Steps to Buying a House
Buying a house in Los Angeles County can be one of the most important life milestones for every adult. Owning your own home can give you a sense of security and pride.
Although it’s simple to think, buying your own house can be a little intimidating, especially with unfamiliar terms that come into play like credit scores, home loans, and not to mention how high it’ll cost you after you purchase it.
Every first-time home buyer can get overwhelmed with the new information that comes with buying a house. Our realtors at Shield my Deal will help you purchase your dream home in LA County without the complexity of the entire process.
Buying a House: What Requirements to Take Care of?
Hold off the house hunting for now. Before you dream of owning a house, there are a few things you need to make sure of:
It Is Important to Have a Strong Credit Score?
Your credit score will likely determine if you’re fit to own a house. A credit score can be described as the value that indicates a consumer’s creditworthiness.
One’s credit score is based on several factors, including credit history, number of open accounts, unpaid debt, and repayment history, among others. With a higher score, potential lenders consider the borrower to be more reliable.
Save Money for Down payments and Closing Costs
If you’re a wise adult who wants to have a better living situation, you will want to save as much money as you can. It will be challenging since it is much easier to spend your money in one place than to keep it later but trust us, you will thank the heavens that you did.
It’s best to have an amount in mind. Then from there, start saving a steady amount until you reach that amount.
The ideal amount is 20% or higher to avoid private mortgage insurance (PMI); it is an insurance charge added to your mortgage by the lender to protect them in the case that you cannot pay.
Don’t put down less than 10% if you can, unless you’d be strapped with a high-interest rate and fees to pay. Be prepared to be in debt for a very long time!
Getting Pre-approved for a Mortgage
An application for a pre-approval includes completing a mortgage application and the provision of your Social Security number so that your lender may conduct a hard credit check. In order to get pre-approved for a mortgage, five things are needed—proof of cash and assets, good credit, verification of employment, and any other paperwork the lender may request.
A California Agent Who Excels in Real Estate
You should meet with three listing agents in person before deciding who you should work with. The real estate agent you choose must be reliable and have strong connections within the industry.
Real estate agents can also hold certifications stating that they have completed training in a specific area of real estate. These designations include:
CRS (Certified Residential Specialist): A real estate agent who holds a CRS designation has completed specialized training in handling residential real estate.
ABR (Accredited Buyer’s Representative): Agents holding ABR designations are trained in representing buyers in transactions.
SRES (Seniors Real Estate Specialist): SRES-designated agents have completed additional training geared towards helping sellers and buyers over 50.
Having knowledge and experience are essential, but so is agent skill at guiding you smoothly through the process. It’s necessary to go with an agent you trust and confidence in if things go awry during the transaction.
Once you have begun the process of purchasing a home and see a property you like, you must also be sure some of these things are in place:
Necessary documents to get you through the process smoothly
Understanding the process involved in purchasing a house
During a real estate transaction, there is a lot of information to be transferred, and you want to be sure that you have sufficient knowledge to help you advocate for yourself. Shield my Deal agents can help guide you in this lengthy process, when buying a house in Los Angeles County.
What’s Involved in Residential Home Buying?
You can’t just think of buying a home without thinking of the entire process that comes with it. Home buying will involve mortgages, property taxes, down payment and closing costs, and loans, which you’ll have to learn more about before diving in.
Knowing what to expect beforehand is the best way to prepare. There is a 12-step process that every home buyer has to complete before they can step into their new home.
Step 1: Checking Your Credit Score
Getting your credit report and scores checked soon is an excellent idea if you’re planning to buy a home this year. Depending on this information, lenders decide whether to lend you money and at what interest rate.
A good credit rating will significantly boost the likelihood that you’ll be eligible for a reasonable mortgage interest rate. When deciding whether you qualify for a loan or at what interest rate, lenders look at your credit reports and scores as essential determinants. You may have difficulty getting a loan if your credit report has errors.
Step 2: Saving For Down Payment And Closing Costs
In addition to your down payment fund, you should have at least 2-5% of your home’s price set aside for closing costs.
A closing cost can be expensive, but it includes all the extra fees that will come up when you apply for a mortgage and transfer legal ownership. Additional expenses could consist of attorneys’ fees, escrow fees, loan origination fees, title insurance, property tax, and your first yearly homeowner’s insurance policy. Your appraisal and the costs of your home inspection are sometimes included in the closing costs, too.
Some money can always cover the closing costs from your down payment fund, but you must figure out how reducing the amount of your down payment will affect your mortgage, then weigh the pros and cons. Higher down payments are generally associated with lower interest rates and lower monthly payments.
