4 steps to becoming a homeowner in 2020
February 11, 2020
New Decade! New Home? How about reviving yourself in a new home of your own this year? If you’re a first-time homebuyer, Sage Homes Northwest can guide you through the 4 steps to becoming a homeowner in 2020.
Step #1: Analyze your income and spending. It is extremely important to understand your financial status before you commit to purchase a home. Get a grasp of exactly how much income is coming into your home on a monthly and annual basis, minus the monthly bills and expenses. This insight will allow you to understand exactly how much you’re able to afford and set realistic expectations. Keep in mind, most lenders use a variation of the “28/36 Rule.” The PITI (principal, interest, taxes and insurance) of your mortgage should not exceed 28 percent of your gross monthly income.
Take this homebuying preparation time to also gather financial documents you’ll need for the mortgage pre-approval process, including pay stubs, bank statements, tax returns, and W2s.
Step #2: Get a grip on your credit. Your credit score is a huge part of the homebuying journey. Don’t let that number come as a surprise to you when meeting with a lender. Your credit score helps determine the interest rate and mortgage program you qualify for. The lower your score, the riskier you are in a lender’s eyes. You may end up with higher rate and down payment, as well as additional costs or even disapproved for a mortgage loan.
A credit score in the 700s or above is considered excellent and will most likely get you a loan with the lowest interest rate. A credit score in the 600s and below puts you in the higher-risk category.
You’re entitled to a free copy of your credit report every year. Go to freecreditreport.com to get yours. Make sure there are no errors on your report and fix any that you discover before you start shopping for a home.
Step #3: Secure a down payment plan. A down payment is a percentage of the purchase price of the home. The percentage you have will also impact your loan. A conventional loan requires 20% down payment, but the average is 10%.
Mortgage lenders look at the loan-to-value (LTV) ratio as part of the mortgage approval process. The larger your down payment, the better your LTV will be and the better your interest rates may be. The amount required depends on the type of loan you get and lender requirements. Your down payment helps the bank view you as a more secure borrower, which can help lower your interest rates and other costs.
Look into your monthly budget and create a plan to set aside money for your down payment. If you’re selling your current home to relocate, you can use that money as the down payment for your new home. Gift funds can be used for a down payment, as long as you have a letter from the person giving you the money that says it’s a gift, not a loan.
The more money you can put down, the better. If you can make the necessary sacrifices to save up for your down payment, then you’ll likely be able to manage the other expenses, like property tax, closing costs and your monthly mortgage payment.Step #4: Get educated on the homebuying process. Take some time to educate yourself on the step-by-step process of purchasing a home. Understanding each step—from mortgage pre-approval and making the offer to closing on your new home—will help you navigate through the journey and allow you to be prepared for this big life step.
Increase the ROI
The appreciation on your home delivers a boost to your investment. You can also increase the return on investment by renting out your home or areas of your home. This additional source of income is a nice bonus. A townhome with a live/work space is an ideal rental option. We have several townhomes that include a living space on the lower level, making it easy for a tenant to come and go. Check out our Rainier Townhomes that will soon be available.
As you move toward achieving your new home goals and becoming a homeowner in 2020, remember that a new construction home is covered by a home warranty. Everything is brand new so your home is 100% move-in ready and guaranteed! There are no worries about replacing the roof or water heater or renovating an outdated kitchen or bathroom. Take a look at the new construction townhomes and single-family homes we have coming soon and available right now. Then, contact Sage Homes Northwest to learn how we make the homebuying journey a pleasant trip.