If buying a house in 2020 is on your list of New Year’s resolutions, you could be in luck. This is an excellent time to enter the real estate market, with plenty of homes available and interest rates near record lows in many parts of the country. But even in a buyer’s market, it’s important to do some research and preparation before jumping into listings. That’s where the Karlton Govan Lending Team comes in! Let’s take a closer look at how you can increase your chances of being a successful homebuyer in the upcoming year.
Take a look at your income (and your spending!)
As soon as you start thinking about trying to buy a home, you need to assess your current income, assets, and expenditures across the board. This is not only an essential part of establishing a new home budget, but it can also help you obtain a favorable mortgage rate.
Start by sitting down and going through all your banking and credit card statements. If you haven’t already done so, make up a basic budgeting plan that will allow you to see where your money is going each month. Review your current rent or mortgage spending, including insurance, taxes, maintenance, and any homeowners association fees if applicable. How comfortable are you with your outgoing amounts? If you’re spending more than you’d like each month, this is the perfect time to start cutting out unnecessary expenses!
Speaking of income…start saving now for a down payment
Most experts agree that homebuyers should aim to have a 20% down payment saved up before they begin looking for a new house. There are other options, of course. However, lower down payments will typically require private mortgage insurance (PMI) or a similar regular payment. PMI provides a measure of protection for lenders in case you default on your mortgage, so the lower your down payment (and credit score), the more you’ll have to pay for PMI. Ultimately, this can end up taking a bigger percentage of your monthly housing budget.
Sometimes it helps to look at the bigger picture. For example, paying 20% down on a $300,000 home with a 30-year mortgage could save you almost $55K over the life of the loan, when compared to a 5% down payment. Paying less up front may seem like an easier solution, but it could actually cost you more in the long run.
Give your credit score a boost
Your total income, down payment amount, and credit score are the three main factors behind what your loan will actually cost you. It can take several monthly cycles for credit report issues to clear, so it’s never too soon to start boosting your score! Start with copies of your full credit report from Equifax, Experian, and TransUnion. Check each statement for accuracy, and remedy any mistakes you find using the instructions found within the report.
Your next step should be paying down revolving balances as much as possible. Rather than paying off a single account, focus on improving your utilization ratio. This is the percentage you owe divided by the total credit line, and paying on it will typically drive up your credit score more than eliminating one account. Try to aim for a 30% or lower utilization ratio for all of your credit cards.
Additionally, you’ll want to avoid making any major credit purchases and skip opening any new lines of credit. Finding a reputable credit monitoring service to prevent any fraud during the mortgage application process is also a smart move on your part!
Put all the paperwork together
Depending on how organized you tend to be, it may take quite a while to collect all the paperwork necessary to buy a home. In general, mortgage applications require the following:
- Federal and state tax returns for the last two years plus associated W-2 or 1099 forms.
- Complete statements for all bank accounts for the last two months.
- Two months of statements for investment accounts plus quarterly reports from your 401(k).
- A detailed monthly debt schedule, including all loans and credit accounts, issuer, balance due and minimum monthly payment.
- Income statement or letter of employment.
- Additional records such as proof of rent payments, recent divorce decrees, past bankruptcy or foreclosure information, etc.
If you’re self-employed, you should also include profit-and-loss statements and balance sheets to verify your income.
Find a broker you can trust
With a world of information at your fingertips, it can be easy to underestimate the need for an experienced and trustworthy real estate agent who specializes in your area. However, an agent like this will actually be indispensable to you when it comes to ensuring a smooth homebuying process!
Not only will an experienced agent save you time and money, they can also help you make sense of all the data and information you’ll be presented with. It can be difficult to truly understand what housing starts, mortgage rates, and sales trends mean from a layperson’s perspective, but a good agent can explain all of these things and more in an accessible way.
The Karlton Govan Lending Team is based right here in Memphis, so you can always count on us for personalized service, quick decisions, and expertise from agents who know the local market. We can guide you through the ins and outs of the available inventory and market trends, and will advise and champion you through making an offer and the closing process. Our team also has a trusted network of professionals we work with regularly who will help us close your deal smoothly.
Let the Karlton Govan Lending Team get you into your dream home in 2020
There isn’t much time left in the year, and there’s no better time to start preparing if buying a home is on your to-do list for 2020. If you’re not sure where to start and need a little expert advice and guidance, we’re here to help. Contact us today and take the first step towards making your dream home a reality!