Step 3: Determining A Price Range You Can Afford
Every person needs to know the price range of what home they can afford. Otherwise, it’ll cause many problems for many sections.
To figure out how much house your budget allows, use the 28%/36% rule. There is a rule stating that you should not spend more than 28% of your monthly gross income on house-related costs and 36% of total debt. In addition to your mortgage and credit cards, there may also be loans such as auto loans and student loans.
Affordability is determined based on the following factors: monthly income, cash reserves for the down payment and closing costs; monthly expense; credit profile.
Monthly Income – When you receive the regular cash flow, such as through your salary or investments, you can establish a budget that relies on that income.
Cash Reserves – The amount of available money to make a down payment and cover closing costs. You can source the funds from your savings and investments.
Debt and Expenses – These are the monthly payment obligations you have, including payments for credit cards, car expenses, student loans, groceries, utilities, and insurance.
Credit Profile – Mortgage lenders will view your credit score and the debt you still owe. This can affect how they view you as a borrower. All of those factors can determine whether you can use those funds and if you qualify for a mortgage.
Step 4: Choosing The Right Mortgage Lender
A quick search on the internet for a suitable mortgage lender is critical. There are many mortgage options you can take into consideration, like your bank, local credit unions, online lenders, and others. Check out the details on each offer, including rates, terms, down payments, insurance requirements, closing costs, and fees of all kinds.
Step 5: Loan Pre-Approval
Mortgage lending can be exciting, nerve-racking, and confusing at the same time. Other lenders may take a few weeks to approve you, while others may pre-approve you within hours. This timeline varies depending on your financial situation and the lender.
A pre-approval is a process of calculating how much you are allowed to borrow to purchase a home. Lenders need to evaluate your income, assets, and credit score to decide what loans you might be eligible for, as well as how much you might be able to borrow and what your interest rate might be.
Step 6: Finding The Best CA Real Estate Agent For You
Understanding how to hire a good real estate agent is crucial, whether you’re buying or selling a home. Your agent will help walk you through the steps and provide answers to any technical, tactical, or financial questions you might have, so you won’t have to waste hours looking for answers on the web. A good realtor will make you fully aware of the ins and outs of the housing market in your area.
Step 7: Organize Your Priorities
You can begin discussing what your ideal home looks like once you have determined how much money you can spend on a home and have found an agent to assist you with the process. This is an ideal time to reflect on:
Location: Where would you prefer to live? What kind of neighborhood are you looking for?
Type: What type of home would you like to have? Are you interested in a single-family house, multi-family house, condominium, townhouse, etc.?
Lot: How big would you like your lot to be? How much would you allot for it?
Size: How much space would you like?
Bedrooms and bathrooms: What are your preferences for bedrooms and bathrooms? Is it necessary for every bedroom to have its own bathroom?
Age and condition: Do you prefer new or older homes? Are you willing to put in the work to reinvent an older one?
Having a clear understanding of what’s important to you requires that you determine what you’re willing to sacrifice.
A real estate agent will provide you with listings after you discuss your needs, but it can also be helpful to search through the listings on your own before this conversation.
Step 8: House Hunting
Buying a home is one of the most stressful experiences for most buyers, but don’t let it scare you off. If you stay focused and keep your eyes on the prize, you will find the house of your dreams!
You might be surprised to learn that most buyers view nine homes in the course of their home search before finding the one they purchase. The process of searching for a house can be overwhelming at times. It is easy to lose focus and fail to think clearly about what kind of house fits your budget and lifestyle. If you’re going house-hunting, keep your price range in mind.
Step 9: Offering A Smart Value
Once you find the right home, ask your agent to run a comparative market analysis on the previous sales comparable to the home you are considering before making your offer. More power you’ll have to negotiate when there is a lack of interest and the house has been sitting on the market for a longer period of time.
Besides the price you wish to offer, you should also speak with your real estate agent about whether contingencies should be included in your offer. As a result of a contingency, a buyer may choose to break the contract without any repercussions if it is not satisfied with a particular condition.
The market value can be represented as a range of prices and can be sold within this range. Further, the seller will not place as much accent on the purchase price as they would if the offer were taken as a sum total of value.
Consider making an offer with multiple components that are likely to be accepted, and maybe even get a smaller loan that carries a lower overall interest rate.
Step 10: Home Inspection
Home inspections are meant to make sure buyers are aware of any defects in the property before closing. Home inspections are crucial because they can be used as contingencies in your contract with the seller. Several contingencies will allow you to rescind a purchase offer free of penalties if a home inspection reveals significant defects. If you can walk away from such a substantial contract, then the home’s potential problems must really be serious.
