to pay for with average prices in Montgomery County, MD:
- loan origination fee ($1500)
- credit report fee ($21)
- underwriter fee
- appraisal fee ($413)
- home inspection fees ($500)
- title search fees ($750)
- title insurance ($450)
- a survey fee ($515)
- stamp taxes on your home loan
- Shop for a mortgage (Mortgage 101 here)
In summary, buying a home is exciting but there is a lot to think about before you start looking. If it is one of your goals this year, be sure you can check off all the boxes and have all your finances in order before you start.