Step 11: Make Sure The Home Is Appraised
A home appraisal estimates the home’s actual value based on a comprehensive inspection and a comparison between the property’s current market condition and nearby real estate sales.
Before a lender provides a mortgage, they always require an appraisal of the home to protect their investment. The lender won’t sell the property for enough money to cover the loan if the property’s actual market value is less than the sales price and the buyer defaults on the mortgage.
Step 12: Closing Your New Home
Closing agents will ensure that all parties involved are present at closing and that all required documentation is signed. They act as mediators between you and the seller. A closing agent must ensure that all funds (closing fees, escrow payments, etc.) have been appropriately disbursed after documents have been signed.
During closing, you have two primary responsibilities:
Getting legal documents signed: This includes closing disclosures, promissory notes, deeds of trust, and occupancy certificates.
Payment of closing costs: The closing costs may include escrow account fees, appraisal or appraisal fees, title searches, and funds for your mortgage application. Property taxes and insurance premiums are paid using an escrow account.
What Qualifies Someone as a First-time Home Buyer?
In the case of a single person, who has never previously owned a home anywhere in the world, you will be considered a bona-fide first-time home buyer. Also, couples, where neither partner has previously owned a home, should fall into this category.
Would it matter if you owned a business or have owned a business? As long as you have not previously owned a home, you’ll qualify for first-time buyer status. Since you are effectively an owner at this point, it might be confusing. The first-time buyer rules apply only to properties used as homes, so you would be classified as a first-time buyer if you own a store or have owned a restaurant but did not previously own your own home.
How Much Do First-time Home Buyers Usually Get Approved for?
With a conventional loan, some first-time home buyers will typically have to put at least 3% down, or 3.5 percent for an FHA loan. There are specific requirements to meet to qualify for one of those zero-down loans for first-time home buyers.
What Credit Score Does a First-time Home Buyer Need?
A FICO score can be anywhere between 300 to 850. First-time home buyer assistance is typically available to those with a FICO score of at least 640. For a conventional mortgage, you’d probably need credit scores of around 680 or higher.
How Do I Get Pre-approved for a First-time Home Buyer?
A lender checks your credit report and reviews documents to determine if you are eligible for a mortgage loan. Suppose your finances and credit are in order, and you know you are financially prepared to buy a home. In that case, it’s possible to skip the pre-qualification step and move directly to pre-approval.
For first-time home buyers wondering how to get approved, follow these steps:
Knowing your credit score beforehand will help you make informed decisions about loans. It’s best to do this before approaching a lender.
Keep track of your credit history.
Do a calculation to determine your debt-to-income ratio. Your income should be higher than your debt. Otherwise, it’ll be unlikely for you to get approved.
Obtain personal and financial information about your income and accounts.
Consider contacting multiple lenders for your house purchase.
How Much Money Should I Put Down on a House?
The more you put down, the better your chances of being approved for a property, and the less you’ll have to pay in mortgage insurance.
Minimum down payments for home vary depending on the type of mortgage:
You can get an FHA loan with as little as 3.5% down.
VA loans do not require down payments and are generally for current or former military personnel and their eligible surviving spouses.
USDA loans are also free of down payments; USDA loans are available only to home buyers who meet the USDA income limit and other requirements.
Some conventional mortgages require as little as 3% down. Government-sponsored enterprises Fannie Mae and Freddie Mac set the down payment guidelines for conventional loans.
Depending on the lender and the borrower’s credit history, down payments can differ. If your credit score is higher than 580, the minimum for an FHA loan is 3.5%, but with credit scores from 500 to 579, it is only 10%.
What Should You Not Do Before Buying a House?
You’re making your first home-buying mistake if you don’t know what you’re doing. Avoid these errors to keep your stress levels down:
Pay off your loans on time.
You need to be careful to consolidate your debt.
Do not change jobs during the process of buying a new home.
Before taking out a loan, don’t make any sudden financial changes.
It’s not advised to start at another financial institution in the midst of purchasing a home.
When trying to buy a home, don’t buy a car.
You should not purchase furniture or household items on credit.
Never deposit large sums of money into your bank.
Make sure you don’t cover up the truth while applying for a loan
Make sure you do not spend your closing costs.
You should never co-sign on a loan.
After the long process of home buying, you can relax in your newly bought home.
When buying a home in Los Angeles County, we service the areas of: Central LA, East Los Angeles, South Los Angeles and Northeast Los Angeles